Change of Opinion Not Allowed, Section 54 Deduction to HUF for Property Purchase in Individual’s Name

Mandar Kulkarni Vs ITO (ITAT Ahmedabad)

Section 54 deduction to HUF for property Purchase in the name of Individual: Change of opinion not allowed

The Income Tax Appellate Tribunal (ITAT) Ahmedabad addressed an appeal by the assessee against the CIT(A) order for the Assessment Year 2011-12. The primary contention was the disallowance of a deduction claimed under Section 54 of the Income Tax Act, pertaining to the purchase of a property in the individual capacity of Mandar Kulkarni, a member of the Hindu Undivided Family (HUF).

Case Background: The original return of income for A.Y. 2011-12 was filed by the assessee on 18.07.2011, with total income declared at Rs.2,657/-. The assessment under Section 143(3) was completed on 25.02.2014, disallowing a portion of the exemption claimed under Section 54. The Assessing Officer observed that the property was purchased in the name of Mandar Kulkarni, an individual, not in the name of the HUF, thereby raising doubts about the eligibility for the claimed deduction. The CIT(A) dismissed the assessee’s appeal, leading to further challenge before the ITAT.

Arguments: The assessee contended that the reassessment was merely a change of opinion, as the issue had already been deliberated in the original assessment and appellate proceedings. The Department argued that the property was ancestral HUF property, and therefore, the deduction could only be claimed in the name of the HUF. The ITAT noted that the issue had been previously examined at length and decided upon, rendering the reassessment invalid.

ITAT Decision:

1. The ITAT upheld the assessee’s contention, citing the principle against allowing a change of opinion in reassessment proceedings, as established by the Supreme Court in various judgments.
2. Since the matter had already been adjudicated upon and remained uncontested, reopening the assessment on the same issue was unjustified.
3. Consequently, the ITAT partially allowed the appeal, ruling in favor of the assessee.

The ITAT’s decision underscores the principle against revisiting settled matters and disallows reassessment based solely on a change of opinion.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

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.

2. The assessee has raised the following grounds of appeal :-

“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.

3. The Ld. Commissioner (Appeals) II has erred in not examining validity and maintainability of Notice under Section 148 of the Act issued by the Assessing Officer II as well as Assessment Order dated 23.12.2016 under Section 143(3) read with section 147 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 2011­12 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, 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/-

4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

5. As regards to ground nos.1 to 3, the Ld. AR submitted that the reopening of the assessee’s case is nothing but change of opinion and in fact in the original assessment, the matter was travelled upto CIT(A). The Ld. AR submitted that the assessee has sold residential house and made investment in new residential house within the stipulated time period provided under Section 54 of the Act. The said investment in new residential house was made in the name of Mandar Kulkarni in his personal capacity (individual) as he is Member of HUF. Assessee’s Bank was not approving home loan in the name of HUF on account of certain internal guidelines. Original assessment was completed under Section 143(3) of the Act and the same was challenged before the CIT(A). Oder of the CIT(A) dated 03.08.2015 was not challenged by the assessee as well as by the Department at any point of time. Thus, the Ld. AR submitted that the reopening on the very same issue is not justified as Section 147 cannot be invoked in case of change of opinion. The Ld. AR relied upon the decision of Hon’ble Supreme Court in case of CIT vs. Kelvinator of India Limited, 320 ITR 561 (SC). The Ld AR also relied upon the decision of Hon’ble Gujarat High Court in case of Arun Munshaw HUF vs. ITO, 425 ITR 79(Guj.). The Ld. AR further relied upon the decision of Hon’ble Madrs High Court in case of CIT vs. N. Kannaiyiram, 240 ITR 892.

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).

7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that in the first round of assessment under Section 143(3) of the Act, the very issue of claim of exemption under Section 54 of the Act was taken into account and all the aspects of the said issue was considered at that threshold which was thereafter contested by the CIT(A) and the CIT(A) has also passed order dated 03.08.2015 which remain uncontested. Reopening is on the very same issue and, therefore, this is a clear case of change of opinion which cannot be allowed as per ratio laid down by Hon’ble Supreme Court in case of CIT vs. Kelvinator of India Limited. Therefore, ground nos.1 to 3 of assessee’s appeal are allowed.

8. As regards to without prejudice ground, the same does not require any adjudication at this juncture. Hence, appeal of the assessee is partly allowed

9. In the result, appeal filed by the assessee is partly allowed.

Order pronounced in the open Court on this 31^st January, 2024.