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2008 DIGILAW 105 (KAR)

R. D. Mendon and Sons v. Income Tax Officer

2008-02-13

DEEPAK VERMA, K.L.MANJUNATH

body2008
JUDGMENT Deepak Verma, J.— Heard Sri S. Parthasarathi for the appellant and Sri M.V. Seshachala for the respondent. 2. The assessee feeling aggrieved by the order dated May 29, 2003, passed by the Income Tax Appellate Tribunal, Bangalore Bench, in I. T. A. No. 568/ Bang/99 for the assessment year 1994-95 is before us challenging the same under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). 3. The appeal before the Tribunal was preferred by the Revenue, which came to be allowed. Hence this appeal by the assessee. 4. The short material facts for deciding this appeal are as under: According to the assessee, it should have been assessed in the status of firm only since the assessee had complied with the notice under Sections 148, 143(2) of the Act and the assessment had also been completed under Section 143(3) of the Act. As per the assessment order, the assessee confirmed an income of Rs. 37,221. 5. The notice under Section 143 of the Act was issued and served on the assessee as the assessee had failed to file the return. Section 139(4) of the Act required the assessee to furnish the return within 31 days from the date of issuance of such notice. The status of the assessee-firm was treated as an association of persons under Section 184(5) of the Act as there was a default committed by the assessee as mentioned under Section 144 of the Act. 6. In response to the notice issued under Section 143(2) the assessee along with the accountant of the assessee appeared and produced the books of account and other details. The same were verified. The assessee had claimed interest on capital of Rs. 99,974 and remuneration to partners of Rs. 1,10,000. As the status of the firm was taken as an association of persons, the assessee's claim of remuneration and interest as mentioned above were disallowed and thus the assessment was completed. The assessee was constrained to file an appeal against the said order of the Assessing Officer before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) allowed the appeal of the assessee. Aggrieved by the said order passed by the Commissioner of Income Tax (Appeals), the Revenue preferred an appeal before the Tribunal wherein its appeal has been allowed. Hence this appeal by the assessee. The Commissioner of Income Tax (Appeals) allowed the appeal of the assessee. Aggrieved by the said order passed by the Commissioner of Income Tax (Appeals), the Revenue preferred an appeal before the Tribunal wherein its appeal has been allowed. Hence this appeal by the assessee. The Tribunal came to the conclusion that the assessing authority was right in treating the assessee as an association of persons basically relying on a judgment of the Supreme Court in the case of Commissioner of Income Tax, Ernakulam Vs. P.K. Noorjahan (Smt), AIR 1999 SC 1600 . 7. Even though the appellant has formulated four substantial questions of law, but after having heard learned Counsel for the parties and after perusal of records, we are of the considered opinion that it is to be heard only on the following substantial question of law: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in treating the appellant as an association of persons as against the claim of 'firm', when the return filed though belated had been entertained and the assessment had been completed under Section 143(3) of the Act and when the Assessing Officer had not proceeded to pass an ex parte order as contemplated under Section 144 of the Act ? 8. Learned Counsel appearing for the parties have not disputed before us that the said question has already been answered by a Division Bench of this Court passed on February 20, 2004, in I. T. A. No. 4 of 2004 against the Revenue and in favour of the assessee. Paragraphs 9 and 10 of the said order read as hereunder: 9. It is true that when there is a 'failure' on the part of the assessee as enumerated in Section 144, the direction in Section 184(5) that the firm should be assessed as an 'association of persons' is mandatory. But the question is whether there is a failure as mentioned in Section 144. Section 144 provides that in the event of there being any of the three failures as enumerated in Sub-section (1) of Section 144, after giving due opportunity to the assessee to show cause, the Assessing Officer may proceed to pass a best judgment assessment. But the question is whether there is a failure as mentioned in Section 144. Section 144 provides that in the event of there being any of the three failures as enumerated in Sub-section (1) of Section 144, after giving due opportunity to the assessee to show cause, the Assessing Officer may proceed to pass a best judgment assessment. But, the Assessing Officer has not proceeded to pass a best judgment assessment under Section 144 which he ought to have done if there was any failure as mentioned in Section 144. The fact that the Assessing Officer did not do so clearly leads to an inference that there was 'no failure' as mentioned in Section 144. When it is not possible to comply with a provision, it is not possible to say that there is 'failure to comply with a provision'. In the circumstances, the first question also does not arise. We are of the view that the Tribunal was justified in holding that the status of the assessee should be treated as 'registered firm' and not as association of persons. 10. As neither of the questions of law raised by the Revenue arises for consideration on the facts of the case, the appeal is dismissed. 9. In view of the aforesaid, we are of the opinion that no question of law arises for reconsideration as the same has been answered already by this Court. 10. In view of the aforesaid, the appeal filed by the assessee is hereby allowed and the order of the Tribunal stands hereby quashed.