Income Tax Appellate Tribunal - Chandigarh
Tilak Raj Sewa Ram vs Income-Tax Officer. on 29 January, 1992
Equivalent citations: [1990]33ITD195(CHD)
ORDER
1. These appeals by the assessee firm are directed against two order made by the Appellate Assistant Commissioner dated 27-2-1986 relating to assessment years 1974-75 and 1975-76.
2. The rival parties have been heard and their submissions considered very carefully along with the perusal of the evidence on record. In order to appreciate the grievance of the assessee, a took at the factual backdrop of the case which is as under is essential.
3. This firm constituted by two partners, namely, S/Shri Tilak Raj s/o Shri Lakhmi Dass as party of the first part and Sewa Ram s/o Shri Lakhmi Dass, referred to as the part of the second party, apparently being brothers as evidenced by instrument dated 20th December, 1955, filed by the revenue before me. The business of rice back, flour mills at Kaithal, District Karnal, commenced from 20th April, 1955. It is common ground that the firm had been granted registration by considering it as a genuinely constituted firm. It was also allowed continuation of registration for the assessment years 1974-75 and 1975-76 respectively on 4-9-1974 and 11-8-1975 which are the dates of completion of respective regular assessments. The Income-tax Officer, Kaithal, made an order under section 186(1) of the Income-tax Act, 1961 for the assessment year 1974-75 on 23-3-1983 cancelling the continuation of registration allowed earlier on the ground that signatures of Shri Sewa Ram had been forged by the other partner Shri Tilak Raj on form No. 12 as was apparent from the report of the Government Examiner of Questioned Documents at Shimla and that Sewa Ram partner confirmed that he did not receive any profit from the assessee firm for that year. According to him, this was done after affording opportunity of being heard to both the partners under his office letter dated 14-3-1983 fixing the date of hearing on 21-3-1983. He has recorded in his order that Shri Seva Ram did not appear before him but Shri Tilak Raj appeared and asked for adjournment to 2-4-1983 but the Income-tax Officer recorded his inability as the limitation would strike the proceedings on 31-3-1983. In this order, he has recorded that previous approval of the Inspecting Asstt. Commissioner of Income-tax, Ambala Range, Ambala, had been received under letter dated 11-3-1983.
4. For the assessment year 1975-76, he cancelled the continuation of registration allowed earlier in the manner described supra and also recorded that this was also done with the previous approval of the Inspecting Assistant Commissioner of Income-tax, Ambala Range, Ambala by letter date 11-3-1983.
5. These order were challenged in appeal before the Appellate Assistant Commissioner of Income-tax, Ambala Range, Ambala. In the grounds of appeal filed before the Appellate Assistant Commissioner by Shri Tilak Raj, it was inter alia, projected that the Income-tax Officers orders cancelling continuation of registration were vitiated due to abdication of his powers under the act, that the Income-tax Officer violated the principles of natural justice in his refusal to allow any time to the appellant firm to prove the genuineness of signatures of Shri Sewa Ram and that on the facts and circumstances of the case and without and prejudice for the sake of argument and without admission, even if the signatures of one of the partners were not correctly made, it did not affect the genuineness of the firm and the action of the Income-tax Officer was bad in law. Similar grounds were taken for the assessment year 1975-76.
6. The Appellate Assistant Commissioner made a speaking order first for the assessment year 1974-75 and after recording the background on the basis of which continuation of registration was cancelled by the Income-tax Officer for these two years, incorporated in his impugned order the grounds of appeal taken by Shri Tilak Raj and Shri Sewa Ram separately. Thereafter, he recorded the submissions of the Counsels of the assessee. Before the Appellate Assistant Commissioner, the Income-tax Officer was also present. The Appellate Assistant Commissioner repeated the factual narration; noting that the Income-tax Officer had taken approval of the Inspecting Assistant Commissioner and upheld the orders cancelling continuation of registration. In his order for the assessment year 1975-76, he referred to his own order for the assessment year 1974-75 and confirmed the order made by the Income-tax Officer under section 186 (1) of the Income-tax Act, 1961.
