1970 (2) TMI 48 - HC - Income Tax

Undisclosed profits - genuineness of the partnership - whether refusal to registration under section 26A is justified

Summary

Issues:
1. Justification of the Appellate Tribunal in reversing the order of the Appellate Assistant Commissioner.
2. Entitlement of the applicant-firm to registration under section 26A of the Income-tax Act.

Analysis:

Issue 1:
The Appellate Tribunal reversed the Appellate Assistant Commissioner's order based on the decision in Commissioner of Income-tax v. G. M. Chennabasappa. The assessee's counsel argued that the accounts, deemed improperly maintained, should not have been used to determine the concealed income. However, this argument was not raised before any income-tax authority or the Tribunal. The burden of proof lies with the assessee to show that cash credits are not income. As the explanation provided was unsatisfactory, the Tribunal was justified in following the decision in Chennabasappa. The Tribunal's decision was upheld, and the first question was answered against the assessee.

Issue 2:
The applicant-firm, established under a partnership deed, applied for registration under section 26A. Although a sum was undisclosed as income, the firm's existence and genuineness were not in question. The failure to divide profits among partners as per the partnership deed does not automatically disqualify the firm from registration. The Supreme Court's ruling in Commissioner of Income-tax v. Sivakasi Match Exporting Co. and a similar view in a previous case support that as long as the firm is genuine and constituted as per the partnership deed, it should not be denied registration. Therefore, the second question was answered in favor of the assessee.

In conclusion, the judgment favored the department on the first issue and the assessee on the second issue. No costs were awarded in this case.