2015 (2) TMI 676 - HC - Income Tax

Status of a person - Mere employee or a partner - Baldev Singh was a partner of M/s Baldev Singh & Co.? - liquor trade vends - it was contended that the mere fact that Baldev Singh may have signed certain documents during auction proceedings, on behalf of the firm does not raise inference that Baldev Singh was a partner - Held that - In the liquor trade vends are taken on benami names but in the absence of any evidence that Baldev Singh was a mere employee, whose name was used or any evidence that Baldev Singh was an employee of Pritam Singh, cannot discard the record pertaining to auction of liquor vends particularly as it is signed by Baldev Singh. The onus to prove his status as an employee lay upon Baldev Singh, to rebutt the presumption that arises against him from his signatures appearing on all relevant documents pertaining to the allotment of vends. Apart from his bald statement that he was a mere employee or the assertion that he lent his name to Pritam Singh, there is no evidence to support these assertions. The absence of a partnership deed recording the appellant as a partner, is irrelevant, as the firm bears Baldev Singh s name and is based in Samrala. Baldev Singh is a resident of Samrala. All relevant documents pertaining to the auction of liquor vends are signed by the appellant. Baldev Singh has, admittedly, participated in the auction, was allotted liquor vends, has signed all relevant documents and does not deny that he participated in the business, though, allegedly as an employee. The onus to prove this fact having not been discharged, we cannot speculate merely on the basis of malpractices is the liquor business to accept his submissions. The fact that Pritam Singh may not have been called as a witness or examined or did not make this allegation in his initial statement, is also irrelevant as Baldev Singh has admitted his signatures on all relevant documents executed at the time of allotment of the vends and has failed to adduce evidence in support of his plea that he was a mere employee and also renders irrelevant the principle that statement of one cannot be read against another to prove a partnership. As earlier order passed by the CIT(A) which was reversed by the ITAT, by remanding the matter to the Assessing Officer Baldev Singh accepted this order, participated in proceedings before the Assessing Officer and filed a response to queries raised after the record of the Excise and Taxation Department after was summoned and, therefore, cannot turn the clock back by challenging this order. It would also be appropriate to point out that the earlier order passed by the CIT(A) was set aside as relevant record pertaining to liquor vends had not been requisitioned. The Assessing Officer requisitioned the record of the Excise Department and upon finding that all relevant documents were signed by Baldev Singh, held that Baldev Singh was a partner of Baldev Singh & Co. - Decided against the appellant.

Summary

Issues Involved:
1. Legality of ITAT's reversal of CIT(A)'s order.
2. Validity of holding Baldev Singh as a partner without documentary evidence.
3. Applicability of Section 184 and 185 of the Income Tax Act.
4. Relevance of the Partnership Act in determining partnership.
5. Validity of quantum addition based on Pritam Singh's statement.
6. Perverse findings by ITAT.
7. ITAT's misdirection by irrelevant factors.

Detailed Analysis:

1. Legality of ITAT's Reversal of CIT(A)'s Order:
The appellant argued that the ITAT unjustifiably reversed the CIT(A)'s well-versed order, which had not recognized Baldev Singh as a partner due to lack of documentary evidence. The CIT(A) had initially held that Baldev Singh was not a partner based on the absence of a partnership deed and the modus operandi in the liquor trade. However, the ITAT remanded the matter to the Assessing Officer, who, after examining records from the Excise and Taxation Department, found that Baldev Singh's signatures on relevant documents indicated his partnership. The court upheld ITAT's decision, emphasizing that the findings were based on concrete evidence from the excise records, thereby affirming the reversal's legality.

2. Validity of Holding Baldev Singh as a Partner Without Documentary Evidence:
The appellant contended that the absence of a partnership deed or any document proving Baldev Singh's partnership rendered the findings illegal. The court, however, noted that Baldev Singh's signatures on auction and allotment documents from the Excise Department were sufficient to infer his partnership. The court rejected the appellant's argument, stating that the onus was on Baldev Singh to disprove the presumption arising from his signed documents, which he failed to do.

3. Applicability of Section 184 and 185 of the Income Tax Act:
The appellant argued that the ITAT did not appreciate the provisions of Sections 184 and 185 of the Income Tax Act, which deal with the assessment of firms and the conditions for their recognition. The court found that the evidence on record, particularly the documents signed by Baldev Singh, satisfied the requirements under these sections, thereby justifying the ITAT's findings.

4. Relevance of the Partnership Act in Determining Partnership:
The appellant cited judgments to argue that without a partnership deed, a person cannot be held liable as a partner. The court, however, held that the absence of a partnership deed was irrelevant in this case, as the firm bore Baldev Singh's name, and he had signed all relevant documents. The court emphasized that the onus was on Baldev Singh to prove he was merely an employee, which he failed to do.

5. Validity of Quantum Addition Based on Pritam Singh's Statement:
The appellant contended that the quantum addition based on Pritam Singh's statement was unjustified, as Pritam Singh was not a partner. The court noted that Baldev Singh's own involvement and signatures on relevant documents were sufficient to uphold the quantum addition, irrespective of Pritam Singh's statement.

6. Perverse Findings by ITAT:
The appellant claimed that the ITAT's findings were perverse and against the evidence on record. The court, after examining the impugned orders and the material on record, concluded that the findings were neither perverse nor arbitrary. The court emphasized that the findings were based on substantial evidence from the excise records, which Baldev Singh failed to rebut.

7. ITAT's Misdirection by Irrelevant Factors:
The appellant argued that the ITAT was influenced by irrelevant factors and applied erroneous criteria. The court dismissed this argument, stating that the ITAT's decision was based on relevant evidence from the Excise and Taxation Department. The court upheld the ITAT's inference that Baldev Singh was a partner, based on his signatures on all relevant documents.

Conclusion:
The court dismissed the appeals, affirming the ITAT's findings that Baldev Singh was a partner of M/s Baldev Singh & Co. The court emphasized that the findings were based on substantial evidence and did not suffer from any legal flaws. The court also noted that Baldev Singh failed to discharge the onus of proving his status as an employee, thereby justifying the adverse inference drawn against him.