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TMI Blog1985 (7) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... mar Sharma, Shri Jitendra Kumar Sharma and Shri Krishna Kumar Sharma. They were again all brothers and were to share profits and losses in equal shares. The ITO made the assessment under s. 143(1) of the Act on 19th March, 1979 in the status of a registered firm. He, of course, did not pass any separate order under s. 185 of the Act granting registration to the firm. 4. Subsequently, the ITO re-opened the assessment under cl. (b) of sub-s. (3) of s. 143 of the Act. The re-opening was on his own as he was of the opinion that the assessment was incorrect, inadequate or incomplete in any material respect. He made a fresh assessment on 6th Jan., 1981. 5. In the meantime, the ITO made enquires and found that the stamp papers on which the partnership deed was claimed to the executed on 4th Feb., 1978 had actually been purchased on 4th Sept., 1978. This was found by him by examining the stamp vendors and also their respective sale registers. It was further found by him that the date 4th Feb., 1978 mentioned on the reverse of the stamp papers had been changed to 4th Sept., 1978. According to him, this was deliberately done with a view to show that the partnership deed had been execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough had not allowed registration. The status taken by the ITO was an unregistered firm. According to the ld. counsel for the assessee, this was a contrary position adopted by the ITO. His contention was that according to the decided authorities if there did not exist a genuine firm, then the assessment had to made only in the status of an association of persons. He contended that since the ITO had not chosen to make the assessment in the above status, his order was illegal. 9. The third contention of the ld. counsel for the assessee was that even if it could be taken that the impugned order was purported to have been passed under s. 186(1) of the Act, the ITO had not allowed the assessee a reasonable opportunity of being heard before cancellation of the registration. In this connection, he submitted that the only letter which was written by the ITO was on 8th Aug., 1980. This letter reads as under "M/s. Sharma Hotel, Charbagh, Lucknow. Subject: Claim for registration of the firm under s. 185 of the IT Act—Asst. yr. 1978-79. Please refer to your claim for registration of firm for the asst. yr. 1978-79. You are requested to-comply as under: 1. Please file receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us. In our opinion, there is no merit in the first contention of the ld. Counsel for the assessee. Merely because the ITO has labelled the order as having been passed under s. 185(1)(c) of the Act. It cannot be treated as invalid. It has to be seen what is the subject matter of the order and under what section it can fall. The order will have, therefore, to be treated as having been passed under such a section only. This principle was laid down by the Supreme Court in the case of L. Hazarimal Kuthiala vs. ITO (1961) 41 ITR 2 (SC). It was held by the Court that the exercise of a power would be referable to the jurisdiction, which confer validity upon it and not in a jurisdiction under which it would be nugatory. This principle was earlier laid down by the Bombay High Court in the case of Navinchandra Mafatlal vs. CIT (1955) 27 ITR 245 (Bom). It was held in this case that if an order is made by an ITO and even though he may state that he has not made it under any particular section of the IT Act or even if he may state that he has made it under a particular section, it is for the Court to decide which is the proper section of the law under which such an order should have been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above, it appears to us that there was sufficient material before the Tribunal to hold that the business of M/s. Bose Bros. was carried on by an association of persons and such conclusion of the Tribunal does not appear to us to be perverse." In other words, the Court on the facts of the case came to the conclusion that the business of the assessee could be said to have been carried on by an AOP. The Court did not lay down any absolute principle that once it is held that there is no genuine firm in existence, the assessment must necessarily be made in the status of an AOP. 16. We, however, agree with the contention of the ld. counsel for the assessee that the later was not allowed an opportunity of being heard as contemplated under s. 186(1) of the Act. The letter dt. 8th Aug., 1980 issued by the ITO to the assessee merely requires certain details and information and cannot be treated as an opportunity of hearing before refusal of registration by the ITO. Such an opportunity can be allowed only after the ITO has made up his mind that he intends to cancel the registration and intimates such intention to the assessee also. We do not agree with the submission of the ld. Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ches and radios was invested in the assessee firm. This explanation was not accepted by the ITO. He held that the entire investment represented the assessee's own income from other sources and included it in the total income. 20. The assessee appealed to the AAC. Besides the explanation offered to the ITO, it was further claimed before him that Shri Krishna Kumar was an employee of the firm for two years and was unmarried, that the lodging and fooding was provided by the hotel itself free of cost and that his expense was met by his father and his brothers who were having common kitchen. This claim was rejected by the AAC observing that none of the claims made had been substantiated. After carefully considering the entire aspect of the case, he held that the savings of Shri Krishna Kumar Sharma could be estimated at Rs. 3,000 and the balance of Rs. 4,000 represented the assessee's income from other sources. 21. The above finding of the AAC has been challenged before us. We have heard the parties. In our opinion, there is no flaw in the finding of the AAC. It is difficult to believe that the entire salary of Shri Krishna Kumar Sharma was a saving to him, particularly when he wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of hotel maintenance expenses. The assessee claimed on expenditure of Rs. 6,587 under the above head against Rs. 5,075 claimed in the preceding year. Again observing that the claim lacked vouching and verification, the ITO disallowance Rs. 1,000. In appeal before the AAC, it was claimed that the above expenses were incurred on current repairs and they were verifiable from the books. Again observing that no such specific item had been pointed out by the ITO, the AAC reduced the disallowance to Rs. 500. Here also, the assessee is in appeal before us. We find that in the asst. yr. 1977-78 out of Rs. 5,075 claimed as maintenance expenses, the disallowance was Rs. 750. In the year under appeal, the expenses have gone up by about Rs. 1,500. Considering the reasons advanced by the lower authorities we think the disallowance of Rs. 500. In the year under appeal is quite in order. The disallowance is confirmed. 27. The next claim relates to expenditure of Rs. 1,638 incurred in providing liveries to hotel employees. This claim, though made before the AAC, was not discussed by him. Normally, therefore, we could have sent the matter back to him for consideration. However, we do not think ..... X X X X Extracts X X X X X X X X Extracts X X X X
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