2005 (7) TMI 90 - HC - Income Tax

Grant of registration u/s 185(1)(a) - genuineness of the firm - Cancellation of the order made by the CIT in exercise of the powers u/s 263 - erroneous and prejudicial Order - HELD THAT - As can be seen from the order u/s 185(1)(a) of the Act extracted hereinbefore, the Assessing Officer has taken into consideration the fact that all the requisite formalities as laid down in the Act have been fulfilled by the firm, and it is further found that the firm was genuine. In the circumstances, at the highest, it would amount to taking one view from the material available on record, with which, the CIT does not agree and this by itself, as held by the apex court, cannot constitute a valid reason for exercise of jurisdiction u/s 263 of the Act. Therefore, both on facts and in law, it is not possible to hold that the impugned order of the Tribunal requires any interference. The Tribunal has rightly held that the CIT could not have exercised powers u/s 263 of the Act. In so far as question No.2 is concerned, the same proceeds on an incorrect presumption that the CIT has recorded a satisfaction to the effect that the registration was granted by the Assessing Officer without examining the genuineness of the firm. As already noticed hereinbefore, the Assessing Officer has categorically recorded that the firm was genuine and the Tribunal has found that from the material available on record such finding was rightly arrived at by the Assessing Officer after making proper investigation. In the result, both the questions are answered in the affirmative, i.e., in favour of the assessee and against the Revenue. The Tribunal was justified in cancelling the order made by the CIT u/s 263 of the Act. Reference stands disposed of accordingly with no order as to costs.

Summary

Issues:
1. Validity of canceling the order made by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.
2. Justification of canceling the order when the registration was granted without examining the genuineness of the firm.

Issue 1:
The case involved a partnership firm seeking registration under section 185 of the Income-tax Act for the assessment year 1981-82. The Assessing Officer granted registration to the firm, but the Commissioner of Income-tax found the order erroneous and prejudicial to the Revenue's interests. The Commissioner set aside the order and directed a fresh investigation into the firm's genuineness. The Tribunal later overturned this decision, stating that the Commissioner had misinterpreted the partners' statements and failed to consider the overall evidence. The Tribunal also noted that proper investigation had been conducted before granting registration, as evidenced by a search conducted under section 132 of the Act. The Tribunal concluded that the Commissioner's actions were unjustified, and the original order was valid.

Issue 2:
The second issue revolved around whether the Commissioner of Income-tax had valid grounds to cancel the registration granted by the Assessing Officer without examining the firm's genuineness. The Tribunal found that the Assessing Officer had indeed conducted a proper investigation before granting registration, as supported by the available evidence. The Tribunal emphasized that the Commissioner failed to demonstrate any errors in the original decision or show that the Assessing Officer's view was unsustainable in law. The Tribunal held that the Commissioner's actions lacked justification, and the order to cancel registration was unfounded. The court upheld the Tribunal's decision, ruling in favor of the assessee and against the Revenue, emphasizing that the Commissioner had no valid reason to exercise powers under section 263 of the Act.