1. This is an appeal by the revenue. The assessee is a partnership firm and this appeal relates to its assessment, for the assessment year 1978-79, for which the previous year was Samvat year 2034. The assessee filed its return of income for this year on 31-7-1978, declaring an income of Rs. 12,000. The ITO issued a notice under Section 143(2) of the Income-tax Act, 1961 ('the Act'), on 19-2-1982 requiring the assessee to attend on 3-3-1981 to substantiate with evidence the income returned by it. How-ever, there was no response and none attended. The ITO, therefore, felt that there was no other way but to complete the assessment to the best of judgment under Section 144 of the Act. He held that the assessee had filed a statement of profit and loss account, which was not corroborated by any evidence. In the absence of any details and data, he estimated the net income of the assessee at Rs. 25,000 and treated the firm as an unregistered firm. This order was passed by the ITO on 3-3-1981.
2. The assessee appealed against this order to the AAC and contended that the estimate of income made by the ITO was without any basis or reasons, that the assessee was a registered firm, that it had filed a declaration in Form No. 12 for this year on 19-1-1978, as per the official receipt No. 018562, dated 19-1-1978, issued by the income-tax office and that, therefore, the ITO was not justified in determining the status of the assessee to be that of an unregistered firm. It was, further contended that the ITO erred in not passing an order under Section 184(7) of the Act.
3. Considering the above contentions, the AAC held that the ITO had not given any basis for estimating the income of the assessee at Rs. 25,000. He held that the assessment framed without any basis and income determined thereon could not be sustained. He, therefore, set aside the assessment for being made de novo. He further directed the ITO to pass an order under Section 184(7), in accordance with the provisions of law, while finalising the fresh assessment. The revenue feels aggrieved by this order of the AAC and has come up in appeal to the Tribunal.
4. I have heard Shri A.K. Nagpal, learned departmental representative and Shri N.M. Parikh, learned chartered accountant for the assessee and carefully considered their submissions in the light of the materials placed before me.
5. I am of the considered view that the order of the AAC is correct on the peculiar facts and in the circumstances of the present case and does not call for any interference at my hands, except to the extent to be indicated by me hereinafter. The learned counsel has filed before me a copy of the petition filed by the assessee under Section 146 of the Act on 7-4-1981, requesting the ITO to reopen the best judgment passed by him on 3-3-1981. He further submitted that on the same day, the assessee had filed the appeal against the best judgment assessment to the AAC. The learned counsel submitted that this was the last year of the business and that the assessee-fim was dissolved on 24-10-1976. He further submitted that the assessee-firm had filed a notice of dissolution of the firm with the ITO on 19-1-1978, the date on which it had also filed the declaration in Form No. 12 for the year under appeal. The learned counsel submitted that the ITO was not justified in observing that the assessee had not filed a declaration in Form No. 12, in his order passed under Section 185 of the Act. He further pleaded that the ITO had not disposed of the assessee's petition filed under Section 146 on 7-4-1981.
6. The argument on the side of the revenue is that in view of the time limit of 90 days contained in Section 146(2) for passing an order under Section 146(1), the ITO cannot pass an order in the present case on the assessee's application. But, at the same time, the revenue objects to the setting aside of the assessment by the AAC on the ground that there was no justification for the same. This was met by the learned counsel by pointing out that under Section 251(1)(a) of the Act, the AAC has ample powers to set aside an assessment and refer the case back to the ITO for making a fresh assessment in accordance with the directions given by him.
7. I find considerable force in the submissions made on behalf of the assessee. The revenue cannot have it both ways, by refusing to dispose of the application filed by the assessee under Section 146 on the plea that the time limit provided in Section 146(2) had expired and to order of the AAC, who set aside the assessment, for the reasons stated above.
It is not denied that the assessee had filed an application under Section 146 on 7-4-1981 and that the said application is still pending.
Section 146(2) reads as follows : (2) Every application made under Sub-section (1) shall be disposed of within ninety days from the date of receipt thereof by the Income-tax Officer : This provision, in my view, is not intended as a fetter on the power of the ITO to be exercised by him under Section 146(1). On the contrary, this is a direction to the ITO to dispose of the assessee's application under Section 146 as expeditiously as possible, namely, within 90 days from the receipt of the application by the ITO. But, if an ITO is unable to dispose of an application received by him under Section 146, within the said period of 90 days, it does not mean that the ITO has become functus officio and that the assessee would be deprived of his right conferred by Section 146(1) to have the best judgment assessment cancelled under the said provisions of law. I an unable to agree with the learned departmental representative that after the expiry of the period of 90 days mentioned in Section 146(2), the ITO had no power to pass an order under Section 346(1). I am also unable to agree with the learned counsel for the assessee that an omission on the part of the ITO to pass an order within the said period of 90 days would mean that the best judgment assessment passed under Section 144 would get cancelled automatically by itself without any order to that effect.
There is no such provision anywhere in the income-tax law to support the two extreme contentions put forward on behalf of the assessee and the revenue. On the contrary, it would be just, fair and reasonable to construe the provisions of Section 146(2) as a direction to the ITO to dispose of the application under Section 146(1) filed by the assessee, as expeditiously as possible, namely, within 90 days of the receipt, if that is possible or any other extended period. It does not mean that after the period of 90 days, the ITO will become powerless to pass an order under Section 146(1). The statute does not say so and we should not also read the statute in this manner to make it unworkable.
8. I have already referred to the facts pleaded by the assessee's learned counsel which clearly showed that the assessee-firm had also filed a declaration in Form No. 12, apart from giving a notice of dissolution of the firm on 19-1-1978. In the circumstances discussed above, the AAC was fully justified and well within his powers in setting aside the assessment with the direction to the ITO to make a fresh assessment. He was also right in directing the ITO to consider the declaration in Form No. 12 filed by the assessee, as the order passed by him under Section 185 was patently erroneous. In fact, in an appeal filed under Section 246(c) of the Act, it is open to the assessee to object to the status under which he is assessed. In the present case, the assessee objects to the status of unregistered firm taken by the ITO in the assessment order.
9. In the interests of justice, I would, therefore, direct the ITO to first dispose of the application filed by the assessee under Section 146 on 7-4-1981 and then make a fresh assessment in accordance with the directions issued by the AAC in his order. With these observations, I confirm the order of the AAC and dismiss the appeal.