2008 (3) TMI 260 - HC - Income Tax

Assessee claiming loss and depreciation on basis of a Dissolution Deed - Tribunal was right in law in holding that the business of Hotel Surat belonged to the partnership firm and not to the assessee as proprietor - Tribunal was right in law in holding that the dissolution deed dated 19.1.1990 was not a lawful valid and bonafide dissolution deed and assessee concocted the evidence by allegedly executing the deed of dissolution with an ulterior motive to defraud the Revenue

Summary

Issues:
1. Whether the business of Hotel Surat belonged to the partnership firm or the assessee as proprietor?
2. Whether the dissolution deed dated 19.1.1990 was valid, lawful, and bonafide, or concocted with an ulterior motive to defraud the Revenue?

Issue 1: Business Ownership
The case involved a dispute over the ownership of the business of Hotel Surat, whether it belonged to the deceased assessee as a proprietor or to a partnership firm. The Assessing Officer disallowed the claimed loss and depreciation related to the business, asserting it was a partnership business between the deceased and his wife. The Commissioner (Appeals) upheld this view. The Tribunal also confirmed this assessment, citing statements made during search operations where both parties declared themselves as partners in the business. The Tribunal found discrepancies in the dissolution deed and lack of proper documentation to support the dissolution claim. The Tribunal concluded that the business of Hotel Surat belonged to the partnership firm and not the assessee as a proprietor.

Issue 2: Validity of Dissolution Deed
The second issue revolved around the validity of the dissolution deed dated 19.1.1990. The Tribunal found the deed to be fabricated and an afterthought to adjust losses against disclosed income. The Tribunal highlighted various discrepancies, such as the lack of entries in the books of accounts, failure to inform authorities about the dissolution, and inconsistencies in the deed itself. The Tribunal emphasized that surrounding circumstances indicated the deed was not genuine, and the assessee failed to provide convincing evidence to support the dissolution claim. Consequently, the Tribunal held that the dissolution deed was not valid, lawful, or bonafide, and was created with an ulterior motive to defraud the Revenue.

In conclusion, the High Court upheld the Tribunal's decision, ruling in favor of the Revenue and against the Assessee on both issues. The Court agreed with the Tribunal's findings that the business of Hotel Surat belonged to the partnership firm and not the assessee as a proprietor. Additionally, the Court affirmed that the dissolution deed dated 19.1.1990 was not valid, lawful, or bonafide, and was deemed as a fabricated piece of evidence. The judgment emphasized the importance of proper documentation and adherence to legal procedures in establishing business ownership and dissolution claims.