Orissa H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the AAC was right in quashing the entire assessment order passed by the ITO under s. 144 of the Act: ?

Counsel Appeared

A.K. Roy, for the Petitioner : None, for the Opposite party

PASAYAT, J.:

At the instance of the Revenue, the Income-tax Appellate Tribunal, Cuttack Bench (hereinafter referred to as the “Tribunal”) has referred the following questions under s. 256(1) of the IT Act, 1961 (hereinafter referred to as the “Act”). “1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the AAC was right in quashing the entire assessment order passed by the ITO under s. 144 of the Act: ? Whether, on the facts and in the circumstances of the case and on a correct interpretation of law, the Tribunal was justified to hold that the order passed by the ITO is not an order under s. 185 and hence the same was liable to be quashed ? Whether, on the facts and in the circumstances of the case and in view of the provisions of s. 185(5), the Tribunal was justified to hold that the AAC was right in quashing the order of the ITO passed under s. 144 of the IT Act? ”

2. Background facts as culled out from the statement of case drawn up by the Tribunal are as follows : M/s Mahabir Fancy Store (hereinafter referred to as the “assessee”) filed its return for the asst. yr. 1984-85 corresponding to the accounting period ending on 31st March 1984, on 24th Nov., 1984. Upto the 1983-84 the assessee was assessed as a registered firm and has been granted registration. For the asst. yr. 1984-85, a declaration in Form 12 for renewal for registration was filed. Since the assessee did not respond to the notices issued, assessment was completed ex parte under s. 144 of the Act, and the assessee was treated as an unregistered firm. The assessee carried the matter in appeal before the AAC Berhampur Range, Berhampur (in short, the “AAC”). The sole point urged before the appellate authority was that order of refusal of registration could only be passed under s. 185 of the Act, and refusal of registration in an order passed under s. 144 was not proper. It was observed that the ITO while passing an order under s. 144 was not competent to refuse registration therein. The AAC accepted the submission and the appeal was allowed. The Revenue carried the matter in appeal before the Tribunal which affirmed the views of the appellate authority. Stand of the Revenue before the Tribunal was that if the AAC had set aside the assessment regarding the quantum and directed the ITO to make a fresh assessment, then he should have set aside that part of the assessment order also and should have directed the ITO to reconsider the issue of refusal of registration. Though the Tribunal found substance in the stand of the Revenue, it observed that the order of the AAC to the effect that to refuse registration a separate order was to be passed was also valid. It held that the same having not been done, refusal of registration suffered from infirmity and it was discretion of the AAC to set aside on that point also, and to direct the ITO to reconsider the matter afresh relating to point of refusal of registration. But he did not do so, but held the refusal of registration as invalid. The Tribunal observed that there was no illegality or irregularity in the order of the AAC. Being aggrieved at the conclusion, a reference was sought for and the questions as indicated above, have been referred to this Court for opinion. Heard Mr. Ray for the Revenue. Inspite of notice, the assessee has not entered appearance. According to learned counsel for the Revenue the approach of the AAC and the Tribunal is erroneous. Orders under ss. 144 and 185 of the Act operate in different fields. The AAC should not have dealt with question of propriety to grant registration in an order under s. 144. The order under s. 144 was not available to be assailed before the AAC on the question of registration. Orders which are appealable have been enumerated in s. 246 of the Act. We are dealing with the section as it stood at the relevant time. According to the said section, any assessee aggrieved by any of the orders enumerated, passed by an Assessing Officer may file appeal to the first appellate authority. At the relevant time an order passed under s. 144 was appealable under cl. (c) of s. 246. An order under cl. (b) of sub-s. (1) or under sub- s. (2) or sub-s. (3) or sub-s (5) of s. 185 was appealable under cl. (k) of s. 246. Obviously therefore, a separate order under sub-s. (5) of s. 185 is contemplated when refusal of registration is directed. Under sub-s. (5) of s. 185, notwithstanding anything contained in the said section, where, in respect of any assessment year, there is, on the part of a firm, any such failure as is mentioned in s. 144, the ITO may refuse to register the firm for the assessment year. Sub-s. (5) of s. 184 provides where there is on the part of the firm such failure as entail best judgment of assessment, under s. 144 the ITO may refuse to register the firm. Sec. 144 provides that the ITO shall make assessment to the best of his judgment in four cases. The terms of section are mandatory and the ITO has no discretion to make or not to make assessment under the section. If the assessee is a firm, the ITO may in his discretion which has to be exercised judicially in any of the four contingencies enumerated in s. 144 refuse to register the firm, under s. 185(5) or may cancel its registration if it is already registered under s. 185(2). Sec. 185(2) provides that in such cases the registration which is granted or which has effect under s. 184(7) for the relevant assessment year may be cancelled. In either case the ITO must pass an order refusing to register, or cancelling the registration of the firm. He cannot, while making assessment under s. 144 merely treat the firm as unregistered. [see Nand Singh Teneja & Sons vs. CIT (1973) 91 ITR 202 (All)]. Order of assessment and order refusing registration to the firm are separate and distinct orders requiring separate appeals. Even if the ITO passes one single order making a best judgment of assessment and refused registration under s. 185(5), separate appeals should be filed against such assessment and refusal [see Fuel Supply Co. vs. CIT (1965)58 ITR130 (Cal)]. If the ITO in exercise of his power under s. 185(5) refuses to register the firm because of default which resulted in a best judgment assessment, the firm may appeal under s. 246 against the order refusing to register it, even on the ground on which it could have asked for cancellation of the best judgment of assessment under s. 146, without making an application under that section for such cancellation. (see Mannilal Sagarmal vs. CIT (1957) 32 ITR 15 (All). obviously therefore, the action of the ITO in passing a consolidated order of assessment and refusal of registration, and styling it as one under s. 144 was not in order.

7. As indicated above, it is open to the assessee to file separate appeals. In the case at hand, the assessee has not assailed the quantum of assessment, and has challenged only the refusal of registration. Therefore, it had not questioned the correctness of assessment. The appeal filed by the assessee, in essence, related to that part of the order which related to registration. The first appellate authority was justified in entertaining the appeal and dealing with the question of propriety of refusal to register. But it was not justified to set aside the entire order under s. 144. It could have directed the ITO to reconsider the matter relating to registration, or could have decided it himself. By declaring the order to be invalid and quashing it, the quantum assessed get nullified. It was beyond the scope of appeal, and there was even no dispute regarding quantum. The first question is therefore, answered in the negative.

8. If the stand of the Revenue is that the order passed by the ITO was in essence, one under s. 185 of the Act, obviously the appeal before the AAC was competent and the AAC was justified in his conclusion. Question Nos. 2 and 3 do not really bring out the essence of dispute. Accordingly, we reframe the question and combine both the questions to the following effect : “Whether, on the facts and in the circumstances of the case, the AAC and the Tribunal were justified in holding that in an order passed under s. 144. question of registration cannot be considered?”

9. In view of the analysis made by us, the conclusion is inevitable that even though registration aspect can be considered, two appeals are to be filed when the assessee questions both the correctness of assessment and refusal of registration. Since the assessee in the instant case had questioned only the refusal of registration, the AAC and the Tribunal should have considered the legality of the order so far as it related to registration instead of holding that the same was without jurisdiction. The Tribunal shall consider this respect when it hears the matter under s. 260 of the Act.

The reference is accordingly disposed of.

[Citation : 202 ITR 553]