1990 (1) TMI 108 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer (ITO) to cancel the continuation of registration.
2. Violation of principles of natural justice.
3. Genuineness of the firm and the validity of Form No. 12.
4. Evidence and expert opinion on the forgery of signatures.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer (ITO) to Cancel the Continuation of Registration:

The primary issue was whether the ITO had the jurisdiction to cancel the continuation of registration of the assessee firm. The ITO issued a show-cause notice to the firm on 14-3-1983, questioning the genuineness of the firm due to alleged forgery of signatures on Form No. 12. However, the approval from the Inspecting Assistant Commissioner (IAC) was obtained on 11-3-1983, before the show-cause notice was issued. The tribunal found that the ITO did not independently form an opinion as required under Section 186(1) of the Income-tax Act, 1961, and merely acted on the directions of the Assistant Director (Investigation). This sequence of actions indicated a lack of lawful jurisdiction, as the ITO did not reach the statutory satisfaction required for such cancellation.

2. Violation of Principles of Natural Justice:

The tribunal noted that the ITO failed to provide a reasonable opportunity of being heard to the assessee before canceling the continuation of registration. The ITO did not grant an adjournment requested by Shri Tilak Raj, one of the partners, citing time constraints. The tribunal emphasized that the principles of natural justice were violated because the ITO did not allow sufficient time for the assessee to present its case, and the approval from the IAC was obtained mechanically without a proper examination of evidence.

3. Genuineness of the Firm and the Validity of Form No. 12:

The ITO's decision to cancel the continuation of registration was based on the alleged forgery of signatures of Shri Sewa Ram on Form No. 12. The tribunal found that the revenue had previously accepted the genuineness of the firm in earlier years and that a mere defect in Form No. 12 would not nullify the firm's genuineness. The tribunal cited the Allahabad High Court judgment in CIT v. Bajaj & Co. [1983] 143 ITR 218, stating that cancellation could only occur if no genuine firm existed during the relevant previous year. The tribunal concluded that there was no finding that the firm was not genuine, except for the defect in Form No. 12.

4. Evidence and Expert Opinion on the Forgery of Signatures:

The tribunal scrutinized the evidence, including the expert opinion from the Government Examiner of Questioned Documents, which suggested that the signatures of Shri Sewa Ram were forged by Shri Tilak Raj. However, the tribunal noted that expert opinion is not conclusive and must be corroborated with other evidence. Shri Sewa Ram's statements were inconsistent, as he had declared shares of profit from the firm in his returns for the assessment years 1974-75 and 1975-76, contrary to his written reply to the ITO. The tribunal found that the ITO did not adequately test this evidence in the presence of both partners, leading to an unjustified cancellation of registration.

Conclusion:

The tribunal concluded that the orders of the ITO and the Appellate Assistant Commissioner were not in accordance with the law. The ITO did not have lawful jurisdiction, violated principles of natural justice, and failed to establish that the firm was not genuine. The tribunal canceled the orders of the authorities below and restored the status quo ante, allowing the appeals of the assessee.