Classic Electronics Vs. Income-tax Officer - Court Judgment

Excerpt:
1. this appeal is preferred by the assessee against the order of the cit(a) for the assessment year 1989-90.2. in this appeal the assessee has assailed the order of the cit(a) on various grounds but all the grounds relate to refusal of registration which was confirmed by the cit(a).3. we have heard the rival submissions of the parties and carefully perused the orders of the authorities below and the documents placed on record.4. the facts relating to the issue are that the assessee applied for registration of its partnership firm in form no. 11 along with the copy of partnership deed on 23rd march, 1989. subsequently, the return of income was also filed on 2-11-1989. while framing the assessment under section 143(3) of the act, the assessing officer examined the genuineness of the partnership firm and after having not satisfied with its genuineness, the assessing officer refused to grant registration.the refusal was challenged before the cit(a) but the cit(a) decided the appeal ex parte and confirmed the refusal of registration.5. now, the learned counsel for the assessee has raised a legal objection to the refusal of registration that the grant of registration under section 185 is an independent proceeding and if no action is taken on the application for registration till the expiry of period for serving notice as specified in the proviso to sub-section (2) of section 143(3) of the act in respect of the return furnished by the assessee for that assessment year, the registration of the firm shall be deemed to have been granted. in the instant case, the assessee submitted form no. 11 for registration of the firm on 23rd march, 1989 which was found to be in order by the assessing officer and subsequently the return of income for the impugned assessment year was filed on 2-11-1989. according to the proviso to subsection (2) of section 143 no notice under this section shall be served on the assessee after the expiry of the financial year in which the return is furnished or the expiry of six months from the end of the month in which the return is furnished, whichever is later. it means, according to section 185(6) the time-limit for initiating action on the application for registration of the firm available with the assessing officer was only upto 31st may, 1990 but the assessing officer did not initiate any action on the application for registration within the available period. accordingly, the registration was deemed to have been granted by virtue of sub-section (6) of section 185 of the act.ignoring the provisions of section 185(6) the assessing officer issued notice for the first time with regard to the genuineness of the partnership firm on 10-5-1991 and having not satisfied with the explanations of the assessee the assessing officer refused registration to the firm and framed the regular assessment. as such the refusal of grant of registration is not proper in view of above provisions.6. the learned departmental representative, on the other hand, has submitted that during the course of assessment the assessing officer asked the assessee to produce the partners so that the genuineness of the firm can be examined but the assessee did not produce the partners despite various opportunities afforded to him. on legal issue the learned dr invited our attention to the proviso to sub-section (6) of section 185 of the act and contended that this proviso has lifted the bar of limitation for grant of registration to the assessee. according to the proviso, if the assessing officer intimates the defect to the firm under sub-section (2), the provisions of sub-section (6) do not apply and the assessing officer is free to reject the application for registration if the defects are not rectified within that period. since the assessing officer has asked the assessee to produce the partners and the assessee failed to produce the partners for their examination, the assessing officer has rightly rejected the application for registration.7. on consideration of the rival submissions and from a careful perusal of the orders of the authorities below and the documents placed on record, we find that the assessing officer has made a reference of registration of the firm for the first time in the notice dated 10-5-1991 through which other information was sought for framing a regular assessment. through this notice the assessee was asked to produce the partners for their examination to ascertain the genuineness of the constitution of the partnership firm. no independent notice with regard to the registration of the firm was issued by the assessing officer though according to the provisions of section 185 of the act, the assessing officer is required to intimate the defects to the firm as per its sub-section (2) if he was not satisfied with the genuineness of the firm and its constitution. for grant of registration to the firm a specific procedure has been laid down under section 185 of the act which means the registration of the firm is an independent proceeding and it should not be clubbed with the regular assessment.for granting registration a specific time-limit is provided under subsection (6) of section 185, according to which where a firm has made an application for registration in relation to an assessment year and has furnished the return for that assessment