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Issues: Assessment made in the status of an association of persons when the return of income was filed by the firm, and the assessment made in the status of an association of persons when there was no genuine firm but the return of income had been filed in the status of a firm.
Issue 1: Assessment in the status of an association of persons when the return was filed by the firm The reference under s. 256(1) of the I.T. Act, 1961, involved questions regarding the legality of assessment made in the status of an association of persons when the return of income was filed by a firm. The Tribunal upheld the order of the AAC, confirming the registration of the firm. The Tribunal held that a "firm" and an "association of persons" are distinct entities for assessment purposes, and the assessment cannot be altered without proper notice under s. 143(2). As notice was issued to the firm but not to the association of persons, the assessment in the incorrect status was deemed invalid. The Tribunal correctly quashed the assessment made by the ITO in the status of an association of persons. Issue 2: Assessment in the status of an association of persons when there was no genuine firm The Tribunal's decision granting registration to the firm changed the dynamics of the case, rendering the points regarding assessment in the status of an association of persons when there was no genuine firm as more academic. The order granting registration would apply not only for the initial assessment year but also for subsequent periods. Due to this development, the first question was answered in the negative in favor of the assessee, and the second question did not require an answer. The Department was directed to bear the costs of the reference.
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