1979 (10) TMI 109 - AT - Income Tax

Issues Involved:
1. Validity and genuineness of the firm's registration.
2. Whether the order of the Income Tax Officer (ITO) was erroneous and prejudicial to the interest of the Revenue.
3. Jurisdiction and procedural propriety of the Commissioner of Income Tax (CIT)'s order.
4. Consideration of evidence and material on record by the CIT.

Issue-wise Detailed Analysis:

1. Validity and Genuineness of the Firm's Registration:
The appellant, a partnership firm, was assessed for the year 1976-77, with the relevant previous year being 1975-76. The firm, consisting of 19 partners, was established on April 1, 1975, with a partnership deed drawn on November 26, 1975. Following the death of one partner on June 6, 1975, a revised partnership deed was executed on July 20, 1975. The firm filed for registration on March 29, 1976. The ITO granted registration under section 185 of the Income Tax Act, 1961, after verifying the distribution of profits and the genuineness of the firm. However, the CIT set aside the ITO's order, questioning the validity of the firm's constitution and the registration process.

2. Whether the Order of the ITO was Erroneous and Prejudicial to the Interest of the Revenue:
The CIT found that the ITO granted registration without proper inquiries into the constitution of M/s. Ramsarandas & Co. The CIT argued that under the Rajasthan Excise Laws, the business could not be carried on by anyone other than the licensee unless transferred with prior approval. The CIT issued a notice under section 263, concluding that the ITO's order was erroneous and prejudicial to the Revenue. The Tribunal, however, found that the ITO had all necessary information, including the partnership deed and certificates from the Excise Department, showing the firm's constitution and the death of a partner. The Tribunal held that the ITO's order was neither erroneous nor prejudicial to the Revenue.

3. Jurisdiction and Procedural Propriety of the CIT's Order:
The Tribunal emphasized that the power under section 263 is quasi-judicial, requiring a speaking order with reasons. The CIT must scrutinize all relevant facts and provide a well-considered finding. The CIT's order was found lacking in this regard, as it did not consider the material on record and the assessee's objections. The Tribunal noted that the CIT received the record on August 20, 1978, and passed the order on August 25, 1978, without considering the assessee's written reply submitted on August 24, 1978. The Tribunal concluded that the CIT's order was procedurally improper and factually incorrect.

4. Consideration of Evidence and Material on Record by the CIT:
The Tribunal found that the CIT overlooked crucial evidence, including letters and certificates from the Excise Department indicating the firm's constitution and the partners' names. The ITO had verified the firm's genuineness, profit distribution, and compliance with the partnership deed. The Tribunal noted that the CIT's reliance on a single certificate dated July 19, 1976, was misplaced, as other documents on record showed the correct constitution of the firm. The Tribunal held that the CIT's order was factually incorrect and legally improper, as it did not consider all relevant material.

Conclusion:
The Tribunal concluded that the firm was validly constituted, fulfilled all legal requirements for registration, and the ITO's order was neither erroneous nor prejudicial to the Revenue. The CIT's order was set aside, and the ITO's order was restored. The appeal succeeded.

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