1999 (1) TMI 12 - HC - Income Tax

Summary

Issues:
1. Refusal of registration to the firm based on partners' statements during search operations.
2. Admissibility of partners' statements under section 132(4) of the Income-tax Act against the assessee-firm for refusing registration.

Issue 1: Refusal of Registration to the Firm
The case involved a petition by the Commissioner of Income-tax seeking a direction to the Income-tax Appellate Tribunal to refer questions of law regarding the refusal of registration to an assessee-firm dealing in country liquor for the assessment year 1985-86. The Assessing Officer refused registration based on partners' statements during search operations, indicating lack of genuine existence of the firm. The Commissioner of Income-tax (Appeals) upheld this decision, but the Tribunal, in further appeal, granted registration to the firm.

Issue 2: Admissibility of Partners' Statements
The main contention revolved around the admissibility of partners' statements recorded under section 132(4) of the Income-tax Act against the assessee-firm. The petitioner argued that these statements were admissible as evidence, citing a Kerala High Court decision. However, the court noted that the Explanation below sub-section (4) of section 132 was inserted post the relevant assessment year, making the cited decision irrelevant. The petitioner also relied on a previous court decision involving a sub-partnership registration issue, but the court found the facts in the current case to be distinct.

The respondent's counsel argued that the Tribunal, after evaluating the evidence, found that the partners' statements could not be used without being confronted with the assessee-firm. The Tribunal concluded that one partner's statement did not establish him as a "benamidar" and another partner's statement, not presented as evidence, could not be used against the firm without confrontation. The court agreed with the Tribunal's factual findings, emphasizing the necessity of confronting the firm with statements before drawing adverse inferences. Consequently, the court dismissed the petition, stating that no referable question of law arose from the Tribunal's factual findings.