Show cause notice in appellate proceedings failed where the Revenue sought to alter a firm's status on an erroneous legal premise.

A show cause notice issued in appellate proceedings sought to change the assessee's status from a partnership firm to an association of persons, but the Court held that the notice was unsustainable because the assessee had consistently been assessed as a partnership firm and the premise that a firm cannot be a partner in another firm was contrary to law. The Court also refused to let the Revenue improve the notice by supplying new reasons not contained in it, and left open the wider question of the Commissioner (Appeals)'s jurisdiction under section 251. The notice and the order sustaining it were set aside.

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Issues: Whether the show cause notice issued in appellate proceedings seeking to change the assessee's status from a partnership firm to an association of persons was liable to be set aside.

Analysis: The assessee had consistently been assessed as a partnership firm, including in the assessment made under section 143(3) of the Income-tax Act, 1961. The impugned notice proceeded on the premise that a firm could not be a partner in another firm, a premise found to be contrary to law. The Court declined to permit the Revenue to improve upon the notice by adding reasons not found in it, and found no occasion to decide the wider question of the Commissioner (Appeals)' jurisdiction under section 251 of the Income-tax Act, 1961 at that stage.

Conclusion: The show cause notice and the order sustaining it were set aside, and the writ appeal was allowed in favour of the assessee.

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