Gaurav Luthara vs. ITO (ITAT Agra)

S. 153(3) Expl 3/ 267: Benefit of extended period of limitation to pass assessment order pursuant to finding/ direction of appellate authority not available if affected party not heard

In the assessment of the trust, the CIT(A) held that the trust was not valid and that its income had to be taxed in the hands of the trustees. The CIT(A), however, did not hear the trustees before issuing the said direction. Pursuant to the said direction, the AO passed an assessment order u/s 267 r.w.s. 251 in the case of the trustee and assessed the income in his hands. The assessee filed an appeal before the Tribunal in which he claimed that as he was not given any opportunity of hearing by the CIT(A) at the stage of holding that the income of the trust was to be taxed in his hands, the assessment order was barred by limitation and not valid. HELD by the Tribunal:

U/s 267, the CIT(A) and Tribunal are empowered, while making a change in the assessment of a body of individuals or an association of persons, to direct the AO to amend/ make a fresh assessment on any member of the body or association. Under Explanation 3 to s. 153(3), the time limit for making an assessment in such a case of finding or direction does not apply provided such other person was given an opportunity of being heard before the said order was passed. The opportunity of hearing to the assessee in whose hands income of the assessee in appeal is to be added is a condition precedent for giving any finding adverse to such assessee vis-à-vis the time limits for completion of his assessment, reassessment or recomputations are concerned. That is the unambiguous scheme of Explanation 3 to s. 153(3). If an appellate authority does not do so, the affected assessee can not be put to any disadvantage as far as the statutory time limits for completion of assessments, reassessment or recomputations. An opportunity to be so given should be a specific opportunity and the affected assessee is required to be put to notice on that issue. A general hearing given to the representative of the trusts in question cannot be equated with such specific opportunity to the affected assessee and the affected assessee being put to notice about the conclusions adversely affecting him. The scheme of the Income Tax Act fiercely guards the rule of finality to income tax proceedings, whether in assessment, reassessment, revisions, rectifications or any other proceedings, and once the time limit for that course of action is over, the finality thereto cannot be disturbed except under the specific provisions of the Act. The only thing which can help the cause of the revenue is thus a specific notice of hearing having been given to the assessee before us, as mandated by Explanation 3 to s. 153(3). It is only when the AO can demonstrate that this assessee was given a specific opportunity of hearing, before the appellate order was passed in the cases of the Trust that the impugned assessment order can be treated as legally valid.