MANDAR KULKURNI, HUF,VADODARA vs. INCOME TAX OFFICER,WARD-1(2)(3), VADODARA

This appeal is filed by the assessee against order dated 21.06.2023 passed by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2011-12.

“1. The Assessment Order dated 23.12.2016 under Section 143(3) read with Section 147 for A.Y. 2011-12 passed by Assessing Officer II is bad in law, void ab initio & deserve to be quashed.

2. The learned Commissioner (Appeals) II erred in confirming action of Assessing Officer II for reopening the assessment under Section 148 on the ground of escapement of income when the subject matter is a matter which was fully disclosed in return of income filed and partly allowed in the original assessment order dated 25.02.2014 passed by Assessing Officer I and further relief for the said matter granted by Commissioner (Appeals) I.

Assessment Year: 2011-12 Page 2 of 5 passed by said Officer particularly when the matter/issue for which subject proceeding under Section 147/148 of the Act initiated were in principal already examined & accepted in original assessment order dated 17.02.2014 passed by Assessing Officer I & by Commissioner (Appeals) I in appeal proceeding against original assessment order dated 17.02.2014.

Without prejudice to Ground No.1 to 4 above, learned Commissioner (Appeals) II ought to have appreciated that appellant is entitled for deduction under Section 54 of the Act for investment in new residential house made by Mr. Mandar Kulkarni being member of HUF in his personal capacity and ought not to have confirmed the disallowance of deduction of Rs.28,76,181/- under Section 54 of the Act made in assessment order dated 23.12.2016 passed under Section 143(3) read with Section 147 by Assessing Officer II.”

3. The assessee filed its original return of income for Assessment Year 2011- 12 on 18.07.2011 declaring total income at Rs.2,657/-. The assessment under Section 143(3) of the Income Tax Act, 1961 was completed on 25.02.2014 determining the assessed income at Rs.10,67,818/- disallowing the assessee’s claim of exemption under Section 54 of the Act on the issue of non-depositing of unutilised fund to the extent of Rs.10,65,161/-. During the appellate proceedings, the CIT(A) restricted the disallowance to the extent of Rs.2,75,161/-. The Assessing Officer observed that the assessee has sold its ancestral property at Satara with agricultural land on 23..11.2010 and the capital gain arising for the assessee, HUF, was reported in the original return of income at Rs.28,76,181/-. The assessee had acclaimed deduction under Section 54 of the Act in view of the investment of sale proceeds in the new house property. However, the assessee, HUF, had purchased new house property in the individual capacity i.e. Mandar Kulkarni. Therefore, the Assessing Officer has reason to believe that the assessee, HUF, had not fulfilled a vital condition for the purchase of new property to be eligible for claiming deduction under Section 54 of the Act i.e. the new property should have been purchased and registered in the name of assessee, HUF, and not in the name or individual. The deduction claimed in the hands of the assessee, Mandar Kulkarni, HUF, was found irregular and, therefore, the Assessing Officer issued show cause notice to the assessee. There was reason to believe that income to the extent of Rs18,11,020/- had escaped assessment within the meaning of Explanation 2(c) to Section 147 of the Act. Accordingly,

Assessment Year: 2011-12 Page 3 of 5 notice under Section 148 of the Act was issued on 30.03.2016 and was served upon the assessee. In response to the same, the assessee submitted the submissions dated 09.04.2016 requesting therein to treat its original return of income filed on 18.07.2011 to be considered as return of income filed against notice under Section 148 of the Act. The copy of reasons record for reopening the case was supplied to the assessee. In response, the assessee filed its objection to the reopening as well as with regard to the jurisdiction over its case. The Assessing Officer disposed of the objections. The assessee also filed its response on merit and after considering the same, the Assessing Officer made disallowance under Section 54 of the Act as claimed by the the assessee in respect of exemption of Long Term Capital Gain to the tune of Rs.18,11,020/-

Assessment Year: 2011-12 Page 4 of 5 6. The Ld. DR submitted that the Assessing officer has rightly invoked Section 147 of the Act as the HUF has not purchased the property and deduction the deduction cannot be claimed by HUF when the name of property is that of individual and not in the name of HUF. The Ld. DR further submitted that the amount has to be utilised in the name of HUF only. The Property sold was that of ancestral property of HUF. Owner is not HUF and, therefore, claim of exemption under Section 54 of the Act was not justifiable and the same should have been taken into account by the earlier assessment proceedings carried out under Section 143(3) of the Act,. Thus, the reopening was totally valid. The Ld. DR relied upon the Assessment Order and the order of the CIT(A).