1978 (4) TMI 22 - HC - Income Tax

Issues Involved:
1. Competence of the AAC to set aside an ex parte assessment without an application under section 146.
2. Competence of the AAC to set aside the assessment and send the case back to the ITO for fresh assessment.
3. Justification of the Tribunal in converting the AAC's order and calling for a report from the ITO.
4. Justification of the Tribunal in directing that the quantum assessment before the ITO shall continue under section 144.

Issue-wise Detailed Analysis:

1. Competence of the AAC to Set Aside an Ex Parte Assessment:
The first issue concerns whether the AAC can set aside an ex parte assessment on appeal without the assessee filing an application under section 146 of the I.T. Act, 1961, and without the ITO setting aside the ex parte assessment. The court held that under section 246(c), even if the assessee does not follow the procedure under section 146, they can still appeal against the amount of income assessed, tax determined, or the status under which they are assessed. The AAC, under section 251(1)(a), has broad powers to confirm, reduce, enhance, annul, or set aside the assessment and refer the case back to the ITO for a fresh assessment. Thus, the AAC is competent to set aside an ex parte assessment even without an application under section 146.

2. Competence of the AAC to Set Aside the Assessment and Send the Case Back:
The second issue addresses whether the AAC was competent to set aside the assessment and send the case back to the ITO for a fresh assessment in light of the Tribunal's direction for the assessment year 1962-63. The court observed that the AAC's powers under section 251 are not limited by the provisions of section 246. The AAC can direct an inquiry into the status of the assessee and proceed with a fresh assessment. The AAC's decision to remand the case for re-examination of the partition and the constitution of the firm was justified, especially in light of the Tribunal's earlier order for the assessment year 1962-63.

3. Justification of the Tribunal in Converting the AAC's Order:
The third issue involves whether the Tribunal was justified in converting the AAC's order into one retaining the appeal and calling for a report from the ITO on the limited question of whether the business of S. R. Kalani & Co. ceased to be the business of the HUF. The court held that the Tribunal's interference with the AAC's order was unjustified. Section 254(1) allows the Tribunal to pass orders as it thinks fit, but it should only interfere if the AAC's orders are defective. Since the AAC's order was within its jurisdiction and not defective, the Tribunal's modification was unwarranted.

4. Justification of the Tribunal in Directing Quantum Assessment under Section 144:
The fourth issue is a direct consequence of the Tribunal's finding on the third issue. The Tribunal's direction that the quantum assessment before the ITO shall continue under section 144 was unjustified because the Tribunal's interference with the AAC's order was not warranted. The court answered this question in the negative, aligning with its finding on the third issue.

Conclusion:
The court answered questions 1 and 2 in the affirmative, confirming the AAC's competence to set aside the ex parte assessment and remand the case. Questions 3 and 4 were answered in the negative, indicating that the Tribunal's interference with the AAC's order was unjustified. The parties were directed to bear their own costs.

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