TMI Blog1995 (6) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Both the firms are carrying on business in oil. The assessee-firm produces oil and sells on wholesale basis, while M/s Mahendra Oil Traders carries on business on retail basis. Both the firms have 13 partners each out of which five partners are common in both the firms. (ii) M/s Mahendra Oil Traders have no godown of their own and they use the godown of the assessee. (iii) M/s. Mahendra Oil Traders have no storage tank of their own and they use the storage tank of the assessee-firm. (iv) The assessee-firm sells goods on credit. The firm M/s Mahendra Oil Traders is selling on cash basis. The latter does not repay the value of goods purchased from the assessee-firm immediately. (v) Substantial loan is given by the firm M/s Mahendra Oil Traders to the assessee-firm on interest but the assessee-firm does not adjust the same against the outstanding loan. (vi) The assessee-firm produces oil and it could have very well taken a retail licence and could have sold goods produced by it on its own. There is no evidence that the assessee-firm had no eligibility to have a retail licence. (vii) The business of M/s Mahendra Oil Traders is such that it does not require any ski ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer in clubbing the income of the two firms was justified in view of the judgment of the Supreme Court in the case of Ladhu Ram Taparia vs. CIT (1962) 44 ITR 521 (SC). The learned Departmental Representative further submitted that the whole arrangement was to evade tax and as such the ratio laid down by the Supreme Court in the case of McDowell Co. Ltd. applies. 5. Shri K.C. Patel, the learned counsel for the assessee, strongly supported the order of the CIT(A). He submitted that the two firms are independent ones having been constituted by separate deeds of partnership. Upto asst. yr. 1982-83 the associate firm M/s Mahendra Oil Traders was treated as a genuine and independent firm and registration was granted to it under s. 185. In this connection, he drew our attention to the assessment order relating to asst. yr. 1982-83 under s. 143(3) at pages 59 to 60 of the paper book where the status of the assessee associate firm has been taken as "R.F." and order under s. 185 at page 61 of the paper book. He also drew our attention to the assessment order of Mahendra Oil Traders for the asst. yr. 1983-84 at pages 62 to 64 of the paper book where the status has been taken as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord. We find that both the firms are constituted by separate deeds of partnership. It is further noted that there is capital clause and each partner has to invest capital. We further find that all the 13 partners in each of the firms have contributed the capital. Mere fact that five partners of M/s Mahendra Oil Traders are also partners of the assessee-firm, should not lead to the conclusion that the associate firm has no independent identity of its own. We also find that the business of the two firms was different in nature; the assessee-firm manufactures oil and the associate firm M/s Mahendra Oil Traders sells oil on retail basis on the strength of retail licence it holds. We also do not find any merit in the contention of the learned Departmental Representative that since the associate firm was using the godown and storage tank of the assessee-firm, it had no existence of its own because the associate firm was not availing of these two facilities free of cost but was paying rent to the assessee-firm. It is not the case of the Assessing Officer that the rent paid was low or inadequate. There is a conveyance drawn for the payment of rent. We also find that same arrangement exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed examination of the books of accounts, held that the firms were benami and in fact, belonged to Ladhuram and his brother Ganpatrai. The case before us is not a case of benami firms but two genuine firms constituted by separate deeds of partnership and carrying on different types of businesses. Hence, reliance placed by the learned Departmental Representative on the said decision of the Supreme Court is of no assistance to the Revenue. 9. We also do not find any merit in the contention of the Assessing Officer and the Departmental Representative that the case is squarely covered by the judgment of the Supreme Court in the case of McDowell Co. Ltd. In that case the Hon'ble Supreme Court has held that "the tax planning may be legitimate provided it is within the framework of the law. Colourable devices cannot be part of tax planning". In the instant case, as is evident from the facts enumerated supra, no colourable device was adopted by the assessee. Hence, reliance placed by the Revenue on the decision of the Supreme Court in the case of McDowell Co. Ltd. is of no assistance to the Revenue. 10. A firm is taxable unit in the IT Act and a separate entity for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Patel, the learned counsel for the assessee, submitted that the CIT(A) ought to have held that he having held that provisions of s. 40(b) of the Act were not evaded by the assessee, no reliance could have been placed on the observation made by the Assessing Officer in para 10 of the assessment order. Similarly, the learned CIT(A) could not have relied on the alternative finding of the ITO arrived at vide paragraph 14(a) and (b) of the assessment order. The learned counsel for the assessee submitted that the reasons contained in the said paragraphs of the assessment order being highly prejudicial, presumptive and not supported by any evidence on record, the confirmation of the said disallowance of interest is erroneous especially in view of the finding of the learned CIT(A) on main issue in favour of the assessee. The learned Departmental Representative relied upon the orders of the authorities below. 16. We have considered the rival submissions. We have upheld the finding of the CIT(A) on the main issue, i.e., the income of the associate firm cannot be clubbed with that of the assessee-firm. Under the circumstances it is wrong on the part of the CIT(A) to hold that the advances ..... X X X X Extracts X X X X X X X X Extracts X X X X
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