Hence the present proceedings here.
7. The learned Counsel for the assessee submitted that it was a case of cancellation of continuation of registration as distinct from a case of refusal of continuation of registration. He further contended that the Income-tax Officer lacked jurisdiction to made the impugned orders because he issued letter dated 14-3-1983 to Shri Tilak Raj to show cause why continuation of registration allowed to the firm should not be cancelled as there was no genuine firm in existence as registered because form No. 12 filed, "in this case was not genuine", that Shri Sewa Ram had in a written reply averred that no profit was received by him from the firm and that his signatures on form No. 12 were forged by Shri Tilak Raj Partner. This notice was for the assessment years 1974-75 to 1977-78. There is no evidence on record as to the date of services of this notice of Shri Tilak Raj. The order made by the Income-tax Officer cancelling continuation of registration mentions that for doing so, the Income-tax Officer obtained the previous approval of the Inspecting Assistant Commissioner of Income-tax, Ambala Range, Ambala. This approval was received on 11-3-1983. In other words, the approval for cancellation of continuation of registration was given by the Inspecting Assistant Commissioner prior to the issue of notice to Shri Tilak Raj. Since the approval was given before the show-cause notice and no effective opportunity of being heard was provided to Tilak Raj, the Income-tax Officer did not have lawful jurisdiction to made the impugned orders. These are bad in law. The revenue had accepted the genuineness of the firm in the earlier years and the mere fact of a defect in from No. 12 would not nullify the genuineness of the firm in existence and the continuation of registration could be cancelled only if during the relevant previous year no genuine firm was in existence. Except for the defect in form No. 12, there is no finding whatsoever that the firm was not genuine. Therefore, cancellation of continuation of registration was bad in law in terms of the ratio of the Allahabad High Court judgment in the case of CIT v. Bajaj & Co. [1983] 143 ITR 218.
8. It was contended that the impugned orders made by the Income-tax Officer were bad in law as made in violation of principles of natural justice and without any justification therefore by contravening the provisions of law in obtaining the approval of the Inspecting Assistant Commissioner before issuing show-cause notice and as such these orders, were liable to be quashed without affording any further opportunity to the Income-tax Officer in terms of the judgment of the Calcutta High Court in the case of CIT v. Hindustan Sanitary Ware & Industries Ltd. [1989] 180 ITR 21. It was submitted that previous approval of the Inspecting Assistant Commissioner was not an idle formality and the absence of approval after opportunity to Shri Tilak Raj strikes at the very root of the order. The orders were wrongly confirmed by the Appellate Assistant Commissioner. The orders of the authorities below, it was submitted, may be cancelled.
9. Before concluding, the learned Counsel for the assessee submitted that too much has been made of the Examiners report without affording opportunity for its rebutal and of the statement of Shri Sewa Ram because there is evidence on record in abundance to show that Shri Sewa Ram was making false statements as is evident from the fact that for the assessment year 1974-75 in his return filed before the Income-tax Officer, duly verified and signed by him, he had shown share of profit from this firm at Rs. 3,560. Similarly, for the assessment year 1975-76, he had shown share of profit from the firm at Rs. 3,960. The revenue in it approach to the problem has clearly ignored the sacred verification made by Shri Sewa Ram and has blown his statement out of proportion to cancel the continuation of registration.
10. The revenue, on the other hand, emphasised that the orders of the two authorities below were speaking orders though there was no evidence of affording of opportunity to Shri Tilak Raj other than the letter dated 14-3-1983 addressed to him and that obtaining the approval of the Inspecting Assistant Commissioner before issuing show-cause notice was in order and no fresh approval was necessary. It was contended that no case has been made out by the assessee for an interference in the impugned orders of the Appellate Assistant Commissioner and the appeals of the assessee be dismissed.
