1991 (12) TMI 115 - AT - Income Tax

Tribunal Overturns Tax Officer's Partnership Registration Denial for Procedural Errors

The Tribunal set aside the Income Tax Officer's refusal of registration for the partnership firm for the assessment years 1983-84, 1984-85, and 1985-86. ... - Issues Involved:1. Refusal of registration for the assessment years 1983-84, 1984-85, and 1985-86.2. Alleged procedural errors and insufficient time for defect rectification.3. Illness of the counsel and its impact on compliance.4. Application of Board's Circulars and relevant case law.5. Validity and procedural correctness of the order under section 154 of the IT Act.Detailed Analysis:1. Refusal of Registration for Assessment Years 1983-84, 1984-85, and 1985-86:The Income Tax Officer (ITO) refused registration to the partnership firm for the assessment years 1983-84, 1984-85, and 1985-86 under section 185(1)(b) of the IT Act. For the assessment year 1983-84, the ITO argued that no business was conducted, and thus, the profits could not be divided, nor could the genuineness of the firm be examined. For the assessment year 1984-85, the ITO held that the application for registration was late as it was filed on 19th November 1983, after the accounting year ended on 4th November 1983. For the assessment year 1985-86, the ITO noted that no application for registration was filed, and since registration had not been granted in earlier years, continuation could not be allowed.2. Alleged Procedural Errors and Insufficient Time for Defect Rectification:The appellant argued that the time allowed for removing defects in the registration application was insufficient. According to section 185(2)/(3) of the IT Act, the ITO should have provided one month's time to rectify any defects. The ITO's letter dated 12th August 1986 allowed only until 25th August 1986, which was against the provisions of law. The appellant also contended that the ITO ignored the fact that Form No. 12 had been filed and the illness of the counsel, which constituted a good and sufficient cause for non-compliance.3. Illness of the Counsel and Its Impact on Compliance:The appellant's counsel, Shri G.L. Kumawat, was ill, which was substantiated by a medical certificate dated 1st August 1986. The illness prevented compliance with the ITO's notice dated 12th August 1986. The ITO, however, observed that no argument regarding the counsel's illness was presented on the date the case was fixed or when the order was passed. The appellant further explained that the illness was not mentioned in the letter dated 25th August 1986, which was filed with the ITO on 18th September 1986.4. Application of Board's Circulars and Relevant Case Law:The appellant referred to Board's Circulars dated 29th July 1964 and 26th June 1985, which directed that if registration for an earlier year was not allowed, and Form No. 12 was filed in time for subsequent years, the assessee should be given an opportunity to file Form No. 11 for subsequent years. The appellant cited several case laws, including Gudmal Motaliram vs. CIT, CIT vs. Delhi Sanitary Stores, and others, to support the argument that the ITO should have allowed time to rectify defects and that the illness of the counsel should be considered a sufficient cause for condonation of delay.5. Validity and Procedural Correctness of the Order under Section 154 of the IT Act:The appellant argued that the ITO's order under section 154 was in violation of principles of natural justice as no opportunity of being heard was provided before passing the order. The ITO had passed the order after considering the representation of the assessee, where no mistake was pointed out, and it was only prayed that the demand raised be deleted. The Tribunal found that the provisions of section 154(3) were not applicable as no enhancement was done by the ITO over the assessment already made. The Tribunal decided to set aside the ITO's order and restore it to his file with directions to give the assessee a reasonable opportunity to explain its case and substantiate the evidence.Conclusion:The Tribunal concluded that the ITO should not refuse registration for subsequent years merely because Form No. 11 was not filed, provided Form No. 12 was filed in time. The Tribunal directed the ITO to re-examine the case, considering the directions of the Board and the relevant case law. The appeals were treated as allowed, and the matter was restored to the ITO for fresh consideration according to law.