1981 (12) TMI 36 - HC - Income Tax

Summary

Issues involved:
The judgment involves issues related to the assessment year 1965-66 for a partnership firm, including the validity of assessment proceedings, the legality of assessment under section 147, and the interpretation of section 150(1) and Explanation 3 to section 153.

Validity of Assessment Proceedings:
The case involved a partnership firm, M/s. Gupta Traders, where the Income Tax Officer (ITO) found that the business actually belonged to one partner, Deo Prakash Gupta. The assessment was made on Deo Prakash Gupta individually, including the entire income of the firm in his case. The Appellate Assistant Commissioner (AAC) later cancelled the assessment on the firm due to being beyond the period of limitation.

Legality of Assessment u/s 147:
Subsequently, the ITO initiated proceedings under section 147 and issued a notice under section 148. The assessee contended that the proceedings were time-barred, but the assessment was completed regardless. The AAC dismissed the appeal, leading to further appeal before the Appellate Tribunal.

Interpretation of Section 150(1) and Explanation 3 to Section 153:
The Appellate Tribunal raised questions regarding whether the assessee-firm was given an opportunity of hearing during the appeal filed by Deo Prakash Gupta. The Tribunal held that the assessment under section 148 was not barred by limitation. The High Court analyzed the provisions of section 150(1) and Explanation 3 to section 153, emphasizing the necessity of providing an opportunity of hearing to the firm before including its income in individual assessments.

The High Court concluded that the revenue could not benefit from the provisions of section 150(1) and Explanation 3 to section 153, as the assessee-firm was not given an opportunity of hearing during the appeal proceedings. Additionally, the order passed by the AAC did not provide a clear direction on how the income excluded from Deo Prakash Gupta's assessment should be dealt with in the firm's case. As a result, the court answered question No. 3 in favor of the assessee, highlighting the importance of procedural fairness in assessment proceedings.