1984 (8) TMI 133 - AT - Income Tax

Summary

Issues Involved:
1. Legality of ex parte assessment under Section 144 of the Income-tax Act, 1961.
2. Computation of total income.
3. Status of the assessee as an unregistered firm.
4. Compliance with principles of natural justice.

Detailed Analysis:

1. Legality of Ex Parte Assessment under Section 144:
The primary issue was whether the ex parte assessment made under Section 144 of the Income-tax Act, 1961, was valid. The Commissioner (Appeals) found that there was no evidence to show that the notice under Section 143(2) was served on the assessee. Consequently, the assessment was set aside with a direction to reframe the assessment after giving the assessee a reasonable opportunity of being heard. The Tribunal upheld this decision, noting that the principles of natural justice were violated as the assessee was not given an opportunity to be heard. The Tribunal cited the Supreme Court's decision in Swadeshi Cotton Mills v. Union of India, which emphasized the flexible nature of the audi alteram partem rule and its application based on the urgency of the situation.

2. Computation of Total Income:
The assessee contested the computation of total income at Rs. 2,15,000. The Commissioner (Appeals) reduced a disallowance made by the ITO from Rs. 10,000 to Rs. 3,000. However, the Commissioner upheld that the compensation amount received by the assessee was rightly considered taxable income. The Tribunal found that since the assessment was set aside in its entirety, the specific findings on these particular issues by the Commissioner (Appeals) would also stand set aside. The ITO was directed to re-examine these aspects during the fresh assessment.

3. Status of the Assessee as an Unregistered Firm:
The Commissioner (Appeals) disapproved of the ITO's action of treating the assessee as an unregistered firm, stating that the procedure in law had not been followed. The Tribunal clarified that the Commissioner did not direct the ITO to start proceedings under Section 186(2) but merely instructed the ITO to process the application and declaration in accordance with the law. The ITO was to dispose of the assessee's request for registration during the fresh assessment.

4. Compliance with Principles of Natural Justice:
The Tribunal emphasized that the principles of natural justice were violated as the assessee was not given an opportunity to be heard before the assessment was made. The Tribunal referred to the Supreme Court's decisions in Maneka Gandhi v. Union of India and Kapurchand Shrimal v. CIT, which held that non-observance of the audi alteram partem rule renders an administrative decision void. The Tribunal concluded that the Commissioner (Appeals) acted correctly by setting aside the assessment and directing a fresh assessment after giving due opportunity of being heard.

Conclusion:
The Tribunal upheld the decision of the Commissioner (Appeals) to set aside the ex parte assessment made under Section 144 and directed a fresh assessment in accordance with the law, ensuring compliance with the principles of natural justice. The Tribunal also clarified that the ITO should process the application for registration in accordance with the law during the fresh assessment. The appeal was treated as allowed in part, with the assessment being set aside in its entirety for re-examination.