ORDER
R. Acharya, A.M.
1. This is an appeal instituted by the Revenue against the order of the CIT(A) for asst. yr. 1991-92 on the following grounds :
“1. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that merely because Form Nos. 11A and 12 are filed, registration cannot be thrust on the assessee.
2. On the facts and in the circumstances of the case, the learned CIT(A)-I erred in holding that registration cannot be granted even though the requisites for registration prescribed by the statute were satisfied and the AO was bound to give registration.
3. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that taxing the firm as ‘unregistered firm’ is in the interest of the Revenue”.
2. Briefly stated facts of this case are that in this case, a notice under s. 148, dt. 2nd July, 1992, has been issued. The assessee has filed return of income on 29th March, 1994, and has declared therein total income at Rs. 15,00,300. The return filed by the assessee was not processed under s. 143(1)(a) for the reason that this would result in refund. In response to notice under s. 143(2) of the Act, Sri R. R. Paliwal, Accountant of the firm attended from time to time and explained the return with the help of books of account, bill, vouchers, etc.
3. The assessee, in the return of income filed by it on 29th March, 1994, has shown and treated the status as unregistered firm while finalising the assessment, the AO found that the assessee has filed partnership deed along with the Form No. 11A on 3rd May, 1990, and has also filed Form No. 12 on 23rd August, 1991. He further observed that in addition to that the assessee has enclosed a photocopy of the partnership deed along with the return. In view of the above, the AO denied the claim of the assessee and treated the firm as registered firm. He passed an order under s. 185 which is reproduced as under :
“There was a change in the constitution of the firm as one of the partners Shri Rajendra K. Sancheti retired w.e.f. 31st March, 1990, and two new partners entered in the firm, i.e., Sri Abhay Sancheti & Sri Ajay Sancheti w.e.f. 1st April, 1990. The assessee-firm filed the deed of partnership on 3rd May, 1990, along with Form Nos. 11 and 11A. As the same was in time and in order, and I am satisfied that genuine firm was in existence during the year under consideration, hence the registration is granted to the firm for the asst. yr. 1991-92”.
4. Being aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A) on the following grounds :
“1. That the learned AO has erred in making assessment in the status of registered firm as against return of income filed by unregistered firm without any opportunity in this regard.
2. That on the facts and in the circumstances of the case the learned AO ought not have granted benefit of registration to the assessee.
3. That the assessment in the status of registered firm is bad in law and void ab initio.
Before CIT(A), the assessee argued that the AO has erred for the following reasons in changing the status of the firm as ‘registered firm’.
(1) The return was filed showing the status as “unregistered firm”, this return was signed and verified. There was no typographical mistake in this regard.
(2) The assessment was finalised under s. 143(3) and at no stage claim for registration was made by the authorised representative.
(3) Under s. 183(b), an unregistered firm can be treated as a registered firm provided tax payable by the firm and the tax payable by the partners individually would be greater than tax payable by the unregistered firm. In this case, the tax paid by the unregistered firm is Rs. 9,43,223. Tax payable by the firm taking the status as registered firm and the taxes payable by the partners on the share income from the firm is Rs. 8,30,437. Hence s. 183(b) cannot be applied.
(4) AO is his assessment order has not invoked s. 183(b).
(5) The status shown by the tax payer in the return cannot be changed automatically unless there is legal basis which is not the case here.”
5. It was further submitted that even if it is held that the status of the firm is “registered firm”, the refund should be granted as the decision of the Supreme Court laid down in the case of CIT vs. Sun Engg. Works (P) Ltd. (1992) 198 ITR 297 (SC), would not apply to the facts of the case, as in this case, the assessment has been taken for the first time under s. 143(3) r/w s. 147 and no assessment prior to one under reference was ever made. It was also clarified that there are 5 partners with 20 per cent shares.
6. The CIT(A) was entirely in agreement with the assessee-counsel’s contentions and arguments that the status of the firm cannot be changed to registered firm when the return was filed in the status of ‘unregistered firm’ and that no legal provisions are invoked or applicable to change the status. According to CIT(A) merely because the Form Nos. 11A and 12 and filed, registration cannot be thrusted on the assessee when s. 183(b) is not invoked. He also pointed out that in fact taxing the firm as ‘unregistered firm’ is in the interest of the Revenue and accordingly he allowed the appeal of the assessee.
7. Being aggrieved by the order of the CIT(A), the Revenue has preferred this appeal to the Tribunal on the grounds mentioned in para 1 (supra).
