1984 (7) TMI 23 - HC - Income Tax

High Court upholds Tribunal's decision to set aside assessment, allowing for correction at a later stage.

The High Court held that the assessment by the ITO, C-Ward, was not liable to be annulled. The Court agreed with the Tribunal's decision to set aside the ... Assessment, Jurisdiction To Assess Issues Involved:1. Jurisdiction of the Income-tax Officer (ITO) over the assessee.2. Validity of the assessment made by the ITO, C-Ward.3. Whether the assessment should be annulled or set aside.Issue-wise Detailed Analysis:1. Jurisdiction of the Income-tax Officer (ITO) over the assessee:The primary issue was whether the ITO, C-Ward, Patna, had jurisdiction over the assessee, who was a partner in M/s. Marwari Hotel, Frazer Road, Patna. The assessee contended that the jurisdiction lay with the ITO, A-Ward, Patna, where the return was originally filed on October 20, 1964. The jurisdiction was challenged based on a circular issued by the Commissioner on December 30, 1967, which redistributed the jurisdiction among various ITOs in Patna. According to this circular, cases from Ward No. 30 were assigned to the ITO, A-Ward, except those involving hotel businesses, which were assigned to the ITO, C-Ward. The assessee argued that the principal place of business was in Ward No. 30 and that the jurisdiction should not depend solely on the income from the hotel business.2. Validity of the assessment made by the ITO, C-Ward:The assessment was made by the ITO, C-Ward, on March 30, 1968, despite the assessee's objections. The ITO, C-Ward, issued a notice under section 142(1) of the Income-tax Act, 1961, which was received by the assessee on February 14, 1968. The assessee objected to the jurisdiction on February 20, 1968, and again on March 12, 1968. The ITO, C-Ward, referred the matter to the Inspecting Assistant Commissioner instead of the Commissioner, as required under section 124(6) of the Act. The Appellate Assistant Commissioner (AAC) pointed out that the ITO, C-Ward, could not determine the matter himself and that the assessment was made without properly determining the jurisdiction. Therefore, the AAC set aside the assessment and directed the ITO to make a fresh assessment after examining all the facts and giving the assessee a proper opportunity of hearing.3. Whether the assessment should be annulled or set aside:The Tribunal held that this was not a case of inherent lack of jurisdiction but rather a case of confusion regarding the interpretation of the Commissioner's order. The Tribunal observed that the question of jurisdiction is not one that can be decided in appeal and that the provisions of section 124(5) did not apply as the assessee was not objecting to the assessment as such but only to the assessment by a particular ITO. The Tribunal concluded that the irregularity occurred at a later stage and could be corrected by setting aside the matter and putting it to the stage where the irregularity supervened. The Tribunal upheld the AAC's decision to set aside the assessment rather than annulling it.Conclusion:The High Court held that the assessment by the ITO, C-Ward, was not liable to be annulled. The Court observed that the ITO, C-Ward, should have referred the jurisdictional objection to the Commissioner as required under sections 124(4) and 124(6) of the Act. However, the Court agreed with the Tribunal's view that the irregularity occurred at a later stage and could be corrected by setting aside the assessment. The Court concluded that the AAC was justified in setting aside the assessment for making a fresh assessment according to law, and the Tribunal was correct in upholding the AAC's order. The answer to the question referred by the Tribunal was in favor of the department and against the assessee. The parties were directed to bear their own costs.