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TMI Blog1982 (10) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... an order under section 267 of the Act and whether such an order, which has the effect of enhancing the tax, can be passed without first giving to the assessee, a partner of the firm, an opportunity of being heard. 3. The assessee, along with S/Shri C. M. Gupta, Man Mohan Gupta, B. M. Gupta, Anil Gupta, Pankaj Gupta and Ajai Gupta, is a partner in a firm, Auto Sales. The assessment year is 1970-71 and the relevant previous year ended on 31-12-1969. 4. In order to better appreciate the rival contentions of the parties, it would be necessary to narrate the facts in some detail : (1) The assessee filed his return of income for the year under appeal on 17-9-1970 wherein he had shown his share of profit from Auto Sales of Rs. 81,713. Auto Sales had also filed its return of income for the self same year on 17-9-1970 (sic). (2) Prior to framing the assessment in the case of Auto Sales, the ITO framed the assessment in the case of the assessee on 29-1-1973 under section 143(3) of the Act, determining the total income at Rs. 98,123. In doing so, the ITO had taken the assessee's share of Rs. 82,000 from Auto Sales with the remarks subject to the rectification under section 154/155 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incompetent as it was not accompanied by a notice of demand, (ii) the ITO had simply recomputed the total income of the assessee in consequence to the appeal effect given in the case of Auto Sales, and (iii) the appeal was filed beyond the time prescribed. (11) On 6-9-1974, the AAC passed an order on the basis of the aforesaid request made by the ITO in the following manner : "Order under section 267 of the Income-tax Act, 1961 The ITO, Special Circle, Allahabad, has pointed out vide his letter F. No. 4177 dated 8-8-1974 that while deciding the appeal of Auto Sales, P.D. Tandon Road, Allahabad, against the order of the ITO refusing registration, the order under section 267 of the IT Act, 1961 was not passed. As the mistake is apparent from records and since the order under section 267 is an obligatory requirement, I hereby pass the said order as follows : 2. The ITO had in the case of the above-noted assessee refused registration for the assessment year 1970-71. Vide my order dated 30-8-1973 in appeal No. 15/C-11/1973-74 I allowed registration for that year. As the status of Auto Sales for the assessment year 1970-71 will be that of R. F., the ITO is directed to give cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng renewal of registration to Auto Sales. (14) On 31-10-1975, the Tribunal set aside the assessment framed in the case of Auto Sales in the appeal [IT Appeal Nos. 1504 and 1499 (All.) of 1973-74] preferred by both the revenue and as well as Auto Sales against the order of the AAC in the quantum proceedings of the said firm. The Tribunal, however, directed the ITO to reframe the assessment afresh keeping in mind the directions contained in its order. (15) On 11-6-1980, the ITO framed the assessment in the case of Auto Sales as per the directions of the Tribunal in its order dated 31-10-1975. (16) On 17-11-1979, the ITO passed an order captioned 'order under section 143(3)/267' which is the beginning of the present proceedings, whereby he computed the total income of the assessee at Rs. 1,42,950 and worked out the tax payable at Rs. 40,907 in the following manner : "Order under section 143(3)/267 of the Income-tax Act, 1961 The order of the AAC, Central Range, Meerut, in the case of Auto Sales, Allahabad, under section 267 of the IT Act, 1961, dated 6-9-1974 states that 'the ITO had in the case of the above-noted assessee refused registration for the assessment year 1970-71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-3-1981, following the said order of the Tribunal the Commissioner (Appeals) cancelled the order of the ITO as under : "Thus, this matter has been almost concluded by the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal in the case of another partner of the firm. The order passed by the Income-tax Officer is, therefore, considered to be illegal and not in accordance with the provisions of law. In the circumstances the order made by the Income-tax Officer is cancelled." 6. Being aggrieved by the order of the Commissioner (Appeals), the revenue has come up in appeal before the Tribunal. Relying on the consolidated order of the Tribunal in the case of Pankaj Gupta, another partner of Auto Sales, the learned representative for the department submitted that the Commissioner (Appeals) was not justified in cancelling the order of the ITO dated 17-11-1979. Adopting the arguments which were advanced on behalf of the revenue in the case of Pankaj Gupta the learned representative for the department submitted that in giving effect to the directions given by the AAC under section 267, the ITO is not required to give an opportunity of being heard to a partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, if the Bench were of the view that the earlier decision of the Tribunal was not tenable in law, irrespective of the fact that the applications under section 256 stood rejected. According to the learned representative for the department, on the earlier occasion, the Tribunal's attention was not invited to the decision of the Supreme Court in the case of Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC). 9. We have carefully considered the rival submissions of the parties as well as the material placed before us. At the outset, we cannot help observing that if the concerned ITO had framed the assessment in the case of Auto Sales before framing the assessments of its partners and if appropriate steps were concurrently taken in the parallel proceedings of the firm and its partners perhaps, lot of unnecessary litigation could have been avoided. As noted above, the concerned ITO has now framed a fresh assessment in the case of Auto Sales on 11-6-1980 after earlier assessment was set aside by the Tribunal on 31-10-1975. Therefore, in any case, fresh proceedings will have to be taken in the case of the partners with a view to amend/modify their respective assessments. However, since both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the date of the final order passed in the case of the firm. 267. Where as the result of an appeal under section 246, or section 253, any change is made in the assessment of a firm or body of individuals or an association of persons or a new assessment of a firm or a body of individuals or an association of persons is ordered to be made, the Appellate Assistant Commissioner or the Commissioner (Appeals) or the Appellate Tribunal, as the case may be, shall pass an order authorising the Income-tax Officer either to amend the assessment made on any partner of the firm or any member of the body or association or make a fresh assessment on any partner of the firm or on any member of the body or association." 11. On the aforesaid provisions of the Act, two conflicting decisions were taken by the two Benches of the Tribunal in the cases of two other partners of Auto Sales. The first order was passed by the Tribunal in the case of Man Mohan Gupta wherein the Tribunal dismissed the departmental appeal on the ground that the order passed by the ITO was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's share of profit from Auto Sales is concerned. In the original order, the share of profit from Auto Sales was taken at Rs. 82,000 (subject to rectification under section 154/155) wherein in the order under consideration, the ITO has taken it at Rs. 1,30,054. The other figures given in both the orders are more or less the same. The other change in the subsequent order is that the assessee has been allowed certain benefit consequent upon the registration granted to Auto Sales. Therefore, if the two orders, one passed on 29-1-1973 and the other on 17-11-1979 are perused, it is clear that the income of the assessee from Auto Sales had been enhanced at Rs. 1,30,054 from Rs. 82,000. 14. The next question, therefore, is whether an order passed under section 155(1), read with section 154(3), without affording an opportunity of being heard to any partner of the firm would be invalid so as to be deserved to be cancelled. In this connection we may refer to the decision of the Supreme Court in the case of Guduthur Bros. In that case, the Supreme Court has held that such an illegality could be cured by sending the matter back to the concerned authority with a direction to re-decide the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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