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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
All the appeals of the assessees are directed against the respective orders of the Commissioner of Income Tax (Appeals)-13, Chennai. Since common issue arises for consideration in all these appeals, we heard these appeals together and disposing of the same by this common order.
Shri J. Prabhakar, the Ld. representative for the assessees, submitted that the assessees filed returns of income for all the assessment years electronically and the same were processed under Section 143(1) of the Income-tax Act, 1961 (in short 'the Act').
In the course of processing the returns, the Assessing Officer changed the status of the assessees as AOP and levied tax under Section 164(1) of the Act at maximum marginal rate. According to the Ld. representative, Section 143(1) of the Act is only to make prima facie adjustment and not to make any adjustment with regard to debatable issue. According to the Ld. representative, the status of the assessees and levy of tax at maximum marginal rate under Section 164(1) of the Act are debatable issue, therefore, it cannot be a subject matter of proceeding under Section 143(1) of the Act.
In other words, according to the Ld. representative, if the Assessing Officer intends to change the status of the assessees and levy tax at maximum marginal rate under Section 164(1) of the Act, he has to take necessary step to scrutinize the matter after giving opportunity to the assessee by issuing a notice. In the guise of making prima facie adjustment, the status of the assessee and rate of tax cannot be changed at all.
Placing reliance on the judgment of Bombay High Court in W.P.No.2424 of 2016 in Shapoorji Pallonji and Co. Pvt. Ltd. v.
DCIT, a copy of which is filed by the assessees, the Ld. representative for the assessees submitted that in the case before Bombay High Court, when the return was processed under Section 143(1) of the Act, the assessee requested the Assessing Officer for refund. The Assessing Officer informed the assessee that inspite of his efforts to process the return of income, the ITD application was not allowing to process the return for technical reasons. In those circumstances, the Bombay High Court directed the Chief Commissioner of Income Tax to make an attempt to resolve the issue on war-footing to ensure that the computer system runs in accordance with enactment. In this case also, according to the Ld. representative, when the assessees have filed their returns in the status of individual, the same cannot be changed to AOP while processing the return under Section 143(1) of the Act. Therefore, according to the Ld. representative, the CIT(Appeals) is not justified in dismissing the appeal of the assessee.
On the contrary, Shri A.V. Sreekanth, the Ld. Departmental Representative, submitted that the assessee-Trusts are beneficiaries of Suguna Children Family Trust. The source of income for the trust was through the parent trust, the income from house property and interest income from fixed deposit with Suguna Industries. The CIT(Appeals) by placing reliance on the judgment of Apex Court in CWT v. Trustees of H.E.H. Nizam’s family (Remainder Wealth) Trust (108 ITR 555), found that the Revenue had the option to assess the beneficial interest either in the hands of the trustee in a representative capacity or assessee directly in the hands of the beneficiary. In both the cases, what was taxed was the interest of the beneficiary for the trust properties and not the corpus of the trust properties. Therefore, according to the Ld. D.R., the CIT(Appeals) found that there is uncertainty in the trust and vesting of income in the hands of the future beneficiaries, hence, the shares of allocation are treated as indefinite and uncertain, therefore, the income of the Trusts is liable for taxation at maximum marginal rate under Section 164(1) of the Act.
We have considered the rival submissions on either side and perused the relevant material available on record. The assessees admittedly filed their returns of income electronically and the same were processed under Section 143(1) of the Act. The question arises for consideration is when the Assessing Officer processed the returns under Section 143(1) of the Act, whether he can change the status of the assessees and levy tax at maximum marginal rate? We have carefully gone through the provisions of Section 143(1) of the Act. Section 143(1) of the Act enables the Assessing Officer to make prima facie adjustment on the basis of the material available on record. Changing of status is something outside the purview of the prima facie adjustment under Section 143(1) of the Act. Therefore, this Tribunal is of the considered opinion that changing of status of the assessees cannot be made while processing return under Section 143(1) of the Act. Therefore, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, the same are set aside. However, it is made clear that it is open to the Assessing Officer to take up the matter for scrutiny as provided under the provisions of the Income-tax Act.
With the above observation, the appeals of the assessees stand allowed.
Order pronounced on 27th December, 2016 at Chennai.