1985 (7) TMI 149 - AT - Income Tax

Issues Involved:

1. Validity of the assessment under section 148 of the Income-tax Act.
2. Taxability of the award amounts and interest.
3. Status of the firm as an unregistered firm.
4. Applicability of section 176(3A) of the Income-tax Act.
5. Legality of the order under section 263 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Validity of the assessment under section 148 of the Income-tax Act:

The assessee contended that the assessment under section 148 was arbitrary, capricious, and illegal as no notice under section 148 was served on the assessee or its partners. The department produced a postal acknowledgment showing service of the notice on 22-11-1979. The assessee argued that the notice was served on a wrong person, a partner in another firm. The Tribunal noted that proper service of a notice under section 148 is a condition precedent to the validity of any assessment under section 147. However, the Tribunal refrained from sending the affidavit and related papers for verification, deeming it an exercise in futility due to subsequent findings.

2. Taxability of the award amounts and interest:

The assessee argued that the award amounts were taxable in the years in which the work was executed. The Commissioner (Appeals) rejected this contention, relying on a precedent. The Commissioner (Appeals) accepted the contention that the principal amount and interest were not taxable as income based on the decision in Govinda Choudhury & Sons v. CIT. Both parties agreed that under section 176(3A), the award amounts, if taxable, would be taxable in the year of receipt, not in the assessment year under consideration (1975-76), as the amounts were not received during this year. Consequently, the Tribunal canceled the assessment for the year 1975-76.

3. Status of the firm as an unregistered firm:

The assessee contended that the status taken as an unregistered firm by the ITO was incorrect. The Commissioner (Appeals) rejected this argument, noting that the assessee never filed an application for registration. The Tribunal found this ground infructuous as the assessment itself was canceled.

4. Applicability of section 176(3A) of the Income-tax Act:

The Tribunal agreed with both parties that section 176(3A) applied, meaning the award amounts, if taxable, would be taxable in the year of receipt. Since the amounts were not received in the assessment year 1975-76, the Tribunal canceled the assessment for this year.

5. Legality of the order under section 263 of the Income-tax Act:

The assessee argued that the order under section 263 was illegal as it was passed after the assessee filed an appeal before the AAC. The Tribunal found that the order under section 263 was passed on 26-2-1981, before the AAC disposed of the appeal on 22-7-1981. The Tribunal rejected the assessee's contention, noting that the Commissioner does not lose jurisdiction to act under section 263 merely because an appeal is pending before the AAC. The Tribunal upheld the order under section 263, finding no force in the assessee's grounds.

Conclusion:

The first appeal, the assessee's appeal for the assessment year 1975-76, was allowed, canceling the assessment. The remaining three appeals, two by the department for the assessment years 1975-76 and 1977-78, and one by the assessee for the assessment year 1977-78, were dismissed.

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