TMI Blog1995 (4) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was completed on 16th March, 1985 computing the total income at ₹ 2,62,646. The assessment was set aside under section 263 of the Act by the Commissioner vide order dated 24th March, 1987 on the ground that registration was granted to the said firm without examining the basic facts and the ITO had not brought to tax the real and actual incomes derived by the assessee. A fresh assessment was made vide assessment order dated 31st March, 1989 in which the income for assessment year 1984-85 was determined at ₹ 8,24,206. 4. Survey operation under section 133A was carried out on 9th July, 1986 at the business premises situated at 169, New Cloth Market, Ahmedabad. It has been observed by the Assessing Officer (AO) in the assessment order that there are 4 sister-concerns of the assessee-firm. These concerns are (i) Hiralal Chandulal Chokshi, (ii) Hirabhai Sons, (iii) Bhagwati Textiles Proprietor Hiralal H. Bhagwati (HUF) and (iv) Prakash Textiles. The Assessing Officer inter alia, observed that (a) during the course of survey it was found that entire cash of all the sister-concerns was kept together under the control of one single person, (b) the business of all the fiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r grant of registration/continuation of registration was also refused. In the cases of the sister-concerns, the Assessing Officer gave reference of the order under section 263 passed by the Commissioner in the case of H. Bhagwati Sons. He also relied on the material gathered as a result of survey under section 133A on 9th July, 1986. The Assessing Officer thereafter came to the conclusion that income in the hands of the assessee- firm is to be assessed on protective basis without prejudice to the finding as may be given in the case of H. Bhagwati Sons. Certain additions and disallowances were also made in the cases of the sister-concerns. The registration to the three sister-concerns which are partnership firms was also refused on similar grounds. One of the sister-concerns is not a partnership firm but that is a sole proprietorship concern owned by Mr. Hiralal H. Bhagwati (HUF) (Bhagwati Textiles). 5. The Commissioner (Appeals) vide his common order passed in the case of H. Bhagtwati Sons for assessment years 1984-85 to 1986-87 in relation to refusal to grant continuation of registration under section 184(7) held that the assessee-firm as well as the three other sister-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons. The learned Departmental Representative also placed reliance on following other judgments : 1. Commissioner v. Durga Prasad More (1971) 82 ITR 540 (SC); 2. Simhadri Narasingh Prusty v. Commissioner (1971) 79 ITR 219 (Ori.); 3. S.P. Gramophone Co. v. Commissioner (1986) 158 ITR 313 (SC); 4. Manilal Dharmchand v. Commissioner (1970) 78 ITR 96 (Bom.); 5. Commissioner v. Ravi Constructions (1988) 169 ITR 662 (AP); 6. Commissioner v. Kanaiyalal Ram Chand (1979) 119 ITR 377 (P H); 7. Addl. Commissioner v. Jay Engineering Works Ltd. (1978) 113 ITR 389 (Del.). On the strength of the aforesaid judgments and in view of the elaborate reasons mentioned in the orders passed by the assessing authority, the learned Senior Departmental Representative strongly urged that the orders of the Commissioner (Appeals) should be cancelled and that of the Assessing Officer should be restored. 8. The learned counsel for the assessee strongly supported the order of the Commissioner (Appeals). He reiterated almost similar arguments as were advanced on behalf of the assessee before the learned Commissioner (Appeals). It was further pointed out that out of the four sister-conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. v. Commissioner (1971) 82 ITR 680 (SC); 3. Kanoi Udhyog v. ITO (1987) 28 TTJ (Cal.) 288 : (1987) 20 ITD 347 (Cal.); 4. Vijeta Engg. Works v. ITO (1989) 34 TTJ 546; 5. ITO v. H. Ajitbhai Co. (1989) 35 TTJ (Ahd.) 476. 9. The learned representatives of both the parties submitted that other grounds raised in remaining appeal relate to petty additions made in different years. The learned Senior Departmental Representative submitted that he would like to rely upon the reasons mentioned in the assessment order in relation to those additions which have been deleted by the Commissioner (Appeals). The counsel for the assessee relied on the reasons and conclusion mentioned in the order of the Commissioner (Appeals). 10. We have given a very thoughtful consideration to the arguments advanced before us by the learned representatives and have also carefully gone through the orders of the learned Departmental authorities as well as the various decisions cited by the learned representatives. 10.1 The main grounds on the basis of which the Assessing Officer refused to grant registration/continuation of registration to the main firm as well as to the three other partnershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into existence on 29th July, 1975. The other firm Prakash Textile Associates came into existence on 1st June, 1976 and has been regularly assessed to tax as a separate and independent taxable entity and was treated as a genuine partnership firm ever since its inception upto assessment year 1983-84. Likewise Hirabhai Sons was also formed on 1st April, 1980 with five partners and was assessed to tax as a separate taxable entity and was also treated as a genuine partnership firm upto assessment year 1983-84. 