2020 (3) TMI 497 - HC - Income Tax

Validity of assessment passed u/s 158BD r.w.s. 143(3) - absence of valid satisfaction recorded by the assessing officer after application of his mind on the materials gathered in the course of search of partner of the appellant firm - undisclosed income from transaction of used empty bottles belonged to the Appellant firm - HELD THAT - From perusal of the aforesaid satisfaction note, it is evident that the satisfaction note has been recorded in respect of the appellant and the profit of G.T.Krishna Murthy as well as profit of M/s Sree Venkatesha Bottles has also been worked out. Therefore, we are satisfied that the requirement as laid down by the decision of the Supreme Court in case of Calcutta Knitwears 2014 (4) TMI 33 - SUPREME COURT as well as the Circular dated 31.12.2015 issued by Central Board of Direct Taxes has been complied with. In result, substantial question of law No.(i) framed by this court is answered in favour of the revenue and against the assessee. Undisclosed income from transaction of used empty bottles belonged to the Appellant firm - Tribunal justification in surmising that the document found in the partner s premises refers to an entity with 9 shares belonged to the appellant firm which has only 5 partners to justify the impugned addition - demand notice under Section 154 of the Act amending the order of assessment under Section 143(3) read with Section 158BD being not in the name of the appellant - HELD THAT From the perusal of the statement of G.T.Krishna Murthy, it is evident that he is a partner in M/s Venkateshwara Bottles and he has affirmed that he has a share of 9% out of 105%. From perusal of the statement of aforesaid G.T.Krishna Murthy, it is also evident that when he was confronted with the document seized during the course of search, he admitted that he is not aware as to why the shares are given to Mallikarjuna, H.V.S., Vijay Kumar Shetty and Kareem Sab. The aforesaid witness in his evidence has not stated that there is another partnership firm with nine partners, which deals in same business. From the trial balance sheets of the appellant s firm, it is evident that the aforesaid persons names have been reflected and their percentage of profit has also been shown. On the basis of the trial balance sheet seized during the search operation, the tribunal has recorded a finding that names of all nine partners including the five partners of the assessee firm appear therein, which goes to prove beyond any shadow of doubt that assessee firm has been indulging in two types of business in the same line and parallel business was being carried out clandestinely with the active participation of four other persons. The aforesaid finding is a finding of fact which has been recorded by the Income Tax Appellate Tribunal on the basis of meticulous appreciation of material on record. Therefore, the substantial question of law Nos.(ii), (iii) and (viii) are answered against the assessee and in favour of revenue. When the appellant having complied with the provisions of Section 184 can the appellant be assessed in the status of AOP - HELD THAT - Section 184 of the Act deals with assessment as a firm. Section 184(1) provides that a firm shall be assessed as a firm for the purposes of this Act if the partnership is evidenced by an instrument and the individual shares of the partners are specified in that instrument. In the instant case, even though, in a registered partnership firm though names of five partners appear yet, in fact, there are nine partners. Therefore, in the fact situation of the case, the provisions of Section 184 of the Act do not apply. In result, the substantial question of law No.(iv) is answered against the assessee. Levy of interest under Section 158BFA(1) by passing an order under Section 154 - This court has upheld the validity of the order of assessment passed under Section 158BD read with Section143(3) of the Act, we hold that Assessing Officer was justified in levying interest under Section 158BFA(1) of the Act. Accordingly, substantial question of law No.(vi) is answered in the affirmative and against the assessee.

Summary

Issues:
1. Validity of assessment under Section 158BD read with Section 143(3) of the Income Tax Act.
2. Ownership of alleged undisclosed income from transaction of used empty bottles.
3. Validity of document found in partner's premises and its relation to the appellant firm.
4. Assessment of appellant in the status of Association of Persons (AOP) despite compliance with Section 184 of the Act.
5. Justification of estimate of undisclosed income within the block period and allowance of deductions.
6. Levy of interest under Section 158BFA(1) by passing an order under Section 154 of the Act.
7. Sustainability of impugned order and demand notice under Section 154 of the Act not being in the name of the appellant.

Analysis:

1. The High Court analyzed the issue of the validity of the assessment under Section 158BD read with Section 143(3) of the Income Tax Act. The court examined the requirement of a valid satisfaction note by the Assessing Officer, as mandated by the Act and relevant judicial decisions. The court found that the satisfaction note was duly recorded, based on seized documents, justifying the assessment, and ruled in favor of the revenue.

2. Regarding the ownership of alleged undisclosed income from transactions of used empty bottles, the court considered the evidence presented, including statements and trial balance sheets. The court noted that the appellant firm was involved in two types of businesses clandestinely, involving active participation of additional persons. Based on factual findings, the court ruled against the appellant on this issue.

3. The court examined the document found in the partner's premises and its connection to the appellant firm. It was found that the document referred to an entity with more partners than the appellant firm, indicating discrepancies in the partnership structure. The court ruled in favor of the revenue, considering the evidence presented.

4. The issue of assessing the appellant as an Association of Persons (AOP) despite compliance with Section 184 of the Act was addressed. The court found that the firm had more partners than specified in the partnership deed, leading to the conclusion that the provisions of Section 184 did not apply. The court ruled against the appellant on this issue.

5. The court evaluated the justification of estimating undisclosed income within the block period and the allowance of deductions. It was found that the tribunal's decision on upholding the estimate of undisclosed income and disallowing certain deductions was reasonable based on the evidence presented. The court ruled in favor of the revenue on this issue.

6. The court considered the levy of interest under Section 158BFA(1) by passing an order under Section 154 of the Act. It was determined that the Assessing Officer was justified in levying interest, and the court ruled in favor of the revenue on this issue.

7. Lastly, the sustainability of the impugned order and demand notice not being in the name of the appellant was discussed. The court found no merit in the appeal and dismissed it based on the preceding analysis and rulings on various issues raised in the case.