1984 (9) TMI 6 - HC - Income Tax

Summary

Issues:
1. Correctness of upholding orders of the Appellate Assistant Commissioner and Tribunal regarding annulment of assessment due to lack of registration order.
2. Jurisdiction of Income-tax Officer to assess a firm without passing an order on the application for registration.
3. Applicability of the decision in Kapurchand Shrimal v. CIT [1981] 131 ITR 451 in the present case.
4. Whether the assessment should have been annulled or remanded for reassessment.

Analysis:

Issue 1: The primary issue in this case revolves around the correctness of upholding the orders of the Appellate Assistant Commissioner and the Tribunal regarding the annulment of assessment due to the absence of a registration order. The Appellate Assistant Commissioner held that the assessment orders were illegal as no order refusing registration had been passed by the Income-tax Officer for the relevant assessment years. The Tribunal upheld this decision, leading to the appeal by the assessee.

Issue 2: The crux of the matter lies in the jurisdiction of the Income-tax Officer to assess a firm without passing an order on the application for registration. Section 185 of the Income-tax Act mandates that the assessing officer must inquire into the genuineness of the firm and its constitution as stated in the partnership instrument. Failure to pass an order on the application for registration before making the assessment renders the assessment order without jurisdiction, although the assessment proceeding is not void.

Issue 3: The contention raised by the assessee regarding the applicability of the decision in Kapurchand Shrimal v. CIT [1981] 131 ITR 451 is misplaced. The Supreme Court in that case emphasized that when an assessment is found to be illegal, the proper course of action is to set it aside and direct a fresh assessment in accordance with the law. This principle was upheld in subsequent decisions, indicating that annulment of assessment does not automatically follow a finding of illegality.

Issue 4: The final question is whether the assessment should have been annulled or remanded for reassessment. The Appellate Assistant Commissioner and the Tribunal were within their jurisdiction to direct the Income-tax Officer to reexamine the claim for registration and decide on the merits. The failure to pass a registration order before assessment did not invalidate the entire proceeding, as the Income-tax Officer had the initial jurisdiction to assess the firm.

In conclusion, the court held in favor of the Department and against the assessee, emphasizing that the assessment proceeding, although flawed due to the absence of a registration order, was not void. The decision underscores the importance of following procedural requirements in assessments and the authority of the Income-tax Officer to assess a firm even in the absence of a registration order.