P.G. Srinivasetty and Sons (HUF) vs Income Tax Officer

B.V. Nagarathna, J.—This appeal is filed by the assessee challenging the order dt. 30th Nov., 2004 passed by the Tribunal in ITA No. 1582/Bang/2002 on the following substantial questions of law:

(1) Whether, on the facts and in the circumstances of the case, the findings of the Tribunal that there was no partition of the HUF and HUF continued after 8th Jan., 1987 is sustainable under law?

(2) Whether on the facts and circumstances of the case, the findings of the Tribunal that there was no evidence regarding the total partition of the family is perverse?

The assessee had filed a return of income for the asst. yr. 1987-88 on 11th Sept., 1989 declaring a total income of Rs. 13,875 and it had also stated that the income had been accounted upto 7th Jan., 1987. As there was a total partition of the family on 8th Jan., 1987 by a memorandum executed on 20th Sept., 1987 and that for the subsequent period it had to be accounted in the accounts of the erstwhile members of the HUF. On consideration of the same, a notice was issued to the assessee. The assessee through the Karta of the HUF, was heard in the matter and the AO noted that the assessee had claimed that there was a partition w.e.f. 8th Jan., 1987. However, while recording reasons, the AO stated that there was non-compliance in terms of Section 171 of the Act and hence held that no partition of the HUF was made out by the assessee. Being aggrieved by the said order, the assessee filed an appeal before the CIT(A) and not being successful in the said appeal, the matter was carried before the Tribunal, which also concurred with the original order passed u/s 171 of the Act. Being aggrieved by the said orders, this appeal has been filed.

We have heard the learned Counsel for the appellant-assessee and the learned Counsel for the Department.

It is mainly contended on behalf of the assessee that u/s 171(2) of the IT Act before passing an order, under said section, with regard to the partition of HUF, it is a mandatory requirement that all the members of the HUF must be notified after hearing them, an order must be made under the said section and that in the instant case, the notice has been issued only to the Karta of the family and not other members of the HUF. Hence, on the said short ground the order has to be set aside.

In support of the same, he relied upon a decision of the apex Court in the case of Kapurchand Shrimal Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad, and the learned Counsel submits that the impugned orders require to be set aside in this appeal.

Per contra, learned Counsel for the Department has supported the order passed by the Tribunal and the other authorities.

Having heard the Counsel on both the sides and on perusal of the order dt. 15th Nov., 1990 which is passed u/s 171 of the IT Act, it is apparent that a call memo was issued only to the Karta of the HUF and not to other members of the family whose names were submitted by the assessee along with the questionnaire which was filed in terms of Section 171 of the IT Act. However, the AO was duty-bound to issue notice to the other members of the family and after hearing all concerned persons pass an order under the said section. In the absence of the other members of the family being notified, we are of the view that the mandatory requirement u/s 171(2) has not been complied with. Therefore, the order passed under the said section is illegal and not in accordance with law.

Hence, the said order as well as the subsequent orders passed by the appellate authorities are set aside and the matter is remanded back to the AO with a direction to notify all the members of the original HUF and after hearing them, to pass an order u/s 171 of the Act in accordance with law.

For the aforesaid reasons, the substantial questions of law are answered in favour of the assessee and the appeal is allowed and remanded to the AO in view of the aforesaid observations and directions.