2001 (4) TMI 187 - AT - Income Tax

Tribunal upholds Revenue's appeal, orders income allocation among partners under section 154

The Tribunal allowed the Revenue's appeal, overturning the CIT(A)'s decision and upholding the Assessing Officer's order under section 154 to allocate the ... Firm, Intimation Of Assessment Of Issues:1. Validity of the order passed under section 154 for allocating income of the assessee-firm among partners.2. Interpretation of provisions under sections 154 and 158 for passing orders related to income allocation among partners.3. Time limitation for passing orders under section 158 in relation to assessment orders under section 143(3).Analysis:Issue 1:The appeal challenged the order under section 154 that allocated the income of the assessee-firm among partners. The CIT(A) cancelled this order as he deemed the issue debatable and beyond the scope of section 154 rectification. The CIT(A) emphasized the necessity of passing a separate order under section 158 to allocate the firm's income among partners. The contention was that the order under section 154 was invalid as it did not rectify any apparent mistake in the assessment order dated 30-12-1991.Issue 2:The Departmental Representative argued that the allocation of income among partners is mandatory under section 158 and can be rectified under section 154 within four years from the assessment order. The Tribunal found merit in this argument, stating that the order under section 154 rectified the omission of income allocation among partners, as per departmental practice. The Tribunal held that the order under section 154 was valid, whether viewed as part of the assessment order or as an independent one under section 158.Issue 3:The Tribunal further analyzed the time limitation for passing orders under section 158, noting that no specific time limit is prescribed. They held that such orders must be passed within a reasonable time after the assessment order. Since the impugned order was passed within four years of the assessment order, it was deemed valid and not barred by limitation. The Tribunal also cited legal principles stating that the Assessing Officer's power to make an order is crucial, regardless of the reference to the specific section.In conclusion, the Tribunal allowed the Revenue's appeal, setting aside the CIT(A)'s order and restoring the Assessing Officer's order under section 154 for allocating the income of the firm among its partners.