Income Tax Appellate Tribunal - Bangalore
Renuka Travels vs Income-Tax Officer on 15 October, 1997
Equivalent citations: [1998]66ITD143(BANG)
ORDER
Bandyopadhyay, AM
1. The appeal has been filed by the assessee against the order passed by the CIT (Appeals) upholding the validity of the re-assessment order passed by the Assessing Officer under section 143(3), read with section 147 dated 28-2-1986. The matter had once travelled to the ITAT. The ITAT, however, by its order dated 27-3-1992 in ITA No. 1276/Bang./1987 sent the matter back to the file of the CIT (Appeals) for examining and coming to a proper conclusion relating to the validity of the assessment proceeding.
2. The learned counsel appearing for the assessee before us, has brought our notice to the reasons recorded by the Assessing Officer for initiating proceedings under section 147, as extracted by the CIT (Appeals) at page 3 of his impugned order. For the sake of ready reference, we are also extracting the said reasons below :
"14.11.83. Notice under section 143(2) for the assessment years 1977-78 to 1980-81 issued. D.H. 3-12-83. Notice under section 148 for the assessment year 1981-82 & 1982-83 and notice under section 139(2) for the assessment year 1983-84 issued.
Sd/-ITO".
It is evident from above that the Assessing Officer did not at all record any reasons for issuing the notice under section 148. The learned DR has tried to argue that since the assessee had not filed any return of income for this year, notice under section 148 was issued and this is not a case of re-assessment but simply a case of first assessment by issue of a notice under section 148. Even in such a case also we are of the opinion that it is necessary for the Assessing Officer to make a mention of the basic fact that the return of income was not filed by the assessee. In the instant case, there cannot be any doubt about the fact that the Assessing Officer did not make any such recording about non-filing of return by the assessee though that may be a fact behind the reasons recorded by him.
The learned counsel for the assessee has relied on a large number of decisions as mentioned below in support of his contention that unless proper reasons are recorded for issue of notice under section 148, the entire proceeding gets vitiated :
(i) Jamna Lal Kabra v. ITO [1968] 69 ITR 461 (All.).
(ii) Vijaylakshmi Oil Industries v. ITO [1985] 155 ITR 748/22 Taxman 139 (Kar.).
In this case, it was also decided by the Karnataka High Court at page 751 that even a note prepared by the Assessing Officer for the purpose of reopening the proceeding cannot be considered to constitute the reasons for reopening, which are required to be stated clearly and separately.
(iii) VXL India Ltd. v. Asstt. CIT [1995] 215 ITR 295 (Guj.).
(iv) H.E.H. The Nizam's Jewellery Trust v. Asstt. CIT [1997] 227 ITR 52/93 Taxman 438 (AP).
(v) N. D. Bhatt. IAC v. I.B.M. World Trade Corpn. [1995] 216 ITR 811 (Bom.).
3. Taking into consideration all the above decision and also the basic facts relating to this case regarding non-recording of reasons for issuing notice under section 148, we hold that the assessment proceeding is invalid.
4. Thereafter, the learned counsel for the assessee has challenged the validity of the assessment from another angle also. He contends that it is an acknowledged fact that the assessee-firm was dissolved with effect from 1-4-1976, but the assessment has, however, been made in the hands of the firm by considering it to be a URF by the Assessing Officer on 28-2-1986. The learned counsel for the assessee has relied on a decision of the Karnataka High Court in the case of CWT v. G. E. Narayan [1992] 193 ITR 41/60 Taxman 521 that at the time of making assessment, the assessee must be in existence. Further reference has also been made on an unreported judgment of the Karnataka High Court dated 1-4-1997 in Writ Petition Nos. 2397 & 2398, 2735 to 2740 and 13384 of 1988 in the case of L. P. Cardoza. The facts of the present case are more or less similar to those in that particular case in which the ex-partners of a dissolved firm Shigode Plantations were assessed to agricultural income-tax. The High Court held by considering the provisions of section 26(4) [analogous to section 176(3A) of the IT Act, 1961] and section 27(1) [analogous to section 189(1) of the IT Act, 1961] of the Karnataka Agricultural Income-tax Act, that it could not be said that there was any provision in the law reviving the existence of a dissolved firm for the purpose of making assessment in the hands of the dissolved firm itself. In the instant case also, the Assessing Officer has mentioned the provisions of section 189(1) of the IT Act, 1961. The particular provision, however, relates to assessment of income of a firm earned by it during its existence, after dissolution of the firm. In the instant case, however, the entire assessment of income pertains to a period in which the firm was not at all in existence. In other words, the income could not have been earned by the assessee in assessment year 1981-82 when the assessee-firm was not at all in existence. The income arising by way of compensation received by the ex-partners of the firm on acquisition of the buses belonging to the firm by the State Government, can in no way, be assessed to tax in the hands of the firm in this year. Any legal doubt on this issue now stands settled by a recent decision of the Supreme Court in the case of CIT v. Artex Mfg. Co. [1997] 227 ITR 260. In that case also, certain income was sought to be assessed in the hands of the firm which had already been dissolved, under the provisions of section 41(2). The Supreme Court agreed with the decision of the Gujarat High Court as reported at Artex Mfg. Co. v. CIT [1981] 131 ITR 559/5 Taxman 109 that the assessee could not be taxed as the registered firm but that the partners of the assessee-firm, on the other hand, could be assessed in the status of body of individuals. In the instant case also, therefore, the assessment made in the hands of the assessee as a firm is clearly invalid.
5. On merits of the case, learned counsel for the assessee has tried to rely on a decision of the Karnataka High Court in the case of CIT v. H. S. Shivarudrappa [1993] 200 ITR 1. In that case, it was held that if compensation be paid in instalments in respect of acquisition of buses by the State Government, the instalment due in the relevant previous year is alone assessable and not the entire compensation. On the other hand, the departmental contention for assessing the entire amount of compensation awarded in this year is based on another judgment of the Karnataka High Court in the case of CIT v. Sheshappa Hegde [1984] 150 ITR 164/16 Taxman 331.
6. Since we have already held the impugned assessment to be invalid from two different angles, we do not consider it necessary to go into the merits of the case. We are, therefore, leaving this particular issue open inasmuch as the issue has become infructuous. Ultimately, we cancel the impugned assessment order by reversing the order of the CIT (Appeals).
7. In the result, the appeal filed by the assessee is partially allowed to the abovementioned extent.