TMI Blog1981 (3) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned certificate of registration could not be said to be erroneous on account of distribution of loss by the assessee-firm in a ratio different from the one indicated in the instrument of partnership dated October 25, 1964 ? (iii) Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that in the instant case, there could be no exercise of jurisdiction under section 263 as there was no order by the Income-tax Officer within the meaning of the section ? (iv) Whether, on the facts and circumstances of the case, the Tribunal was not competent to take into consideration the fact of increase in the number of adult partners from 10 to 11, even though the Additional Commissioner had not in fact relied on the said change in holding the Income-tax Officer's order to be erroneous" Subsequently, this court, vide order dated July 19, 1980, in Incometax Cases Nos. 43 and 44 of 1976 (CIT v. Jagadhri Electric Supply Industrial Co.), directed the deletion of the above question No. (i) as framed and further directed the Tribunal to submit a supplementary statement of the case. Consequently, the Tribunal, vide its order dated September 19, 1980, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on December 20, 1970, the firm furnished, under s. 139(4) of the Act, a revised return on September 3, 1970. The firm carried on two activities, one by way of an electricity supply undertaking and the other by way of an engineering works. The first activity came to an end on November 13, 1965, as a result of the sale of the electricity undertaking in favour of the Punjab State Electricity Board. From the said activity, the firm had, as per the assessee's books of account, made a net profit of Rs. 35,337 over and above the statutory reserve of Rs. 29,738 made under s. 57 of the Electricity (Supply) Act, 1948. The engineering works activity, started only in October, 1965, had resulted in a net loss of Rs. 52,487. The sale of this undertaking resulted in receipt of Rs. 13,72,402, and a further claim by way of sale consideration is still pending. The revised return furnished by the assessee was accompanied, inter alia, by a revised profit and loss appropriation account as it stood on March 31, 1966, showing a distribution of the net loss of Rs. 7,842 amongst the eleven partners. Out of them, the said Ghansham Gupta was the one who had become a partner under the law of partnership only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and the order of the Addl. Commissioner, dated October 13, 1972, was set aside. However, in its order, the Tribunal also observed that " in the instant case, with effect from October 25, 1965, there is an obvious change in the constitution of the firm, inasmuch as in place of 10 partners and 4 minors admitted to the benefits (of the partnership), we have With effect from that date 11 partners and three minors admitted to the benefits of the partnership. Thus, the ITO's action, in recording under s. 185(4) of the I.T. Act, a certificate to the effect that the firm has been registered for the assessment year 1966-67, constituted, in our opinion, an obvious error on his part. We find accordingly ". It was, in these circumstances, that both the parties, that is, the assessee and the Revenue, sought references on the questions of law arising out of the said order of the Tribunal, for opinion by this court. As regards question No. 1 (supplementary after the deletion of the original question No. (i), Mr. G. C. Sharma, the learned counsel for the assessee, at the very outset conceded that it be decided in favour of the Revenue and against the assessee. In view of this concession, we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." Section 184(7) of the Act, provides : "Where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year : Provided that (i) there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted; and (ii) the firm furnishes, before the expiry of the time allowed under subsection (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for such subsequent assessment year, a declaration to that effect, in the prescribed form and verified in the prescribed manner, so, however, that where the Income-tax Officer is satisfied that the firm was prevented by sufficient cause from furnishing the declaration within the time so a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal has been impressed by what it considered the Act provided under s. 184(7). According to it, it is not the same thing as the granting of registration as the ITO has not determined the assessee's status as such so as to result in the passing of an order revisable under s. 263 of the Act. In our opinion this approach of the Tribunal is not justified. The ITO has to apply his mind to the question whether the declaration furnished by the assessee is in accordance with the provisions of the Act and the Rules framed thereunder or not, and, after satisfying himself, the necessary order, in the nature of a grant of the certificate, is to be recorded. Even if it may be taken to be a formal order but all the same, it is necessary to record some order, as has been actually done by the ITO in the present case and which has been reproduced above. Such an order, when passed by the ITO, will be in the proceeding under the Act, and would be covered under s. 263(1) of the Act, provided the other conditions are also fulfilled. There is another approach as well. If the order thus passed or the certificate so granted by the ITO is of such nature that, if erroneous, is likely to prejudice the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally permissible, as an (order to be passed under s. 263(1) of the Act, is the exclusive jurisdiction of the Commissioner and his satisfaction is the basis on which he may come to the conclusion that the order passed by the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue. Any other consideration which did not weigh with the Commissioner at the time of the passing of the order under s. 263(2) of the Act, could not be read into the order of the Commissioner so as to be upheld by the Tribunal in an appeal filed on behalf of the assessee. According to the learned counsel, it is particularly so because under s. 253(1)(c) of the Act, it is only the assessee who may file an appeal against the order passed by the Commissioner under s. 263 of the Act and the Revenue is given no such right under the statute to file any such appeal against the order of the Commissioner under s, 263 of the Act in case he comes to the conclusion that the order of the ITO is not erroneous so as to prejudice the interests of the Revenue. It was further contended that the orders passed by the AAC in appeal in assessment proceedings are on a different footing because in those cases, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Income-tax Officer himself proceeds on the basis of section 34(1)(b) of the Indian Income-tax Act, 1922, and not on the basis of section 34(1)(a), in the absence of material on record to show that the Income-tax Officer had formed the requisite belief, recorded his reasons for taking action under section 34(1)(a) and obtained the sanction of the Central Board or the Commissioner, as the case may be, it is not open to the Appellate Tribunal to justify the proceedings taken by the Incometax Officer under section 34(1)(a). The formation of the required belief by the Income-tax Officer before proceedings can be validly initiated under section 34(1)(a) is a condition precedent : the fulfilment of this condition is not a mere formality, it is mandatory, and failure to fulfil that condition would vitiate the entire proceedings. Further, the formation of the required belief is not the only requirement: the officer is further required to record his reasons for taking action under section 34(1)(a) and obtain the sanction of the Central Board or the Commissioner, as the case may be." The authority of Electro House's case [1971] 82 ITR 824 (SC) cited on behalf of the Revenue to poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the same, as provided under s. 253(1)(c) of the Act. In the memorandum of appeal, the assessee is supposed to attack the order of the Commissioner and to challenge the grounds for decision given by him in his order. At the time of the hearing, if the assessee can satisfy the Tribunal that the grounds for decision given in the order by the Commissioner are wrong on facts or are not tenable in law, the Tribunal has no option, but to accept the appeal and to set aside the order of the Commissioner. The Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well. If the Tribunal is allowed to find out the ground available to the Commissioner to pass an order under s. 263(1) of the Act, then it will amount to sharing of the exclusive jurisdiction vested in the Commissioner, which is not warranted under the Act. It is all the more so, because the Revenue has not been given any right of appeal under the Act against an order of the Commissioner under s. 263(1) of the Act. In case he proceeds thereunder after hearing the assessee in pursuance of the notice given by him, then the appeal filed by the assessee u ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