11. Now when we come to the appreciation of evidence along with the provisions of law, it appears the approach of the authorities below has been not one which accords with the provisions enshrined in the statute book. Section 186(1) provides that, if, where a firm has been registered, or its registration has effect under sub-section (7) of section 184 for an assessment year, the Income-tax Officer is of opinion that there was during the previous year no genuine firm in existence as registered, he may, after giving, the firm reasonable opportunity of being heard and with the previous approval of the Inspecting Assistant Commissioner, cancel the registration of the firm for that assessment year. The powers vested in the Income-tax Officer can be exercised within a period of 8 years from the end of the assessment year in respect of which registration has been granted or has effect. Keeping these provisions in view, if the action of the Income-tax Officer is examined, along with the ground taken up by the assessee that he abdicated his powers under the Act and the evidence on record, it cannot be said that the ground taken by the assessee that he abdicated his powers under the Act and the evidence on record, it cannot be said that the ground taken by the assessee is de void of substance. A perusal of the letter dated 22-11-1982 bearing No. 1850 addressed by the Income-tax Officer, Kaithal to the Inspecting Assistant Commissioner of Income-tax, Ambala Range, Ambala, regarding cancellation of registration u/s 186(1) indicate that the Income-tax Officer had allowed continuation of registration to the assessee firm for the assessment years 1973-74 to 1977-78 but vide D. O. letter no. 513/46/80-81/ADI dated 9-11-1981 of the Assistant Director (Investigation) addressed to the Income-tax Officer, copy of which had been endorsed to the Inspecting Assistant Commissioner, "it was desired that the continuation of registration for these years should be cancelled". The mind of the Income-tax Officer in this letter does not apparently accept the directions because he has projected to the Inspecting Assistant Commissioner that tax effect will be nil except for the Assessment year 1974-75 where increase in tax to the extent of Rs. 38 has been indicated if the status of the firm is taken as unregistered. He has not sought an approval for cancellation of registration but has written that he may, "kindly be advised as to whether registration should be cancelled or not". It is thus evident that the Income-tax Office did not reach statutory satisfaction which is enjoined upon him u/s 186(1) that during the previous year relevant to each of the assessment years under appeal, no genuine firm was in existence as registered.
12. It appears that to the letter No. 1850 dated 22-11-1982, there was no response from the Inspecting Assistant Commissioner, Ambala Range, Ambala and the Income-tax Officer wrote a polite reminder on 9-3-1983 bearing No. 2701. In this it was pointed out that there were two partners in the assessee firm as per records and one of them Shri Sewa Ram has intimated that he did not receive any profit from M/s. Tilak Raj Sewa Ram, Kaithal, for the assessment years 1973-74 to 1977-78. Here again the Income-tax Officer seeks instructions because the action for the assessment year 1974-75, "is getting time barred".
13. By letter No. JB/82-83/7198 dated 11-3-1983, the Inspecting Assistant Commissioner, Ambala Range, Ambala, wrote to the Income-tax Officer according approval to cancel the registration u/s 186(1) of the Act for the assessment years 1974-75 to 1977-78.
14. The Income-tax Officer wrote to Shri Tilak Raj/Sewa Ram partners of M/s. Tilak Raj Sewa Ram on 14-3-1982 a letter in which it was projected that declaration filed in form No. 12 for continuation of registration for the assessment years 1974-75 to 1977-78 were not signed by Shri Sewa Ram partner, that his signatures were forged by Shri Tilak Raj partner, that as per written reply filed by Shri Sewa Ram, no profit was received by him from the firm M/s. Tilak Raj Sewa Ram for these years and that cause must be shown why continuation of registration allowed to the firm should not be cancelled because there was no genuine firm in existence as registered as form No. 12 filed was not genuine. The case was fixed for hearing on 21-3-1983. According to the Income-tax Officer, Shri Sewa Ram did not make any reply to this letter. However, Shri Tilak Raj appeared before him and requested for adjournment to 2-4-1983. Thereafter the Officer records in his impugned order dated 23-3-1983 that, "since the matter is to get barred by time on 31-3-1983, it was not possible for him to adjourn the case". Thereafter the Officer observes that Shri Tilak Raj could have requested in advance for time if he so required, because, the notice was served on him on 14-3-1983. He, therefore, proceeded to cancel the continuation of registration.
