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Issues:
1. Registration of a firm under the Income-tax Act, 1961. 2. Genuineness of the firm and partner being a benamidar. 3. Interpretation of the provisions related to genuine firm status. 4. Assessment of firm income when a partner has been individually assessed. 5. Impact of partner retirement on firm registration. 6. Consideration of partnership validity when one partner is a benamidar. 7. Justification of granting registration to a firm with questionable genuineness. Analysis: The case involves a dispute regarding the registration of a firm under the Income-tax Act, 1961, where one of the partners was suspected to be a benamidar. The Income-tax Appellate Tribunal upheld the decision of the Appellate Assistant Commissioner to treat the firm as a registered firm despite doubts about its genuineness and one partner being a benamidar of the other. The Tribunal relied on a previous court judgment stating that once a partner has been individually assessed, the firm's income cannot be treated separately. However, the High Court found that the Tribunal erred in granting registration to a firm where the genuineness was in question and one partner was a benamidar, as per the provisions of the Act. Furthermore, the High Court highlighted an Explanation added to the Act, stating that a firm cannot be considered genuine if any partner was a benamidar of another partner's share. The Court emphasized that registration can only be granted to a genuine firm, and in this case, the partnership was merely a facade, with one partner acting as a dummy for the other. The Court reasoned that if a partnership is between a benamidar and the real owner, it cannot be considered a valid partnership, especially when the benamidar has no active involvement in the business. Moreover, the Court noted that in a similar case where a partner retired, adverse inferences were drawn from the statements of the retired partner. Despite registration being granted for subsequent years, the refusal of registration for a specific year was deemed unjustified. The Court concluded that in the present matter, the Tribunal's decision to grant registration to a firm with questionable genuineness and a benamidar partner was not justified as it did not meet the criteria for a genuine firm under the Act. Therefore, the High Court ruled in favor of the Revenue and against the assessee, emphasizing the importance of establishing the genuineness of a firm and the active involvement of all partners to qualify for registration under the Income-tax Act, 1961.
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