TMI Blog1995 (4) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dt. 31st March, 1989 in which the income for asst. yr. 1984-85 was determined at Rs. 8,24,206. 4. Survey operation under s. 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) M/s Hiralal Chandulal Chokshi, (ii) M/s. Hirabhai Sons, (iii) M/s Bhagwati Textiles Proprietor Hiralal H. Bhagwati (HUF) and (iv) M/s Prakash Textiles. The AO 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 five concerns was carried on from the same premises, (c) the nature of business was identical, (d) accountants and some other employees were common, (e) business of all the sister concerns was controlled by common persons of the famil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 9th July, 1986. The AO 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 M/s 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) (M/s Bhagwati Textiles). 5. The CIT(A) vide his common order passed in the case of M/s H. Bhagtwati Sons for asst. yrs. 1984-85 to 1986-87 in relation to refusal to grant continuation of registration under s. 184(7) held that the assessee-firm as well as the three other sister concerns which are partnership firms are genuine firms and are entitled to grant of registration/continuation of registration. He, accordingly, directed the AO to treat the firm as genuine and grant registration. He also held that all the four sister concerns are genuine business concerns and has been separately assessed to tax for last several year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 662 (AP); 6. CIT vs. Kanaiyalal Ram Chand 1977 CTR (P H) 103 : (1979) 119 ITR 377 (P H); 7. Addl. CIT vs. Jay Engineering Works Ltd. 1978 CTR (Del) 156 : (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 CIT(A) should be cancelled and that of the AO should be restored. 8. The learned counsel for the assessee strongly supported the order of the CIT(A). He reiterated almost similar arguments as were advanced on behalf of the assessee before the learned CIT(A). It was further pointed out that out of the four sister concerns treated as non-genuine or benami concerns one sister concern, viz., M/s Bhagwati Textiles is owned by Hiralal H. Bhagwati (HUF). The business carried on by the said HUF was always treated to be genuine ever since its inception, i.e., from asst. yrs. 1972-73 to 1983-84. The partnership firm M/s Hiralal Chandulal Chokshi which is being alleged to be a concern created for diverting the profits of the main firm, in fact was formed on an enterior date, i.e., prio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order in relation to those additions which have been deleted by the CIT(A). The counsel for the assessee relied on the reasons and conclusion mentioned in the order of the CIT(A). 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 AO refused to rant registration/continuation of registration to the main firm as well as to the three other partnership firms which are described as sister concerns 'are that the nature of business carried on by the said sister concerns is almost similar, the business is carried on by all of them from the same premises, the management vested in the hands of a few members of the family of three groups, some of the employees are common and cash and stocks found during the course of survey were found at the same place and were under the control of the common persons. Some more points have been discussed in the assessment order. Extracts of the statements of partners have also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 133A dt. 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 AO has not indicated anything in the assessment order showing that any unaccounted stock was found during the course of survey as compared to the position of stocks revealed by the books of accounts of the respective business concerns. Likewise, the cash found during the course of survey was also properly explained with reference to the books of accounts and other relevant records maintained in relation to different business concerns. Shri Hiralal H. Bhagwati in his statement recorded on 9th July, 1986 clearly stated that cash is kept at one place but instructions are given to the cashier to keep it separately firmwise. It has not been indicated in the assessment orders that any addition whatsoever has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not support the contention of the Revenue that the employees are common. One or two employees may be common in some of the business concerns but that by itself cannot lead to the conclusion that the four sister concerns are benamis of the main firm. 10.4 The reliance placed by the learned Senior Departmental Representative on the various judgments also do not in any manner support the Revenue's contention. The main case which was relied upon by him is that of Ladhuram Taparia vs. CIT. The facts of that case are totally different and distinguishable. In that case it was, inter alia, found that each of the sister concerns had been considerably financed by the other sister concerns and huge purchases have been made from them and huge sales have been made to allied concerns. Most of the outside parties to whom goods had been sold and from whom goods had been purchased were the same for each of those firms. The bank accounts on behalf of different firms were operated by persons who were not partners of those firms. The constitution notified to the bankers in respect of different partnership firms was not in conformity with the constitution of the partnership firms shown to the IT D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the assessee. In the case of Dy. CST (Law) Board of Revenue Taxes vs. K. Kelukutty, the Hon'ble Supreme Court held that where it is claimed that there are two partnership firms and not one constituted by the same persons and carrying on different businesses, the AO must test the claim in the light of the partnership law. It is only after that question has been first determined, viz., whether in law there is only one partnership firm or two partnership firms, that the next question arises, viz., whether the turnover is assessable in the hands of the partnership firm as a taxable entity, separate and distinct from the partners. There is first a decision under the law of partnership and thereafter, the second question, the question as to assessment, arises under the tax law. Similarly, the Hon'ble Supreme Court in the case of K.D. Kamat Co. vs. CIT, inter alia, held as under: "The legal requirements under s. 4 of the Partnership Act to constitute a partnership in law are (i) there must be an agreement to share the profits or losses of the business and (ii) the business must be carried on by all the partners or any of them acting for all. There is implicit in the second re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment to prove not only that the four sister concerns are benami concerns but it has also to prove by bringing some positive or definite material on records to prove that the main firm is the real owner of the entire income earned by those four sister concerns and the main firm is the real owner of such income and none else. Such a burden has not been discharged by the Department by bringing any material or evidence whatsoever on records. On the other hand, the material available on records clearly indicate that the Department has not disputed the genuineness and the correctness of capital contributions made by the respective partners in the respective firm. The Department has also not disputed the correctness and genuineness of the capital contributed by the HUF in the sole proprietorship business carried on under the name and style of M/s Bhagwati Textiles. The profits of the respective sister concerns have been enjoyed by the partners of the three sister partnership firms and by the said HUF. The main firm as well as the three partnership firms have complied with all the legal requirements for grant of registration/continuation of registration under the provisions of the IT A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the addition made by the Asstt. CIT by presuming that stock of each concern was manipulated to adjust the book results is not valid. He has further observed that all the sales and purchases were vouched and stock of the assessee-firm is identifiable and separate from the stock of other sister concern. The accounts of the assessee-firm are only audited after taking into consideration all such relevant facts and circumstances, he directed the AO to delete the lump sum addition of Rs. 25,000. In our view, the learned CIT(A) has rightly deleted the lump sum addition of Rs. 25,000 made by the AO. The AO has failed to point out any specific mistake or discrepancy is the account maintained by the assessee and, therefore, there is no justification in making any such lump sum addition in the declared trading results, particularly in a case where the entire purchases and sales are properly supported by vouchers and regular books of accounts. 12. In ITA No. 1416/Ahd/1990 in the case of Prakash Textile Associates for asst. yr. 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 relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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