TMI Blog1991 (2) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... said Fashions in respect of export of fabrics as per the agreement specifying certain rate of commission on the export sales made by the assessee. The ITO in his assessment order has noted that the assessee is carrying on the business of selling cloth for the last many years and substantial portion of it was for export sale made to foreign nationals against payment in foreign currency and that therefore this business was not new and the only fact was that there has been an increase in turnover of export sales by Rs. 9,00,000. According to him the assessee was trying to divert its income by forming another firm of the same partners because a minor could not be considered a partner of the Fashions. He has recorded that one of the partners had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was not new to the business. Partners in both the firms were the same except for minor who was not a partner and it was impossible to believe that this school boy could procure any business. He has reiterated his observation in the assessment order noted above. From these observations he has concluded that there was no business exigency for payment of the commission. He concluded as under: "Claiming an item of expenditure as a deduction which has been recorded in order to reduce the taxable income and then furnishing of inaccurate particulars though not deliberate but is the result of gross or wilful neglect, attracts the mischief of the provisions of s. 271(1)(c) of the IT Act. The onus is on the assessee to prove that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the two firms were separate was a question of law and so no penalty could be imposed as a result of that. He also stated that it was necessary to start the new firm because the partners decided that the activities should be conducted by another firm and that the new firm was dealing in silk materials which was not dealt with by the assessee firm. He submitted that the decision on which the ITO relied has been overruled. He also relied upon the following decisions: CIT vs. Calcutta Credit Corpn. (1986) 56 CTR (Cal) 142 :(1987) 166 ITR 26 (Cal), Sir Shadilal Sugar General Mills Ltd. Anr., vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC). CIT vs. Haji Gaffar Haji Dada Chini (1987) 63 CTR (Bom) 130 : (1989) 169 ITR 33 (Bom) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns not merely as a legal entity but as a material entity having a real existence which was a matter of consideration. That being so we are of the view that grant of registration to Fashions is not material for our purpose and the distinction made by the learned departmental representative is quite justified. The facts are that the partners are the same. The existence of minor in Fashions is of hardly any relevance. He is merely their nephew and the work has to be done by the partners and the responsibility has to be taken by them. It cannot be said that the partners are functioning in two different capacities in the two firms and so the commission has to be paid by the assessee to Fashions. The contribution by the minor by canvassing the cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be so interpreted that even if all the material facts are disclosed by the assessee he would be guilty of concealment. Such a conclusion has to be viewed with caution. The above quotation shows that the explanation which the assessee gave must be with respect to facts and not with regard to any claim. Therefore if the explanation is regarding any claim i.e., as to how the assessee justifies the claim it cannot come within the scope of Explanation I. A claim is only an assertion of a right based on a fact and not the fact itself. The assessee after giving all the facts has sought to justify his claim on the basis of certain facts. This may or may not be accepted so as to justify the claim but that does not mean that the said Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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