1982 (10) TMI 52 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the ITO's order amending the assessment of a partner consequent to granting of registration to a firm.
2. Requirement of an opportunity of being heard before passing an order that enhances the tax liability.

Issue-Wise Detailed Analysis:

1. Validity of the ITO's Order:
The key issue was whether the ITO's order amending the assessment of a partner, following the granting of registration to a firm, is an order under section 154(3) read with section 155(1) of the Income-tax Act, 1961, or under section 267. The Tribunal analyzed the provisions of sections 154, 155, and 267 to determine the appropriate procedure for such amendments.

- Section 154 deals with rectification of mistakes apparent from the record, and section 155(1) allows the ITO to amend the assessment of a partner if there is a change in the firm's income.
- Section 267 mandates that the AAC or Commissioner (Appeals) must pass an order authorizing the ITO to amend the assessment of a partner when there is a change in the firm's assessment due to an appeal.

The Tribunal concluded that section 267 requires the AAC to authorize the ITO to amend the partner's assessment, but the ITO must follow the procedure under section 155(1) read with section 154 for such amendments. Therefore, the ITO's order dated 17-11-1979 was deemed an order under section 155(1) read with section 154, despite being captioned incorrectly.

2. Opportunity of Being Heard:
The Tribunal addressed whether the ITO could enhance the tax liability of the assessee without giving an opportunity of being heard, as required under section 154(3).

- The Tribunal noted that section 154(3) mandates that any amendment enhancing an assessment must be preceded by a notice to the assessee, giving them a reasonable opportunity to be heard.
- In the present case, the ITO increased the assessee's share of profit from Auto Sales from Rs. 82,000 to Rs. 1,30,054 without issuing such a notice, thereby violating the principles of natural justice.

The Tribunal referenced the Supreme Court's decision in Guduthur Bros. v. ITO, which held that such procedural lapses could be rectified by remanding the matter back to the concerned authority to re-decide the issue after providing an opportunity of being heard.

Conclusion:
The Tribunal harmonized the provisions of sections 154, 155, and 267 and concluded that the ITO's order enhancing the assessee's tax liability without giving an opportunity of being heard was procedurally flawed. However, instead of invalidating the order entirely, the Tribunal set aside the order of the Commissioner (Appeals) and remanded the matter back to the ITO to re-compute the assessee's share income from Auto Sales after providing a reasonable opportunity of being heard to the assessee under section 154(3).

Final Judgment:
The appeal was allowed for statistical purposes, and the matter was referred back to the ITO for re-assessment, ensuring compliance with the procedural requirements of section 154(3).