Assessment made on Assessee as HUF is not valid as on that date HUF was not in existence: ITAT [Read Order]

The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) ruled that the assessment made on assessee as HUF is not valid as on that date HUF was not in existence.

The assessee, K.Ramesh Reddy (HUF) did not file any return of income for AY 2002-03. K.Ramesh (Individual) filed return of income for AY 2002-03. In the case of Sri K Ramesh Reddy (Individual) an assessment under section 143(3) of the Income Tax Act was completed on 31.3.2005. During the course of assessment proceedings in the case of K.Ramesh Reddy (Individual), the assessee took stand stating that all the income (other than the rental income derived by him from Renuka Commercial complex which is his separate property) that arose during the previous year relevant to assessment year 2002-03 belonged to his erstwhile joint family dated 25.2.2005 addressed to the then AO.

However the assessee has not filed the Return of income in the status of HUF for the assessment year 2002-03. Since the income chargeable to tax in the hands of the HUF has escaped assessment, the proceedings under section 147 of the Income Tax Act were initiated in the status of HUF by recording the reasons. Notice under section 148 of the Income Tax Act was issued by the then AO, Bangalore on 15.04.2005. However the assessee did not file the Return of income in the status of HUF in response to the said notice.

The coram headed by the Vice President N.V.Vasudevan and Accountant Member B.R.Baskaran clarified that a Hindu undivided family is a taxable entity and is a juristic person. It can only be proceeded against in the manner provided in the Act or under the general principles of the Hindu law after the disruption of the family. The general law does not provide for any machinery to determine the liability of the individual members of the undivided family before disruption. Unfortunately, the machinery provisions ofSection 171and the corresponding provisions in Section 25A are limited in scope to tax only the Hindu undivided family, which has been 'hitherto assessed'. Undoubtedly, after Hindu undivided family had been disrupted and in the view of the fact that assessments were completed after the HUF got disrupted, it must be held, therefore, that the proceedings were irregular and without jurisdiction.

The ITAT allowed the appeal of the Assessee and held that the assessment in the hands of the HUF is liable to be held as invalid and consequently annulled. In view of the above conclusion the other grounds of appeal are not taken up for consideration.

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