Income Tax Appeal v. M/S Udai Mohan & Company

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR -------------------------------------------------------- INCOME TAX APPEAL No. 104 of 2005 V/S M/S UDAI MOHAN & COMPANY Mr. K.K. BISSA, for the appellant. Mr. JK CHANDA, for the respondent/s. Date of Order : 1.7.2008 HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J. ----- This appeal has been filed by the Revenue against thejudgment of the learned Tribunal dated 17.8.2004. Theappeal was admitted on 17.11.2005, by framing the followingsubstantial question of law:- “Whether in the facts and circumstancesof the case, the Tribunal was justified inaffirming order passed by CIT (Appeals)setting aside the order passed by theAssessing Officer under Section 185(5)refusing to grant registration to therespondent-firm and treating the assessee firmas URF?” The necessary facts are, that the assessing officerpassed the order annexure/1, under Sec. 185(5) of the I.T. Act, 1961 refusing to grant registration to the firm forthe assessment year 1991-1992, and has ordered the statusof the assessee to be taken as URF (unregistered Firm).Against this order, appeal was filed by the assessee, whichwas allowed, and the AO was directed to allow the claim ofregistration to the appellant firm. Against this order,appeal was filed by the Revenue, which was allowed, andorder of the AO, refusing registration was restored. It was found in this order dated 30.3.2001, that from the material available on record, there is nothing toconclusively prove, that the firm was prevented bysufficient cause to, comply with the notice under Sec. 142(1) and 143 (2). In this order, assessee was notrepresented thus, the order was passed exparte. It appears, that thereafter the assessee filed themiscellaneous application, which was allowed vide orderdated 21.10.2003, and the appeals were restored to originalnumber, and were again heard on merits, and have beendecided vide judgment dated 17.8.2004, annexure/4. In thisorder annexure/4, the learned Tribunal dismissed the appealof the Revenue, being appeal NO. 2773; which related to theorder of Commissioner canceling the order of the A.O passed under Sec. 185 (5) of the Act. Since the present appealrelated to this controversy only, we need not to go intothe aspect covered by the other appeal No. 1962, decided bythe learned Tribunal. Thus, the learned Tribunal upheldsetting aside of cancellation of registration, againstwhich, the Revenue is aggrieved. The learned Tribunal perused the record and found,that the Assessing Officer, in the assessment order, passedunder Sec. 144, has found, that the assessee had notfullycomplied with the notice, sent to it, by the Income TaxOfficer, and it has been found, that there is a differencebetween non compliance, and not proper compliance. It hasbeen found, that if the assessee had complied with, and theITO was not satisfied with the compliance, it cannot besaid that there was non compliance of the notice, then ithas been noticed, that in para 2 of the assessment order,the ITO has observed, that the notice was not fullycomplied with, however, the partners of the assessee,alongwith the AR appeared on the subsequent dates, and thatthe assessee had filed the partnership deed and otherrelevant documents along with the return. In suchcircumstances, it was found, that it appears, that ITO hadnot applied judicial mind, while passing order under Sec. 185 (5), because the order is very cursory and devoid ofany reasons, which may give an impression, that the ITO hadapplied judicial mind, before arriving at a particulardecision, for not granting the registration to the firm.In view of the learned Tribunal, it is the assessingofficer, who did not allow registration with a view topenalize it. It has also been found, that in reply tonotice, assessee clearly gave out, that in absence of booksof accounts, no reply can be filed. This was found to beno reasonable reason for coming to the conclusion, that theassessee had not complied with the direction of the ITO.Reliance has been placed upon the judgment of this court,in CIT Vs. Faiz Mohd., reported in 160 ITR 396, and afterrelying on other judgments, including that of AndhraPradesh High Court, it was held, that the assessing officerhas exercised discretion without applying judicial mind,and hence the cancellation of the registration by theassessing officer was upheld. Before proceeding further, we may gainfully quotethe relevant provision of Sec. 185 (5), which reads asunder:- “ Notwithstanding anything contained in thissection, where, in respect of any A.Y. there is, on the part of a firm, any such failure asis mentioned in Sec. 144, the AssessingOfficer may refuse to