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Issues:
Assessment of an unregistered firm, legality of assessment, assessment of individual partners, double taxation, provisional assessment vs. regular assessment, power of Income Tax Officer (ITO) to assess firm. Analysis: The High Court of Andhra Pradesh addressed a reference made by the Income-tax Appellate Tribunal regarding the assessment of an association of persons, also known as an unregistered firm. The firm consisted of 15 partners, including minors, and had applied for registration under the Income Tax Act. The Income Tax Officer (ITO) rejected the registration and assessed the firm as unregistered, leading to objections from the firm. The Tribunal found that the ITO had already assessed the individual partners' share of income before assessing the firm as unregistered, leading to the cancellation of the unregistered firm assessment as improper and illegal. The Court analyzed the provisions of the Income Tax Act, emphasizing that a firm and its partners are separate assessable entities. Section 23 of the Act provides for regular assessments, distinguishing between assessments of registered firms and unregistered firms. The Court highlighted that assessments made on the partners were regular and final, not provisional, as claimed by the revenue. The ITO's power to assess the firm as unregistered after assessing partners individually was deemed impermissible to avoid double taxation. Referring to a Supreme Court decision, the Court emphasized that once the ITO chooses to assess individual partners, assessing the same income as unregistered firm income is not permissible. The Court rejected the revenue's argument based on a previous unreported decision, stating that the circumstances were different. Ultimately, the Court held that the assessment of the unregistered firm was improper and illegal, as the ITO had already assessed the partners individually, precluding double taxation. The firm was awarded costs for the reference.
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