Reconsideration after appellate annulment requires fresh exercise of discretion on treating unregistered firms as registered and modification of assessments.

When an appellate authority annuls an assessment and converts an assessed profit into a loss, that appellate determination removes the factual basis for the prior invocation of the power to treat an unregistered firm as registered; the Income-tax Officer must therefore reconsider afresh whether to apply the registered-firm procedure and then modify assessments in accordance with the altered circumstances. An enabling provision applicable "during any year" does not displace this duty. Failure to reapply statutory discretion in light of the appellate order renders the officer's action unlawful and subject to mandamus relief.

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Issues: Whether, when an Appellate Assistant Commissioner on appeal converts an assessed profit of an unregistered firm into a loss and directs modification of assessments, the earlier order of the Income-tax Officer under Section 23(5)(b) treating the unregistered firm as a registered firm remains operative, or whether the Income-tax Officer is required to reconsider afresh under Section 23(5)(b) in the light of the appellate determination; and whether the High Court could issue a writ of mandamus directing the Income-tax Officer to perform that duty.

Analysis: The provisions relevant to the issue include Section 23(5)(b) (power of the Income-tax Officer to apply the procedure for registered firms to unregistered firms where, in his opinion, greater aggregate tax would be realised), Section 24(2) proviso (d) (consequences where an unregistered firm is treated as registered during any year), and the appellate powers under Sections 30 and 31 (including clause (a) and clause (b) of Section 31(3) and Section 31(4)) together with the statutory powers under Sections 34 and 35. Where the Appellate Assistant Commissioner on appeal annuls an assessment and determines that the firm suffered a loss, that appellate determination removes the factual basis on which the Income-tax Officer had exercised his discretion under Section 23(5)(b). The appellate order, insofar as it annuls the assessment, necessarily requires the Income-tax Officer to work out the tax consequences afresh. Proviso (d) to Section 24(2) is an enabling provision applicable "during any year" when an unregistered firm is treated as registered; it does not negate the requirement in Section 23(5)(b) that the Income-tax Officer must consider whether treating the firm as registered would yield greater revenue. Accordingly, after the appellate conversion of profit into loss the Income-tax Officer was under a duty to apply his mind de novo to whether Section 23(5)(b) should be applied in the altered circumstances and to give effect to the appellate order only after such reconsideration. The failure of the Income-tax Officers to reconsider and to give effect to the appellate order in that statutory manner rendered their action unlawful and amenable to prerogative relief.

Conclusion: The Appellate Assistant Commissioner's annulment of the assessment and determination of loss removed the basis for the earlier exercise of Section 23(5)(b); the Income-tax Officer is therefore required to reconsider afresh under Section 23(5)(b) in the light of the appellate order and to modify assessments in accordance with law. The High Court could properly issue a writ of mandamus to compel the Income-tax Officer to perform that duty. The appeal is allowed in favour of the assessee.

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