year, such firm shall be deemed to have been registered under this section on the expiry of the period for serving notice, as specified in the proviso to sub-section (2) of section 143 in respect of such return. it means, as soon as the assessee files the return after its application for registration, the limitation for taking a decision on its application for registration starts and the assessing officer is required to take a decision on its before the expiry of the period for serving a notice as specified in the proviso to sub-section (2) of section 143 in respect of such return, if the defects are not intimated to the firm under subsection (2) of section 185 of the act. for ready reference, we reproduce sub-section (6) and its proviso to section 185 as under :- "(b) notwithstanding anything contained in sub-sections (1) to (4), where a firm has made an application for registration in relation to an assessment year and has furnished the return for that assessment year, such firm shall be deemed to have been registered under this section on the expiry of the period for serving notice as specified in the proviso to sub-section (2) of section 143 in respect of such return. provided that nothing in this sub-section shall affect the power of the assessing officer to intimate the defect to the firm under sub-section (2) and where any such intimation is sent, all the provisions of sub-section (2) shall apply." 8. in the light of the phraseology used in sub-section (6) and its proviso we do not find much force in the arguments of the revenue that once the defect is intimated to the assessee though beyond the period of limitation in which the assessing officer is required to take a decision on the application for registration, the assessing officer is at liberty to reject the application under sub-section (2) of this section. from a careful reading of section 185 only one inference can be drawn that the legislature had laid down separate and independent procedure for grant of registration to the firm. on receipt of the application for registration, the assessing officer is required to pass an order in writing registering the firm if he is satisfied with the existence of a genuine firm with its constitution and if he is not, he may pass an order refusing to register the firm. 'whenever the assessing officer feels that the application for registration is not in order, he may intimate the defects to the firm and provide an opportunity to rectify the defect, if the defects arc rectified and the assessing officer is satisfied with the genuineness of the firm, he may grant the registration otherwise not. while giving liberty to the assessing officer the legislature has also fixed the time-limit under which the registration is to be granted and if the registration is not granted by the assessing officer within that time-limit, it shall be deemed to have been granted. for this purpose subsection (6) was incorporated in section 185. taking into account the time consumed in making enquiry or the time taken by the assessee for removing the defect, the proviso to sub-section (6) was also introduced according to which if the assessing officer intimated the defect within the period of limitation prescribed as per sub-section (6), the assessing officer shall take a decision on registration as per sub-section (2) and the time-limit prescribed in sub-section (6) is not applicable. but once the time-limit prescribed under sub-section (6) is over and no defect was intimated to the assessee, the firm shall be deemed to have been registered under subsection (6) and thereafter by issuing any defect the proviso to this subsection cannot be invoked.9. coming to the facts of the case we find that form no. 11 along with the partnership deed was submitted on 23rd march, 1989 and thereafter the return for the impugned assessment year was also filed on 2-11-1989. according to the provisions of section 185(6) the time-limit available with the assessing officer to take a decision on the application for registration was upto 31st may, 1990 but till 31st may, 1990 neither any defect was intimated to the assessee nor the registration to the firm was refused by the assessing officer. in these circumstances, as per sub-section (6) the firm was deemed to have been registered under section !85 of the act. admittedly no independent proceedings under section 185 were initiated by the assessing officer and he simply made a reference with regard to the registration of the firm and asked the assessee to produce the partners for the first mine through its notice dated 10-5-1991 which was sent during the course of regular assessment for obtaining certain other information for framing the assessment.10. keeping in view the totality of the facts and circumstances of the case in the light of the relevant provisions of law, we are of the considered opinion that the assessing officer has not adopted correct procedure for examining the application for registration of the assessee. however, by virtue of sub-section (6) of sections 185 of the act, once the firm is deemed to have been registered, the assessing officer has no jurisdiction to examine the genuineness of the firm.this aspect was not examined by the cit(a). we, therefore, set aside the order of the cit(a) and direct the assessing officer to register the firm. accordingly, this appeal of the assessee is allowed.

