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2008 (1) TMI 939 - KERALA HIGH COURT

2008 (1) TMI 939 - KERALA HIGH COURT - TMI - I.T.A. No. 327 of 2002 - Dated:- 29-1-2008 - C.N. RAMACHANDRAN NAIR AND T.R. RAMACHANDRAN NAIR, JJ. For Petitioner : Sri. T.M. Sreedharan For Respondent : SRI. P.K.R. Menon(SR.), Sr. Counsel for it ORDER C.N. Ramachandran Nair, J. The appellant, a partnership firm, has filed this appeal under Section 260A of the Income Tax Act challenging the order of the Income Tax Appellate Tribunal confirming denial of status to them as a "firm" in procee .....

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ssessing officer to treat the belated return already filed as one filed against notice issued under Section 148 of the Act. The assessing officer thereafter completed the assessment under Section 147 read with Section 143(3), but assigned the status of firm to the appellant. The Commissioner of Income tax in suo motu revision proceedings initiated under Section 263 of the Act, declared that appellant is not entitled to be assessed in the status of a "firm" and should be assessed as &qu .....

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f the Tribunal for our decision and the said question redrafted by us is given hereunder: Whether, on the facts and in the circumstances of the case, and particularly in view of admitted failure of the appellant to file return under sub-section (1), or (4) or (5) of Section 139, the appellant is entitled to be assessed in the status of a "firm" or has to be assessed in the status of "association of persons" under Section 184(5) of the Income Tax Act? 3. We have heard counsel .....

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unsel specifically referred to mandatory provision of Section 144 which states that the assessing officer on being satisfied by the failure of any of the three conditions referred to therein shall after giving the assessee an opportunity of being heard make an assessment to the best of his judgment. Referring to this provision, counsel contended that in the absence of best judgment assessment under Section 144(1), Section 184(5) of the Act has no application. In this case, since assessment is sp .....

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ssessment in the status as AOP. In order to appreciate the rival contentions, we extract hereunder Section 184(5) prior to the amendment by Finance Act, 2003 which is relevant for decision in this case: 184(5) Notwithstanding anything contained in the foregoing provisions of this section, where, in respect of any assessment year, there is on the part of a firm any such failure as is mentioned in Section 144, the firm shall not be assessed as such for the said assessment year and, thereupon the f .....

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make the return required under sub- section (1) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or (b) fails to comply with all the terms of a notice issued under sub-section (1) of section 142 or fails to comply with a direction issued under sub-section (2A) of that section, or (c) having made a return, fails to comply with all the terms of a notice issued under sub- section (2) of section 143, the Assessing Officer, after .....

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as a return referred to in clause (a) of Section 144(1). So much so, there is failure on the part of the appellant as contemplated under Section 144 and therefore Section 184 (5) is attracted. 4. However, the question to be considered is whether in order to deny the status as Firm and to assess the assessee as AOP under Section 184(5) consequent upon the failure under Section 144(1), the assessment has to be best judgment assessment or not. Counsel for the appellant has relied on the Notes on C .....

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, which pre-supposes that the provision that existed prior to the amendment was irrational. The provision existed prior to amendment disentitles a firm from retaining registration, if there was failure in regard to filing of return or complying with the notice issued by the Officer. However, major violation of evasion of tax leading to income escaping assessment still entitles a firm for retaining registration, if there was technical compliance in filing returns or complying with notices. Probab .....

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oks of accounts by the Department. The Karnataka High Court held that failure to file return can arise only when it was possible for the assessee to file return in time. Therefore the case decided by the Karnataka High Court applies to the facts of that case only and has no application here. 5. Another contention raised by the appellant is that unless there is Section 144 assessment, the assessee cannot be said to have committed a failure referred to in clauses (a) to (c) of the said Section. We .....

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