1978 (9) TMI 87 - AT - Income Tax

Issues Involved:

1. Jurisdiction of the Income Tax Officer (ITO) to issue notice under Section 148.
2. Validity of the assessment made on the firm M/s Kanji Mal & Sons, Scindia House, New Delhi.
3. The question of succession and continuity of the business.
4. Compliance with procedural requirements under Section 124(4) of the Income Tax Act.
5. Validity of the reassessment proceedings and the notices issued.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income Tax Officer (ITO) to issue notice under Section 148:

The AAC found that the ITO who issued the notice under Section 148 did not have jurisdiction over the dissolved firm, which was located in Chandni Chowk, Delhi. The Tribunal agreed, noting that the ITO had jurisdiction over Scindia House, New Delhi, but not over the dissolved firm whose principal place of business was Chandni Chowk. The Tribunal emphasized that the ITO should have referred the jurisdictional question to the Commissioner under Section 124(4) of the Income Tax Act, which was not done. Consequently, the notice under Section 148 was deemed without jurisdiction and invalid.

2. Validity of the assessment made on the firm M/s Kanji Mal & Sons, Scindia House, New Delhi:

The Tribunal held that the assessment made on M/s Kanji Mal & Sons, Scindia House, New Delhi, was illegal. The original assessment for the assessment year 1947-48 was made on the dissolved firm, M/s Kanji Mal & Sons, Jewellers, Chandni Chowk, Delhi. The reassessment should have been made on the dissolved firm and not on a different entity. The Tribunal concluded that the assessment was made by a wrong ITO on a wrong assessee, violating Section 189 of the Income Tax Act.

3. The question of succession and continuity of the business:

The AAC and the Tribunal both found that there was no continuity or succession of the business from the dissolved firm to the new firm at Scindia House. The Tribunal noted that the business ceased for a week and was restarted by new partners, which did not constitute continuity or succession. The Tribunal cited various legal precedents to support the conclusion that the new firm was not a successor to the dissolved firm and that the business identity and continuity were not preserved.

4. Compliance with procedural requirements under Section 124(4) of the Income Tax Act:

The Tribunal highlighted that the specific objection to the ITO's jurisdiction was raised by the assessee at the earliest opportunity. According to Section 124(4), the ITO was required to refer the matter to the Commissioner for determination of jurisdiction, which was not done. The Tribunal found that the ITO's failure to comply with this procedural requirement rendered the assessment invalid.

5. Validity of the reassessment proceedings and the notices issued:

The Tribunal noted that the reassessment proceedings and the notices issued under Section 148 were invalid due to the lack of jurisdiction. The ITO's actions were not in accordance with the legal provisions, and the assessment made was without jurisdiction and therefore illegal. The Tribunal affirmed the AAC's decision to annul the assessment.

Conclusion:

The Tribunal dismissed the Revenue's appeal and upheld the AAC's decision, concluding that the assessment on M/s Kanji Mal & Sons, Scindia House, New Delhi, was illegal and without jurisdiction. The cross-objection by the assessee was also dismissed as infructuous.

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