Judgment:
1. This appeal is preferred by the assessee against the order of the CIT(A) for the assessment year 1989-90.

2. In this appeal the assessee has assailed the order of the CIT(A) on various grounds but all the grounds relate to refusal of registration which was confirmed by the CIT(A).

3. We have heard the rival submissions of the parties and carefully perused the orders of the authorities below and the documents placed on record.

4. The facts relating to the issue are that the assessee applied for registration of its partnership firm in Form No. 11 along with the copy of partnership deed on 23rd March, 1989. Subsequently, the return of income was also filed on 2-11-1989. While framing the assessment under section 143(3) of the Act, the Assessing Officer examined the genuineness of the partnership firm and after having not satisfied with its genuineness, the Assessing Officer refused to grant registration.

The refusal was challenged before the CIT(A) but the CIT(A) decided the appeal ex parte and confirmed the refusal of registration.

5. Now, the learned counsel for the assessee has raised a legal objection to the refusal of registration that the grant of registration under section 185 is an independent proceeding and if no action is taken on the application for registration till the expiry of period for serving notice as specified in the proviso to sub-section (2) of section 143(3) of the Act in respect of the return furnished by the assessee for that assessment year, the registration of the firm shall be deemed to have been granted. In the instant case, the assessee submitted Form No. 11 for registration of the firm on 23rd March, 1989 which was found to be in order by the Assessing Officer and subsequently the return of income for the impugned assessment year was filed on 2-11-1989. According to the proviso to subsection (2) of section 143 no notice under this section shall be served on the assessee after the expiry of the financial year in which the return is furnished or the expiry of six months from the end of the month in which the return is furnished, whichever is later. It means, according to section 185(6) the time-limit for initiating action on the application for registration of the firm available with the Assessing Officer was only upto 31st May, 1990 but the Assessing Officer did not initiate any action on the application for registration within the available period. Accordingly, the registration was deemed to have been granted by virtue of sub-section (6) of section 185 of the Act.

Ignoring the provisions of section 185(6) the Assessing Officer issued notice for the first time with regard to the genuineness of the partnership firm on 10-5-1991 and having not satisfied with the explanations of the assessee the Assessing Officer refused registration to the firm and framed the regular assessment. As such the refusal of grant of Registration is not proper in view of above provisions.

6. The learned Departmental Representative, on the other hand, has submitted that during the course of assessment the Assessing Officer asked the assessee to produce the partners so that the genuineness of the firm can be examined but the Assessee did not produce the partners despite various opportunities afforded to him. On legal issue the learned DR invited our attention to the proviso to sub-section (6) of section 185 of the Act and contended that this proviso has lifted the bar of limitation for grant of registration to the assessee. According to the proviso, if the Assessing Officer intimates the defect to the firm under sub-section (2), the provisions of sub-section (6) do not apply and the Assessing Officer is free to reject the application for registration if the defects are not rectified within that period. Since the Assessing Officer has asked the assessee to produce the partners and the assessee failed to produce the partners for their examination, the Assessing Officer has rightly rejected the application for registration.

7. On consideration of the rival submissions and from a careful perusal of the orders of the authorities below and the documents placed on record, we find that the Assessing Officer has made a reference of registration of the firm for the first time in the notice dated 10-5-1991 through which other information was sought for framing a regular assessment. Through this notice the assessee was asked to produce the partners for their examination to ascertain the genuineness of the constitution of the partnership firm. No independent notice with regard to the registration of the firm was issued by the Assessing Officer though according to the provisions of section 185 of the Act, the Assessing Officer is required to intimate the defects to the firm as per its sub-section (2) if he was not satisfied with the genuineness of the firm and its constitution. For grant of registration to the firm a specific procedure has been laid down under section 185 of the Act which means the registration of the firm is an independent proceeding and it should not be clubbed with the regular assessment.

