TMI Blog2001 (3) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... irms were dissolved on 12th Nov., 1985, i.e. by the end of S.Y 2041 (asst. yr. 1986-87). A dissolution deed in the case of M/s Jaguste Tandale Co. was duly entered into by the partners. Similarly, the firm M/s Ganesh Trading Co. also was dissolved on 12th Nov., 1985. Though the deed of dissolution was also entered into an 25th Oct., 1986, it has been made effective from 12th Nov., 1985. Notice to the Registrar of Firms was duly given, a copy of which has been placed on p. 9 of the paper book. Notice of dissolution was also given to the ITO by letter, dt. 23rd Feb., 1988. A public notice also was given in the local newspapers, copy of which has been placed on p. 6 of the paper book. These facts clearly show that not only these two firms were dissolved by 12th Nov., 1985 (asst. yr. 1986-87), but their dissolution was also informed to the Registrar of firms, the ITO and also to the general public. 3. There was a search under s. 132 of the IT Act on 4th Oct., 1989, on the residential premises of Shri Jaguste and Shri Tandale. A statement of Shri Tandale was recorded at the time of search. At the time when the search took place, it was within the knowledge of the Department that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In his order, he has referred to the concerned years as asst. yrs. 1981-82 to 1986-87. The CIT stated that the petitions of the assessees were vague and were, therefore, rejected. 6. Since the firms had not filed returns for the asst. yr. 1986-87 onwards, notices under s. 148 were issued on 14th Nov., 1990, to both the firms. It appears that both the firms did not file returns for the asst. yr. 1986-87, but filed returns for the asst. yrs. 1987-88 to 1989-90 declaring NIL income. 7. The AO completed the assessments ex parte under s. 144 r/w s. 147 and added a sum of Rs. 1,50,000 in each of the year as per the declaration under s. 132(4) of the Act. 7.1. On appeal, the CIT(A) deleted in all the years addition of Rs. 1,50,000 made on the basis of declaration under s. 132(4), vide detailed order in the case of M/s Jaguste Tandale Co. 8. In M/s Ganesh Trading Co., these additions were also deleted by the CIT(A) by following his reasoning in the case of M/s Jaguste Tandale Co. The reasons given by the CIT(A) are as follows: (i) The search and seizure operation took place on 4th Oct., 1989, i.e. more than four years of the date of dissolution of the firms. The dissolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 1989-90 and the Department had just brought to tax the income offered for taxation in accordance with the option exercised by the interested person on behalf of the said firms. He further submitted that the CIT(A) erred in not appreciating that the declaration made under s. 132(4) has evidentiary value as contemplated in the said section and the said evidence was utilised for bringing to tax the undisclosed income voluntarily offered for taxation for the asst. yrs. 1986-87 to 1989-90. He further submitted that the CIT(A) erred in not appreciating the fact that the declaration of income made by the interested person (partner) was not under pressure or duress, as such a pressure or duress was not borne out by the records. Accordingly to the learned Departmental Representative the CIT(A) erred in not appreciating the fact that by deeming fiction of law as contained in s. 176(3A), the dissolved firm had remained continued after its dissolution and the conduct of the interested person (partner) in resorting to s. 132(4) and in opting to declare income under s. 132(4) itself supports the continuance of the firm. In support of this contention, he relied upon by the following judgments: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made to the CIT Kolhapur, where the assessees wanted spread over to be given to the amount of Rs. 12 lakhs not to the asst. yr. 1986-87 onwards, but earlier years, i.e., from asst. yrs. 1981-82 to 1986-87. But such proposal has been turned down by the CIT. If the proposal made by the assessees was turned down, such an offer for being assessed on any income cannot be used by the Department for making assessment. In Addl. CIT vs. Kanhayalal Jessaram (1977) 106 ITR 168 (MP), the Hon ble Madhya Pradesh High Court has held that, "if the offer for settlement is not accepted and if the Department insists on deciding the assessment case on merits, any facts said to be disclosed in such offer have to be altogether excluded. It was incumbent on the Department to have furnished the requisite material showing that the assessee s son D was the assessee s Benamidar. Any admission made in the offer for settlement under s. 271(4A) could not be accepted when the offer was not accepted by the Department." Similar observations have also been made by the Hon ble Calcutta High Court in CIT vs. National Alloy Metal Works (P) Ltd. (1989) 176 ITR 299 (Cal). 