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2005 (9) TMI 267 - AT - Income TaxAssessment As AOP - registration of the firm - deduction on account of remuneration and interest to partners - failure on the part of the firm as mentioned in s. 144 of the Act - Addition u/s 68 - HELD THAT:- In the present case, due to the non-co-operative attitude of the assessee, there may be justification on the part of the AO to make the assessment u/s 144 of the Act. However, s. 184(5) does not come into operation automatically when the assessment is made u/s 144 of the Act. Had that been the case, then the provisions would have been worded somewhat in this manner: "Where an assessment is made u/s 144 of the Act, the firm shall not be assessed as such for the said assessment year and, thereupon, the firm shall be assessed in the same manner as an AOP, and all the provisions of this Act shall apply accordingly." However, this is not the situation. Sec. 184(5) comes into play only when there is a complete failure as mentioned in s. 144 of the Act. The situational difference has to be noted while applying the failures while making assessment u/s 144 and while applying them for the purposes of s. 184(5) of the Act. While making an assessment u/s 144, due to non-compliance, the AO may find it difficult to determine the exact income of the assessee and, therefore, may have to resort to best judgment. However, while applying those failures for the purpose of s. 184(5), the failure has to be complete, because that would give rise to the presumption that the firm is not genuine and, hence, cannot be treated and assessed as such. Mere non-co-operation on the part of the assessee, cannot render the firm to be non-genuine. In the present case, the several failures to comply with the notices may have rendered the determination of the correct income of the assessee, but that certainly does not lead to the conclusion that the firm is not genuine and, therefore, has to be assessed as an AOP. In the light of this discussion, we hold that the AO was not justified in treating the assessee as an AOP and direct the AO to treat it as a firm. In the result, the appeal of the assessee is allowed. Addition u/s 68 - Merely on the basis of the terms of partnership, it cannot be presumed that the assessee must have maintained any books of account. As a matter of fact, even the AO has accepted this position as fait accompli which drove him to determine the income on estimate basis. Therefore, now it does not lie in the mouth of the learned Departmental Representative to presume the existence of books of account. We are also in agreement with the contention that this being the first year of the assessee's business and since the capital is stated to have been introduced right from the first day of the partnership, there is no basis to presume that the assessee must be having any undisclosed income. This was also the view expressed by the Supreme Court in the case of CIT vs. Bharat Engg. & Construction Co. [1971 (9) TMI 14 - SUPREME COURT]. Thus, considering all these aspects, we confirm the deletion of the addition. In the result, the appeal of the Department is dismissed. Summarizing the result of this order, the appeal of the assessee is allowed and the appeal of the Department is dismissed.
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