For granting registration a specific time-limit is provided under subsection (6) of section 185, according to which where a firm has made an application for registration in relation to an assessment year and has furnished the return for that assessment year, such firm shall be deemed to have been registered under this section on the expiry of the period for serving notice, as specified in the proviso to sub-section (2) of section 143 in respect of such return. It means, as soon as the assessee files the return after its application for registration, the limitation for taking a decision on its application for registration starts and the Assessing Officer is required to take a decision on its before the expiry of the period for serving a notice as specified in the proviso to sub-section (2) of section 143 in respect of such return, if the defects are not intimated to the firm under subsection (2) of section 185 of the Act. For ready reference, we reproduce sub-section (6) and its proviso to section 185 as under :- "(b) Notwithstanding anything contained in sub-sections (1) to (4), where a firm has made an application for registration in relation to an assessment year and has furnished the return for that assessment year, such firm shall be deemed to have been registered under this section on the expiry of the period for serving notice as specified in the proviso to sub-section (2) of section 143 in respect of such return.

Provided that nothing in this sub-section shall affect the power of the Assessing Officer to intimate the defect to the firm under sub-section (2) and where any such intimation is sent, all the provisions of sub-section (2) shall apply." 8. In the light of the phraseology used in sub-section (6) and its proviso we do not find much force in the arguments of the revenue that once the defect is intimated to the assessee though beyond the period of limitation in which the Assessing Officer is required to take a decision on the application for registration, the Assessing Officer is at liberty to reject the application under sub-section (2) of this section. From a careful reading of section 185 only one inference can be drawn that the legislature had laid down separate and independent procedure for grant of registration to the firm. On receipt of the application for registration, the Assessing Officer is required to pass an order in writing registering the firm if he is satisfied with the existence of a genuine firm with its constitution and if he is not, he may pass an order refusing to register the firm. 'Whenever the Assessing Officer feels that the application for registration is not in order, he may intimate the defects to the firm and provide an opportunity to rectify the defect, If the defects arc rectified and the Assessing Officer is satisfied with the genuineness of the firm, he may grant the registration otherwise not. While giving liberty to the Assessing Officer the legislature has also fixed the time-limit under which the registration is to be granted and if the registration is not granted by the Assessing Officer within that time-limit, it shall be deemed to have been granted. For this purpose subsection (6) was incorporated in section 185. Taking into account the time consumed in making enquiry or the time taken by the assessee for removing the defect, the proviso to sub-section (6) was also introduced according to which if the Assessing Officer intimated the defect within the period of limitation prescribed as per sub-section (6), the Assessing Officer shall take a decision on registration as per sub-section (2) and the time-limit prescribed in sub-section (6) is not applicable. But once the time-limit prescribed under sub-section (6) is over and no defect was intimated to the assessee, the firm shall be deemed to have been registered under subsection (6) and thereafter by issuing any defect the proviso to this subsection cannot be invoked.

9. Coming to the facts of the case we find that Form No. 11 along with the partnership deed was submitted on 23rd March, 1989 and thereafter the return for the impugned assessment year was also filed on 2-11-1989. According to the provisions of section 185(6) the time-limit available with the Assessing Officer to take a decision on the application for registration was upto 31st May, 1990 but till 31st May, 1990 neither any defect was intimated to the assessee nor the registration to the firm was refused by the Assessing Officer. In these circumstances, as per sub-section (6) the firm was deemed to have been registered under section !85 of the Act. Admittedly no independent proceedings under section 185 were initiated by the Assessing Officer and he simply made a reference with regard to the registration of the firm and asked the assessee to produce the partners for the first Mine through its notice dated 10-5-1991 which was sent during the course of regular assessment for obtaining certain other information for framing the assessment.

10. Keeping in view the totality of the facts and circumstances of the case in the light of the relevant provisions of law, we are of the considered opinion that the Assessing Officer has not adopted correct procedure for examining the application for registration of the assessee. However, by virtue of sub-section (6) of sections 185 of the Act, once the firm is deemed to have been registered, the Assessing Officer has no jurisdiction to examine the genuineness of the firm.

This aspect was not examined by the CIT(A). We, therefore, set aside the order of the CIT(A) and direct the Assessing Officer to register the firm. Accordingly, this appeal of the assessee is allowed.