14. As regards the evidentiary value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the premises of the company and all its managing directors and other directors in February, 1988. No unaccounted money or incriminating documents were discovered during the course of search. During the course of assessment, the assessee had claimed deduction of Rs. 97,67,301 being commission on sale of spare parts. The ITO relying on the statements of the managing director of the assessee in the course of search disallowed a sum of Rs. 56.16 lakhs. In appeal, the CIT(A) sustained disallowance to some extent. In the Tribunal, appeals filed by the Revenue were dismissed and the appeals filed by the assessee were allowed. On a reference to the High Court, the Hon ble Andhra Pradesh High Court held that under the provisions of s. 132(4) as it existed at the relevant time, question of examining any person by the authorised officer would arise only when he finds such person to be in possession of any undisclosed money or books of account. But in the case before them, it was admitted by the Revenue that on the dates of search, the Department was not able to find any unaccounted money, unaccounted bullion nor any other valuable articles or things, nor any unaccounted documents nor any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these authorities permit any assessment being made of any income after the firm has been dissolved. In fact, in Nagarlal Baijnath vs. CIT what the Hon ble Bombay High Court held was that even after discontinuance of the firm on dissolution or otherwise, the firm can be considered as continuing so far assessment of its pre-dissolution income is concerned and the assessment or reassessment of such a firm after dissolution can under s. 44 of the IT Act, 1922 be made in the same manner as under the IT Act. In Shivram Poddar vs. ITO, it was held that a firm by its discontinuance of its business does not cease to be liable to pay tax on the income earned by it. A firm if it has discontinued its business, whether it is dissolved or not either under s. 25(2) in the year of account in which he discontinued business or year of assessment. There is no dispute about these legal provisions. In fact under s. 189 of the IT Act, an assessment of a dissolved firm is permissible. We are not concerned in this case about the validity of the assessment of a firm which is already dissolved. The question here is whether a dissolved firm could be said to have earned any income after its dissolution had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his sum of Rs. 27,842 as unaccounted payment. According to him, since the partners could not furnish the dates of payment, it was treated as unaccounted payment. The AO further observed that for extra liability there must be excess assets otherwise balance sheet would not tally. He observed that the excess liability had corresponding assets in the form of on money or the amounts might have been spent but not shown to the Department. According to the AO, this conclusion was supported by the fact that the amount of Rs. 27,842 out of this excess liability had been paid by the partner which is also not reflected in the books of account. According to the AO, this fact showed that the partners had unaccounted money which was not shown in their regular books of account and the entire scale of the business of the assessee-firm was understated. The AO worked out such income at Rs. 5,62,816 and added the same to the income of the assessee-firm. He also referred to para 3 of serial No. 32 being loose paper found at the residence of Shri C.A. Jaguste, being a copy of the resolution, dt. 11th Sept., 1989, showing that both the partners S/Shri C.A. Jaguste and M.R. Tandale had paid the liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on money or spending of the secret profits or availability of the assets has been brought on record nor any proof was found during the course of search and seizure operation. Therefore, no addition can be made on account of the excess liability, unless the balance sheet prepared by the assessee has been rejected and another balance sheet consisting of excess amount of assets is prepared or found which could show that the excess liability represented the suppressed profits or suppressed asset. Addition of a liability can be made under the IT Act, provided it is recorded in the books of account and if it is found as unexplained. In the case of the assessee, it is neither. The creditors has not confirmed the excess liabilities and the excess liabilities have not been provided in the balance sheet. There is no provision to the effect that liability which is not recorded in the books should be added to the income. We accordingly hold that the CIT(A) is justified in deleting the two impugned additions. This ground accordingly fails and is dismissed. 26. Ground No. 7 reads as under: "On the facts and in the circumstances of the case, the CIT(A) erred in deleting the sum of Rs. 27,924 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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