8. The learned Departmental Representative invited our attention to para 9 of the assessment order, order under s. 185 and para 4 of the CIT (A)’s order and submitted that the CIT(A) was not justified in holding that the registration cannot be granted to the assessee on the facts and the circumstances of the case. She further submitted that the AO has passed separate assessment order and separate order for registration under s. 185. According to her, if the status of the assessee is taken by the Department as unregistered firm, it is appealable under s. 246, but, the registration already granted cannot be cancelled by the CIT(A). He also argued that whether there is loss of revenue or not is immaterial and if all the conditions are fulfilled, the registration has got to be granted by the AO. She further pleaded that the registration continues if declaration in Form No. 12 is filed and registration has got to be granted if the intimation in Form No. 11A is filed when there is change in the constitution of the firm. According to her, since all the conditions are fulfilled, the AO was justified in granting the registration to the firm and therefore, the CIT(A) was absolutely wrong on facts as well as in law. According to her, the AO has not applied the provisions of s. 183(b) of the Act. In order to support her arguments and contentions, the learned Departmental Representative placed reliance on the following case laws.
(i) CIT vs. Amritlal Bhogilal & Co. (1958) 34 ITR 130 (SC);
(ii) CIT vs. Nagappa Abdulpurkar (1978) 114 ITR 375 (Bom); and
(iii) CIT vs. Amar Singh Gowamal & Sons. (1986) 161 ITR 315 (SC).
9. The learned counsel, on the other hand, submitted that the assessee does not want registration and therefore, on the facts and in the circumstances of the case, it cannot be thrusted upon the assessee. According to him, the assessee filed return showing its status as unregistered firm and therefore, the status should have been accepted as per return of the assessee. He pointed out that the AO has converted the status of the assessee from “unregistered firm” into “registered firm” by passing order under s. 185 of the Act which is in favour of the Department and therefore the Department is not aggrieved and cannot come in appeal. He also contended that since the AO had not invoked the provisions of s. 183(b) the Revenue cannot improve its case, now as they are applicable when application under s. 184 is rejected. Placing reliance on Orissa High Court’s decision in the case of CIT vs. Mahabir Fancy Store (1993) 202 ITR 553 (Ori), the learned counsel for the assessee further pleaded that two separate appeal should be filed in such cases.
10. In reply, the learned Departmental Representative submitted that the loss of revenue is heavy if the status of the assessee is treated as unregistered firm.
11. We have carefully considered rival contentions, relevant facts and materials placed on record and we have also gone through the case laws on which reliance is placed by both the parties.
12. The first contention of the assessee is that the return was filed showing the status as ‘unregistered firm’. In our opinion, the status of the ‘unregistered firm’ as claimed in the return cannot be treated as final and concluded as the ratio of Supreme Court’s decision in the case of CIT vs. Sun Engg. Works (P) Ltd. (supra) is not applicable and as accepted by the CIT(A) that no assessment prior to the one under consideration was ever made and that this is the first assessment under s. 143(3), r/w s. 147, the status claimed as unregistered firm cannot be treated and taken as finally concluded. Hon’ble Supreme Court in the case of Sun Engg. Works (P) Ltd. (supra) has held as under :
“Held, reversing the decision of the High Court, that, in reassessment proceedings, it was not open to the assessee to seek a review of concluded items unconnected with the escapement of income for the purpose of computation of the income escaping assessment, and, therefore, the Tribunal was right in holding that the respondent was not entitled to reagitate the question of the set off of losses in the reassessment proceedings.”
13. What the Hon’ble apex Court has laid down is that the review of concluded items in original assessment is not open in reassessment proceedings. In the instant case, as no assessment is originally made before the assessment under consideration, the status of the assessee claimed in the return has not obtained finality. No assessment under s. 143(1)(a) is made by the AO as mentioned in the assessment order. But, what is finalised under s. 143(3) is that the status of the assessee has been concluded and taken as “registered firm”. In our view, therefore, the ratio of Supreme Court’s decision in the case of Sun Engg. Works (P) Ltd. (supra) supports the view of the AO and not of the assessee.
14. It is wrong to say that at no stage, the claim of registration was made by the authorised representative of the assessee at the stage of proceedings under s. 143(3) of the Act. It is obvious from the assessment order that the AO had very clearly mentioned firstly that the authorised representative of the assessee attended from time to time and explained the return and secondly that the claim of the status of the assessee as unregistered firm is denied because the assessee has filed application in Form No. 11A and partnership deed on 3rd May, 1990. It is thus, crystal clear that the AO has taken decision after discussing the matter with the authorised representative of the assessee and after considering the application for registration, declaration and partnership deed, as the assessment order is framed after scrutiny under s. 143(3) of the Act. The return of income and the status claimed therein were subjected to the scrutiny under s. 143(3) of the Act with reference to declaration in Form No. 12, applications in Form Nos. 11 and 11A and Partnership deed and the registration was granted after the AO was satisfied that application is in time and order and genuine firm has come into existence. Thus, the contention of the assessee that at no stage claim for registration is made, is reversed by the documentary evidence.