10.2 The stock inventory found during the course of survey operations conducted under section 133A dated 9th July, 1986 has been placed at page 14 of the compilation. The said stock inventory clearly indicated that which particular bale of the cloth found in its stock belonged to which firm. The inventory prepared by the officers of the Department itself indicate the name of the different concerns to which the particular lot of stock belongs. This has been indicated by mentioning the name of the respective concerns in an abbreviated form like PTA, HCC, BT, HBS, HCC, etc. The Assessing Officer has not indicated anything in the assessment order showing that any unaccounted sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 per cent 4. Sudhirbhai R. Nanavati 06 per cent 4. Prakash Textile Associates . Names of Partners : 1. Prakashbhai Bhagwati 10 per cent 2. Smt. Prabhavatiben K. Bhagwati 19 per cent 3. Girishbhai D. Patwa 19 per cent 4. Sudhirbhai R. Nanavati HUF 10 per cent 5. Piyushbhai R. Nanavati HUF 9 per cent 6. Dixitbhai C. Shah 6 per cent 7. Mahesh R. Doshi 12 per cent 8. Kaushik R. Shah Trustee of Ramanlal 15 per cent Bhogilal Shah Family Trust 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The decision was thus based on the findings of fact given by the Tribunal on the basis of facts, material and evidence existing on the records of that case. The other judgment relied upon by the learned Senior Departmental Representative also in our considered opinion does not in any manner support the contention of the Revenue. For instance, the learned Senior Departmental Representative relied upon one more judgment of the Hon'ble Supreme Court in the case of Commissioner v. Durgaprasad More (supra). The point involved for consideration in that case was whether on the facts and circumstances of that case it could not be said that the finding of Tribunal as to the unreality of the trust put forward was not based on evidence or was otherwise vitiated. The further question was whether the principle of res judicata or the rule of estoppel was applicable to assessment proceedings. The Hon'ble Supreme Court came to the conclusion that neither the principle of res judicata nor the rule of estoppel was applicable to assessment proceedings but the fact that the assessee included the income of the premises in his returns for other years after objecting to its inclusion in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner to be exercised on behalf of all the partners Held, reversing the decision of the High Court that the fact that the exclusive power and control, by agreement of the parties, was vested in one partner, and the further circumstance that only one partner could operate the bank accounts or borrow on behalf of the firm was not destructive of the theory of partnership provided two essential conditions were satisfied, namely (i) that there should be an agreement to share profits and losses of the business of the firms and (ii) that the business must be carried on by all the partners or any of them acting for all. Clause 5 r/w other clauses showed that the first condition, namely, all persons agreeing to share profits or losses, was satisfied. The second condition was also satisfied; even though vast powers of management and control had been given to K, the business was being carried on by him on behalf of all the partners. Both the ingredients of partnership were satisfied and the firm could be granted registration under section 26A. 10.6 We have gone through the order passed by Shri M.S. Darda, the learned Commissioner (Appeals) both in relation to the quantum appeal as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admirable manner with perfect clarity and the decision rendered by him is supported by proper reasoning and valid material and evidence available on records. We, therefore, confirm the finding given by him that the main firm as well as the three partnership firms are genuine firms and the income of the various sister-concerns cannot be validly clubbed in the hands of the main firm. The orders passed by the Commissioner (Appeals) accepting such conditions of the assessee in all the appeals under consideration are, therefore, confirmed. 11. We will now consider the remaining grounds of appeal raised in various appeals. 11.1. In Income-tax Appeal No. 1414/Ahd/1990 relating to quantum in the case of Prakash Textile Associates the Revenue has raised the following other grounds also,__ 3. The learned Commissioner (Appeals) has erred in allowing the inter-firm interest. 4. The learned Commissioner (Appeals) has erred in deleting the additions on gross profit. The facts relating to ground No. 3 have been discussed by the Commissioner (Appeals) in paras 5 and 6 of the order passed by him. The disallowance of interest of ₹ 1,01,323 was made by the Asstt. Commissioner i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Associates for assessment year 1986-87 the Revenue has raised similar ground relating to deletion of disallowance made in respect of inter-firm interest paid by the assessee as well as relating to lump sum addition of ₹ 25,000 made in the declared gross profit. The Commissioner (Appeals) had deleted the said disallowance and additions on similar reasoning as given by him in the appellate order passed for assessment year 1985-86. In view of the facts and reasons mentioned in the order of Commissioner (Appeals) with which we fully agree, the view taken by the Commissioner (Appeals) is confirmed. 13. The Revenue has taken similar ground relating to deletion of disallowance of inter-firm interest in the following other appeals : Income-tax Appeal No. Name of Party Assessment year 1419/Ahd/1990 H. Bhagwati Sons 1984-85 1421/Ahd/1990 H. Bhagwati Sons 1985-86 1423/Ahd.1990 H. Bhagwati Sons 1986-87 (Quantum appeal) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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