1983 (4) TMI 82 - AT - Income Tax

Summary

Issues:
1. Validity of order under section 263(1) of the IT Act, 1961.
2. Compliance with legal formalities for firm registration.
3. Consideration of audit objection based on legal judgment.
4. Jurisdiction of the CIT to set aside original order.
5. Interpretation of section 263(1) regarding prejudice to revenue.
6. Authority of the CIT to call for and examine records.

Analysis:

1. The appeal was filed against an order under section 263(1) of the IT Act, 1961, made by the CIT for the assessment year 1977-78. The CIT set aside the original order granting registration to the firm after considering an audit objection based on a legal judgment.

2. The firm had filed the necessary form and partnership deed for registration, which was granted by the ITO. However, the CIT proposed action under section 263 due to the audit objection, leading to a notice issued to the assessee to show cause. The CIT ultimately set aside the original order and directed the ITO to pass a fresh order after hearing the assessee.

3. The assessee's counsel argued that the CIT's order lacked justification and should be set aside, relying on a similar case decided by the Tribunal. The counsel emphasized that the audit report and legal judgments should not form part of the record for CIT's review under section 263(1).

4. The revenue opposed the submissions, contending that the CIT had the authority to propose action under section 263 based on the Calcutta High Court judgment. The revenue argued that the ITO's failure to make inquiries initially rendered the order erroneous and prejudicial to revenue, justifying the CIT's intervention.

5. In response, the assessee's counsel highlighted that the CIT's reliance on statutes outside the IT Act was not permissible under section 263(1). The counsel argued that the CIT's order was void ab initio due to exceeding jurisdiction in considering records beyond those integral to the IT Act proceedings.

6. The Tribunal carefully considered the arguments and found that the facts were similar to a previous case, leading to the conclusion that the CIT's order lacked jurisdiction. The Tribunal canceled the CIT's order and reinstated the original order made by the ITO, emphasizing the lack of justification for departing from their previous decision.

7. Ultimately, the appeal was allowed in favor of the assessee, with the Tribunal holding that the CIT's order under section 263(1) was without jurisdiction, and the original order granting registration to the firm was restored.