15. We find that the points mentioned at sub-paras (3) and (4) of para 3 of the CIT(A)’s order relating to application of provisions of s. 183(b) of the IT Act are absolutely irrelevant as the AO has neither invoked nor applied the same as admitted by the assessee.
16. The 5th contention of the assessee before the CIT(A) was that the status shown by the assessee cannot be changed automatically unless there is any legal basis which is not the case here, is also neither correct nor tenable. Firstly, because the status of the assessee has not been changed automatically, but it has been changed deliberately by the AO after discussion with the authorised representative of the assessee who explained the return including the status claimed therein. Secondly, there is a legal basis available to the AO and therefore, the AO has changed the status of the assessee from ‘unregistered firm’ to “registered firm” on the basis of the applications of the assessee in Form Nos. 11 and 11A filed under the provisions of ss. 184 and 185, r/w r. 22 of the IT Rules, 1962. Assessee has filed application for registration in Form Nos. 11 and 11A along with the partnership deed on 3rd May, 1990, indicating a change in the constitution of the firm. According to the AO, as applications were in time and order and genuine firm has come into existence, he granted registration to the firm. It is noticed that the AO has passed a separate order under s. 185 of the IT Act, 1961, which is, in our view, legally correct. Our view is based upon Supreme Court’s decision in the case of Amritlal Bhogilal & Co. (supra) wherein it was held as under :
“An order granting registration to a firm under s. 26A of the Indian IT Act, 1922 merely affects or governs the procedure in collecting or recovering the tax found due from a firm and is separate from and independent of the order of assessment.”
17. Thus, we come to the conclusion that the findings of the CIT(A) that no legal provisions are invoked or are applicable to change the status is neither correct in the eyes of law nor is tenable.
18. According to legal provisions envisaged in IT Act and IT Rules and according to the principles laid down by the Supreme Court in the case of R.C. Mitter & Sons vs. CIT (1959) 36 ITR 194 (SC) at 198, if the following essential conditions are fulfilled, a firm is entitled to registration :
(1) the firm should be constituted under an instrument of partnership specifying the individual shares of partners;
(2) an application on behalf of, and signed by, all the partners, containing all the particulars as set out in the Rules, has been made;
(3) the application has been made before the assessment of the income of the firm, made under s. 23 of the Act in the prescribed manner;
(4) the profits or losses if any of the business should have been divided or credited in accordance with the terms of the instrument; and
(5) The partnership must have been genuine and must actually have existed in conformity with the terms and conditions of the instrument.
19. In the instant case, we find that all these essential conditions are actually and legally complied with and fulfilled and, therefore, in our opinion the registration has correctly been granted by the AO to the assessee-firm.
20. We further notice that the CIT(A)’s conclusion that merely because Form Nos. 11A and 12 are filed, registration cannot be thrusted on the assessee when the provisions of s. 183(b) are not invoked is not only irrelevant but also legally incorrect. The application for registration in Form No. 11A addressed to the AO is filed by the partners on behalf of the assessee-firm in accordance with the provisions of r. 22(2)(ii) of IT Rules, 1962, giving prescribed particulars, declaration and certificate therein. Likewise, the declaration under s. 184(7), r/w r. 24 in Form No. 12 addressed to the AO is filed by the partners on behalf of the assessee. As the declaration in Form No. 12 and these applications in Form Nos. 11 and 11A are not withdrawn by the partners on behalf of the assessee-firm, the AO has rightly and legally acted upon because they were in time and order particularly the application in Form No. 11 which is relevant in this case. In view of this, the AO is legally correct within his competence and jurisdiction and, therefore, this is nothing wrong with his order passed under s. 185 of the Act. As all the conditions are fulfilled, the AO was bound to grant registration to the assessee-firm.
21. We derive authority and strength from the following Supreme Court’s decisions :
(1) in the case of CIT vs. A. Abdul Rahim & Co. (1965) 55 ITR 651 (SC) wherein it was held as under :
“It is settled law that if a partnership is a genuine and valid one, the ITO has no power to reject its registration if the other provisions of s. 26A and the rules made thereunder are complied with.”