15. It is clear from the narration of facts above that neither the Income-tax Officer formed an opinion independently on his own judicial satisfaction enshrined in section 186(1) of the Act because it was desired of him by the Assistant Director (Investigation) to cancel continuation of registration nor did he afford reasonable opportunity of being heard to the assessee to offer its defence against the allegation that the form No. 12 filed for continuation of registration was not signed by Shri Sewa Ram. Thus, despite the fact that Shri Tilak Raj asked for time and it was not granted, it was not Tilak Raj who was responsible for taking these proceedings to the last quarter of the month of March in the year 1983 yet the Income-tax Officer made a grievance on his asking for time and made the type of observations reproduced supra. Not only this, section 186 (1) requires that after arriving at a satisfaction for cancellation of registration of the firm, the Income-tax Officer should not only give a reasonable opportunity of being heard to the firm but should do so with the previous approval of the Inspecting Assistant Commissioner. The sequence of the legislative mandate contained in this sub-section shows that the Income-tax Officer has to offer reasonable opportunity of being heard, arrive at a satisfaction and then obtain the approval of the Inspecting Assistant Commissioner for cancellation of registration. In this case, however, as is evident from the reference to latters that passed between the Income-tax Officer and the Inspecting Assistant Commissioner of Income-tax, Ambala Range, Ambala, approval for cancellation of registration was granted by the Inspecting Assistant Commissioner vide letter dated 11-3-1983 whereas the Income-tax Officer issued to the assessee a notice to show cause why registration need not be cancelled vide his letter dated 14-3-1983. On other words, the Inspecting Assistant Commissioners approval was mechanical and without examination of the evidence on which the Income-tax Officer had to arrive at a judicial satisfaction that it was necessary to do so as envisaged in section 186(1) of the Act. The entire proceedings were, therefore, not in accordance with law.
16. It is also to be noted that law provides cancellation of registration u/s 186(1) and the Income-tax Officer has to form an opinion that there is no genuine firm in existence to which registration has been granted. The Income-tax Officer did arrive at this conclusion but on the slander evidence that Sewa Ram said so and the signatures on form No. 12 purported to be that of Sewa Ram were not his. Sewa Ram apparently was not telling the while truth to the Income-tax Officer. The Income-tax Officer in his letter dated 14-3-1983 mentioned supra, inter alia, pointed out that as per written reply filed by Shri Sewa Ram, no profit was received by him from the firm M/s. Tilak Raj Sewa Ram for the assessment years 1974-75 to 1977-78. But see the conduct of this man Sewa Ram that in the return filed for the assessment year 1974-75, in the column profits and gains of business or profession, he has shown share of profit at Rs. 3,560 which is the share from the firm whose registration was under cancellation. Similarly for the assessment year 1975-76, he declared share of profit of Rs. 3,960. These are the returns requiring verification on solemn declaration that to the best of the knowledge and belief of the persons making the returns, the information given in the return and annexure and statements accompanying it is correct and complete. If he did write a letter to the Income-tax Officer, that should not have been taken as nullifying this solemn declaration by him. His evidence should have been put to test in the presence of the other partner with whom apparently he had fallen apart. This was not done by the Income-tax Officer.
17. It is now well settled that evidence in the form of an opinion of an expert of questioned documents may be taken into consideration but is not conclusive so as to do anything solely relying on that evidence not even allowing opportunity of its rebutal by the parties concerned. This has not been done in this case. Therefore, the evidence of the expert cannot be said to be so uncontrovertible that continuation of registration granted for the two years under appeal to the assessee firm should have been cancelled. The order of the authorities below are, therefore, had in law. These are cancelled. Status quo ante is restored.
18. Before we close, we would like to observe that the letters adverted to in this judgment were produce in the court by the revenue at the directions of the court.
19. In the result, the appeals are allowed.