1994 (11) TMI 160 - AT - Income Tax

Summary

Issues:
1. Whether the CIT (A) erred in directing the ITO to allow registration to the assessee-firm under section 184(7) of the I.T. Act.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT CALCUTTA-E centered around the issue of registration of an assessee-firm under section 184(7) of the Income Tax Act. The ITO had initially cancelled the registration of the firm for the assessment year 1987-88 on the grounds that the entire profits had not been divided among the partners, which is a prerequisite for registration. However, the CIT (A) overturned this decision, stating that the ITO's order was vague and lacked findings regarding the genuineness of the firm or any material supporting the cancellation of registration. The CIT (A) emphasized that registration could only be cancelled if there was evidence of a lack of genuine partnership or a default under section 144 of the Act, which was not the case here. The CIT (A) directed the ITO to allow registration to the firm, leading to an appeal by the revenue.

The Appellate Tribunal, after hearing arguments from both sides, upheld the CIT (A)'s decision. The Tribunal found various deficiencies in the ITO's order under section 186 of the Act, which was used to cancel the registration. Firstly, the order was deemed vague and did not specify the objections raised by the assessee. Secondly, it was noted that the ITO failed to establish that the firm was non-genuine, a prerequisite for cancellation under section 186. Thirdly, it was highlighted that the cancellation of registration required the previous approval of the IAC/DC, which was not evident in the ITO's order. Fourthly, the Tribunal pointed out that the assessee was not given a reasonable opportunity to be heard against the cancellation of registration, as the ITO's communication did not clearly propose the cancellation. Additionally, it was emphasized that the profits had been divided among the partners in accordance with the profit-sharing ratio, even though certain capital profits were not distributed, which did not violate the conditions for registration.

The Tribunal relied on established legal principles to affirm the registration of the firm. It was noted that for registration, a firm must be genuine and comply with all registration formalities. In this case, the genuineness of the firm was not in question, and all necessary formalities had been met. Therefore, the Tribunal concurred with the CIT (A)'s decision, dismissing the revenue's appeal and upholding the registration of the assessee-firm under section 184(7) of the Income Tax Act.