register the firm forthe A.Y.” Thus, from the reading of this provision, it is clearthat it is only an enabling provision, vesting in theassessing officer, power to refuse to register the firm,for the assessment year, in the event of eventualities,contemplated by this provision coming into existence. Butthen, it is required to be grasped, that the provision isnot mandatory, so as not to leave any discretion with theassessing officer, not to refuse registration. Obviously,therefore, mere existence of the eventualities contemplatedby Sec. 185(5) have the effect only of conferring a poweron the assessing officer, to refuse registration, but then,a large question still survives, as to whether in a givencase, the assessing officer should exercise this power,i.e. to refuse registration, or proceed with the assessment, without refusing registration. Obviously, it is a judicial discretion, to be exercised on relevant consideration and para meters, whichobviously excludes the element of any prejudicial orpreconceived attitude, or a attitude to simply penalize theassessee, for some ignorable lapse, here and there. Learned counsel for the revenue placed a strongreliance on Division Bench Judgment of this Court, inSantlal Kalyani and Co. Vs. Commissioner of Income Tax,reported in 213 1995 ITR 273, wherein it was held that:- “The only thing required under the said section is that, there must be failure on thepart of the assessee to submit the return under section 139 (1) or a revised returnunder sub-section (4) or sub-Section (5) of that section or failure to comply withthe terms of a notice issued under sub-section (1) of section 142 or failure tocomply with the directions issued under sub-section (2A) of that sub-section orfailure to comply with the terms of a notice issued under sub-section (2) of section143 warranting a best judgment assessment. In such a situation, if the assessee didnot receive the notice issued under section 142(1) or Section 142 (1) or section143(2) or he had no reasonable opportunity to comply with or was prevented bysufficient cause from complying with the terms of the notice issued under Section142(1) or 143(2), then he can apply for cancellation of the best judgmentassessment. It is not in dispute that the assessee failed to comply with the noticeissued under section 142(1) and 143(2) and, therefore, the Income-tax Officer hadthe discretion to refuse the registration on that ground alone”. On that basis, it is submitted, that since in thepresent case, the assessee had failed to comply with thenotice under Sec. 142 (1), the order was rightly passed bythe assessing officer. On that basis, it is submitted, that since in thepresent case, the assessee had failed to comply with thenotice under Sec. 142 (1), the order was rightly passed bythe assessing officer. In our view, this would not be the correctreading of the judgment, for the simple reason, that theabove submission is not in line with what has been held inthe above judgment, that existence of these eventualities, confers jurisdiction on the assessing officer, to proceedunder Sec. 185 (5) but then, this judgment, no where laysdown, that in each and every case, the registration has tobe refused, rather it has been held in this judgment also,that the officer had the discretion to refuse theregistration, on that ground alone. We may hasten to makeit clear that we should not be understood to mean, thatapart from the existence of one of the eventualitiescontemplated under Sec. 185 (5), something more is requiredto exist, to clothe the authority with the jurisdiction todecline registration, what we mean to hold is, thatnotwithstanding existence of the eventualities, theprovision does confer discretion on the authority, andprovision does not provide refusal of registration, as anautomatic consequence of the existence of theeventualities. The difference is required to be betterappreciated and applied. If the present case is considered on these lines,it is more then clear, that in the present case, theassessee, in response to the notice, did submit reply andprojected his difficulty. What is significant to note is,that it is not shown to us, that the difficulty projectedby the assessee, by way of reply, was turned down, as being not reliable, or not sufficient, rather simply by noticingthe fact, about the assessee having submitted reply, theorder under Sec. 185 (5) was passed, and assessment wasmade under Sec. 144, which in our view, has rightly beenset aside by the learned tribunal. The question so framed, is accordingly answered infavour of the assessee, and against the revenue.Consequently the appeal having no force, is dismissed. ( KISHAN SWAROOP CHAUDHARI ),J. ( N P GUPTA ),J. /ns /