Bharat Construction Company vs CIT

The Income Tax Appellate Tribunal, Allahabad has referred the following question of law u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for opinion to this Court:

(1) Whether the Tribunal was legally justified in upholding the order of the assessing officer, refusing to renew the registration without issuing show-cause notice and without affording any opportunity of being heard to the Assessee for explaining the delay in furnishing the declaration within the specified time contemplated u/s 184(7)?

Briefly stated the facts giving rise to the present reference are as follows:

The reference relates to the assessment year 1992-93. The applicant is a partnership firm. For the assessment year in question it did not file its return of income within the specified period whereupon notice u/s 142(1) of the Act was issued requiring it to file the return. When the return was not filed, a notice u/s 148 was issued but for reasons best known to the applicant, it did not file the return within the specified time. However, it filed the return of income on 31-3-1994. The assessment proceedings were taken ex parte. We may mention here that along-with the return of income which was filed on 31-3-1994 the applicant had also filed the declaration in the prescribed Form 12 for continuation of the registration. The assessing officer while passing the assessment u/s 144 of the Act refused the continuation of registration on the ground that the declaration was not filed within the time specified u/s 139 of the Act and the same is not in order. The appeal preferred by the applicant before the Commissioner of income tax as also the Income Tax Appellate Tribunal in so far as is the question of continuation of registration was rejected.

We have heard Sri Krishna Agrawal, learned Counsel for the applicant and Sri A.N. Mahajan, learned standing counsel appearing on behalf of the revenue.

Sri Krishna Agrawal, learned Counsel submitted that the assessing authority himself while refusing to grant continuation of registration had treated the declaration as to be not in order and, therefore, the provisions of Section 185(3) would be applicable and the applicant was entitled for an opportunity. He has placed reliance upon the decision of the apex Court in the case of CIT v. Ashoka Engineering Co. (1992) 194 ITR 645 wherein the apex Court has held as follows (pages 649-50):

It will be appreciated that, even if an application is filed before the Income Tax Officer which prima facie appears to be out of time, the Income Tax Officer cannot straightaway reject it or refuse to entertain it. He will have to give an opportunity to the Assessee to show cause as to how it can be entertained. Sometimes, even his impression that there is delay may itself be shown to be wrong. If the Assessee satisfies the Income Tax Officer that there was sufficient cause, then the application has to be entertained by the Income Tax Officer. In other words, the defect that the application was beyond time stands remedied and the application is in order.

On the other hand, if delay is not condoned, the officer rejects the application as not in order. The defect need not be something in the application. It can also be one in the procedure prescribed for making the application. In our opinion, there is nothing artificial or strained in the interpretation placed by the High Courts that cases where registration is refused for the reasons set out in Section 184(4) or (7) are really cases where there is an order refusing registration to the firm by rejecting its application within the meaning of Section 185(2) or (3).

Sri Mahajan, learned standing counsel however, submitted that if the 5 declaration was not filed within the stipulated period there was no question of any defect to be removed and secondly no opportunity is required to be given to the Assessee. The submission of Sri Mahajan is wholly misconceived. The apex Court in the case of Ashoka Engineering Co. (1992) 194 ITR 645 had also held that even a declaration which has been filed beyond time is to be treated to be not in order and the Assessee is entitled for an opportunity to explain the circumstances under which the declaration was not filed within time.

In view of the settled legal position, we are of the opinion that the applicant is entitled of being heard prior to the declaration being rejected.

Accordingly, we answer the question referred to us in the negative i.e. in favor of the Assessee and against the revenue. However, on the facts and circumstances of the case, there shall be no order as to costs.