1995 (4) TMI 310 - AT - Income Tax

Summary

Issues Involved:
1. Grant of registration/continuation of registration under section 184(7).
2. Clubbing of income of sister-concerns with the main firm.
3. Disallowance of inter-firm interest.
4. Lump sum addition to declared gross profit.

Issue-wise Detailed Analysis:

1. Grant of Registration/Continuation of Registration under Section 184(7):
The main appeal concerns the refusal to grant registration/continuation of registration to H. Bhagwati & Sons and its sister-concerns. The Assessing Officer (AO) concluded that no genuine firm existed and refused registration under section 184(7). The Commissioner (Appeals) reversed this decision, holding that the firms were genuine and entitled to registration. The Tribunal upheld the Commissioner's decision, noting that the firms had been separately assessed to tax for several years and complied with all legal requirements for registration.

2. Clubbing of Income of Sister-Concerns with the Main Firm:
The AO clubbed the income of four sister-concerns with the main firm, H. Bhagwati & Sons, based on several factors, including common premises, identical nature of business, common employees, and control by the same family groups. The Commissioner (Appeals) found that these sister-concerns were genuine and had been separately assessed for years. The Tribunal agreed, stating that the AO's conclusion was based on mere suspicion without admissible evidence. The Tribunal emphasized that the burden of proving the sister-concerns as benami (fictitious) entities lay with the Department, which had failed to provide any material evidence.

3. Disallowance of Inter-Firm Interest:
The AO disallowed interest paid to sister-concerns, considering them non-genuine. The Commissioner (Appeals) deleted this disallowance, recognizing the sister-concerns as separate taxable entities. The Tribunal confirmed this view, stating that since the sister-concerns were genuine, the interest transactions were legitimate.

4. Lump Sum Addition to Declared Gross Profit:
The AO made a lump sum addition to the declared gross profit, suspecting manipulation of stock and book results. The Commissioner (Appeals) deleted this addition, noting that all purchases and sales were vouched, and the stock was identifiable and separate for each concern. The Tribunal upheld this deletion, finding no justification for the AO's lump sum addition, especially when the accounts were audited and supported by vouchers.

Conclusion:
The Tribunal confirmed the findings of the Commissioner (Appeals) on all issues. The main firm and its sister-concerns were recognized as genuine, and their incomes were not clubbed. The disallowance of inter-firm interest and the lump sum addition to gross profit were also deleted. Consequently, all appeals by the Revenue were dismissed.