TMI Blog1995 (2) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... For the assessment years 1974-75 and 1975-76, the assessee-firm, consisting of seven partners, was carrying on business in paper and other accessories and also had an ink-selling agency. The firm was registered for the assessment year 1967-68 and thereafter registration was renewed from year to year. For the assessment year 1974-75 also, the Income-tax Officer continued the registration on the basis of the assessee's application in Form No. 12 dated April 12, 1974. The total income was computed on a sum of Rs. 2,40,680 as against the declared income of Rs. 2,01,060 in the original return including an income of Rs. 39,424 shown by the assessee in the revised return on the basis of the examination conducted by the Income-tax Officer. This s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed under section 263 of the Act. The Tribunal restored the original continuation of registration granted by the Income tax Officer. Learned standing counsel appearing for the Department submitted that the filing of the revised return was a clear admission, that, to that extent at least there was concealment of income and this profit had not been divided amongst the partners in the books of the firm. According to learned standing counsel neither the true profits nor the book profits of the firm had been distributed amongst the partners according to the terms of the partnership deed. In view of the decision of the Supreme Court in Khanjann Lal Sewak Ram v. CIT [1972] 83 ITR 175, the order passed by the Tribunal restoring the continuation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nied. It is not correct to state that the book profits have not been divided. For all these reasons, it was submitted that the Tribunal was correct in setting aside the order passed by the Commissioner of Income-tax. The assessee furnished the full details of the names of the persons to whom commissions were paid for the year 1974-75. At the later stage, the assessee was unable to prove its case by producing the parties. Hence, they came forward with a revised return. The covering letter to the revised return clearly indicates that the payments have actually been made, but it is only because they were unable to prove the fact of payments satisfactorily that they had furnished the revised return. In order to avoid penalty proceedings in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t not entered in the account books have not been divided or credited in the account books. From that it follows that the certificate given in the application for renewal of registration is not a true certificate and further that a substantial portion of the profits earned had not been divided. The reason behind rule 6 was that, at the relevant time, the registered firm as such was not taxable. Only the partners of a firm could be taxed. That being so, if a portion of the profits earned by the firm was not divided amongst the partners or credited to their accounts, to that extent, the profits earned by the firm escaped assessment. Therefore, the certificate contemplated by rule 6 is not a mere formality. It has a definite purpose. If a por ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was granted by the Income-tax Officer for the two assessment years under consideration under section 184(7) of the Act. There is no change in the constitution of the firm or share of the partners as can be seen from the instrument on the basis of which registration was sought for in accordance with rule 24. Form No. 12 was filed. Form No. 12 would go to show that no declaration was required by the partners about the distribution of profits. In the absence of any such requirement in either section 184(7) or the rules or in Form No. 12, the decision rendered in Khanjan Lal Sewak Ram's case [1972] 83 ITR 175 (SC), cannot be made applicable. The firm distributed the profits according to the books, wherein certain items of expenditure have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Khanjan Lal Sewak Ram v. CIT [1972] 83 ITR 175 (SC). Without examining the partners or examining the persons to whom commission has been paid, concealment cannot be presumed. The addition was made by the consent of the assessee. The explanation was offered in the letter dated November 7, 1975, for the circumstances under which the assessee agreed for the addition. Form No. 12 under section 184(7) does not require any declaration from the persons that the profits were divided or credited. Hence, it cannot be said that the order of the Income-tax Officer in granting continuation of registration for the assessment years under consideration is erroneous and prejudicial to the interests of the Revenue. Accordingly, action under section 263 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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