COMMISSIONER OF INCOME TAX Vs. ABHOJI RAO PHALKE

JUDGEMENT

(1.) THIS is an application under Section 256(2) of the Income-tax Act, 1961, by the Department for a direction to the Income-tax Appellate Tribunal to state the case and refer the following question law :

(2.) THE respondent-assessee is a Hindu undivided family and the assessment year in question is 1974-75 for the accounting year ending March 31, 1974. For this year, the assessment was completed on a total income of Rs. 23,368 on February 26, 1977, by the Income-tax Officer. In that year, the assessee had sold certain land measuring 9,800 sq. feet for Rs. 66,000 and it claimed that since the land was appurtenant to the residential house and since it has incurred expenditure more than the sale price, the capital gains on the sale of the land was exempt under Section 54 of the Act. THE contention was accepted by the Income-tax Officer. However, on making enquiry, subsequently in respect of the nature of the land sold by the assessee and the legal position in respect of applicability of Section 54, it was found that the land was not appurtenant to the house and Section 54 has no application to a Hindu undivided family. It appears that during audit inspection, a note was appended by the auditor that Section 54 has no application to a Hindu undivided family. Accordingly, a notice under Section 148 read with Section 147(b) was issued to the assessee. In response to this notice, the assessee did not file any fresh return but relied on the return already filed. THE Income-tax Officer held that the land was not appurtenant to the house and Section 54 was not applicable to a Hindu undivided family and, therefore, a reassessment was made. Aggrieved by this order, the assessee preferred an appeal before the Appellate Assistant Commissioner who by his order dated September 16, 1980, held that it was not open to the Income-tax Officer to reopen the question as to whether the land was appurtenant to the house or not as reopening cannot be based on mere reappraisal or reappreciation of the same facts. But (according to the Appellate Assistant Commissioner), it appears that the correct position of law that Section 54 does not apply to a Hindu undivided family was rightly pointed out by the auditor to the Income-tax Officer and this constituted a patent error of law which can justify reopening of the case under Section 147(b). THE assessee preferred an appeal before the Income-tax Tribunal who on July 17, 1982, reversed the findings of the Appellate Assistant Commissioner by holding that though the Appellate Assistant Commissioner referred to the decision in Indian & Eastern Newspaper Society v. CIT, 1979 119 ITR 996 (SC), reopening on the sole ground of audit pointing out a mistake was not justified under Section 147(b). THE Department then filed an application for reference which has been rejected by the Tribunal on February 14, 1983. So the present application has been filed.

(3.) ACCORDINGLY, the application is allowed and the Tribunal is directed to refer the case to this court for its opinion on the question mentioned above. Under the circumstances, there shall be no order as to costs.