(2) in the case of Agarwal & Co. vs. CIT (1970) 77 ITR 10 (SC) at p. 17 wherein it was held as under :
“The conditions of registration prescribed in this section and the relevant rules are : (1) on behalf of the firm, and application should be made to the ITO by such person and at such times and containing such particulars, being in such form and verified in such manner as re-prescribed by the rules; (2) the firm should be constituted under an instrument of partnership; (3) the instrument must specify the individual shares of the partners. (4) the partnership must be valid and genuine and must actually exist in the terms specified in the instrument. If all the above conditions are fulfilled, the ITO is found to register the firm unless the assessee has contravened s. 23(4) of the Act.”
We find that the CIT(A)’s observation that taxing the firm as unregistered firm is in the interest of Revenue is also neither correct nor tenable as contrary to that the learned Departmental Representative has emphatically argued that the loss of revenue is very heavy if the status’ is treated as ‘unregistered firm’. If the findings of the CIT(A) that taxing the firm as unregistered firm is in the interest of Revenue, is correct, this means that taxing a firm as ‘registered firm’ is in the interest of the assessee. If it was so, why has the assessee filed the first appeal against the order under s. 185 granting registration to the assessee-firm and how and why has CIT(A) redressed the grievance of the assessee and allowed the appeal. Wrong findings and contradictions in the order of the CIT(A) have led him to wrong conclusions and the decisions based on wrong conclusions cannot be upheld. Moreover, by taxing the assessee as a registered firm, even if there is loss to revenue since the assessee-firm, has fulfilled all the essential conditions, it cannot be denied registration. In the case of Nagappa Abdulpurkar (supra) in the Bombay High Court has held as under :
“Held that, in view of the clear finding of the Tribunal that the partnership was both valid and genuine and since there was no legal bar to the formation of such partnership, the firm was entitled to registration under s. 26A of the Indian IT Act, 1922, and such a firm cannot be denied registration merely because there would be some loss of revenue.”
In order to support the contentions and arguments, the learned counsel for the assessee has placed reliance on the decision of Orissa High Court in the case of Mahabir Fancy Store (supra) wherein it was held as under :
“An order of assessment and an order refusing registration to a firm are separate and distinct orders requiring separate appeals. Even if the ITO passes one single order making a best judgment assessment and refuses registration to a firm under s. 185(5) of the IT Act, 1961, separate appeals should be filed against such assessment and refusal.”
In our opinion, the ratio of Orissa High Court in the case of Mahabir Fancy Store (supra) is not applicable to the present case as the facts are altogether different. We notice the following distinguishing features :
(i) While in the case of Mahabir Fancy Store (supra) assessment was completed ex parte under s. 144 of the Act, in the instant case, assessment order is passed under s. 143(3) of the IT Act.
(ii) In that case, for non-compliance of notices issued by the ITO, ex parte assessment order was passed and the status of the assessee was treated as “unregistered firm”. But, in the instant case, since all the conditions are fulfilled, registration is granted and the status is treated as “registered firm” on the basis of applications for registration and partnership deed.
(iii) In the case of Mahabir Fancy Store, consolidated order of assessment and refusal of registration was passed, but in the instant case, separate orders are passed under s. 143(3) and under s. 185 of the Act respectively.
(iv) In that case, the assessee had questioned the refusal of registration while in the instant case, the assessee had challenged granting of registration to the assessee-firm.
Thus, in our opinion, in noway and in no manner this case law helps the cause of the assessee as the facts and the circumstances in both the cases are altogether different and varying ones. In the case of the assessee, there is change in constitution of the firm and all the partners have filed application in Form No. 11A along with partnership deed. The AO found that the application is in time and order and a genuine firm has come into existence. He, therefore, granted the registration to the firm by passing an order under s. 185 of the Act. In our opinion, the AO is fully justified on facts and circumstances of the case.
In the case of Amar Singh Gowamal & Sons (supra) where there is a change in the constitution and a new deed came into existence, the Hon’ble Supreme Court held as under :
“Held accordingly, affirming the decision of the High Court, that the application filed by the firm was in accordance with r. 22(4)(ii) of the IT Rules, 1962, and the application filed in Form No. 11A was a good and valid application.”
22. In the instant case, we find that the assessee has not challenged and controverted the facts mentioned by the AO in his order under s. 185. It is also not the case of the assessee that all the conditions required for the registration have not been fulfilled by the assessee. As all the formalities for registration are observed, and all the conditions are fulfilled, in our opinion, the AO was justified in granting registration to the firm. Since the assessee has failed to support the order of the CIT(A) by producing solid material and by adducing cogent evidence, the order of the CIT(A) is reversed and quashed and the order of the AO is restored for the reasons mentioned in the foregoing paragraphs.
23. In the result, the appeal of the Revenue is allowed.