2001 (11) TMI 53 - HC - Income Tax

Summary

Issues:
1. Assessment of firm as a registered firm under section 183(b) of the Income-tax Act, 1961.
2. Application of section 155 and section 154 of the Income-tax Act in the case.
3. Validity of rectification under section 155(1)(b) and section 154.
4. Jurisdiction of Assessing Officer to complete assessment of partners in a firm after direction by Commissioner of Income-tax under section 263.

Issue 1: Assessment of firm as a registered firm under section 183(b) of the Income-tax Act, 1961:
The Commissioner of Income-tax directed the firm to be assessed as a registered firm under section 183(b) of the Act. The Assessing Officer completed the assessment as per the Commissioner's direction. The firm's managing partner did not object to the notice issued under section 155 proposing the inclusion of the partner's income in the assessment. The firm appealed, arguing that section 155 did not apply as there was no reduction or enhancement under section 263. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal agreed with the firm's position, leading to further appeal by the Revenue.

Issue 2: Application of section 155 and section 154 of the Income-tax Act in the case:
The key contention was whether section 155 could be invoked when the status of the firm was changed to a registered firm under section 183(b) by the Commissioner of Income-tax under section 263. The Revenue argued that the Assessing Officer was justified in assessing the partner's income as well, while the firm contended that the assessment made under section 263 did not authorize a fresh assessment of the partners. The court held that the Assessing Officer had the jurisdiction to complete the assessment of both the firm and the partners following the Commissioner's direction under section 263.

Issue 3: Validity of rectification under section 155(1)(b) and section 154:
The Tribunal held that rectification under section 155(1)(b) was not permissible and that section 154 could not be applied. The court disagreed, stating that completing the assessment based on the change in the firm's status attracted both sections 155(1)(a) and 155(1)(b). The court emphasized that a variation in assessment pursuant to an order under section 263 constituted deduction or enhancement under section 155.

Issue 4: Jurisdiction of Assessing Officer to complete assessment of partners in a firm after direction by Commissioner of Income-tax under section 263:
The court held that the Assessing Officer had the authority to assess both the firm and the partners following the Commissioner's direction under section 263. The court noted that the partner had agreed to the correct share of income assessment, making it an agreed assessment. The court also highlighted that the appeal filed by the firm was questionable due to the lack of grounds challenging the original assessment.

In conclusion, the court ruled in favor of the Revenue, setting aside the decisions of the Income-tax Appellate Tribunal and the Commissioner of Income-tax (Appeals). The court directed the restoration of the Assessing Officer's order and instructed the parties to bear their respective costs.