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Issues Involved:
1. Disallowance of brokerage payments. 2. Cancellation of registration of the assessee firm. Detailed Analysis: 1. Disallowance of Brokerage Payments: - Background: The assessee, a firm reconstituted under a partnership deed dated 1st Jan., 1979, derived income from commission, brokerage, trading in yarn and textiles, and interest for the assessment year 1981-82. The assessee had an agreement with M/s Kothari (Madras) Ltd. to receive a commission of 1% of the sale price, which was later increased to 2% from 1st June, 1977. - Income and Payments: The assessee showed a receipt of Rs. 5,88,410 from commission business, with the majority coming from M/s Kothari (Madras) Ltd. The ITO found that the increase in commission from 1% to 2% was not justified and suspected that 40% of the commission was paid as kickbacks to M/s Kothari (Madras) Ltd. - Assessing Officer's Findings: The ITO disallowed brokerage payments amounting to Rs. 2,65,490, concluding that the payments to 23 out of 29 brokers were not genuine. This conclusion was based on the non-appearance of six brokers, contradictory statements from one broker, and the quick withdrawal of amounts from the brokers' bank accounts. - CIT(A)'s Decision: The CIT(A) did not uphold the ITO's finding of kickbacks but disallowed Rs. 1,59,406 out of the brokerage payments. The CIT(A) allowed brokerage payments aggregating to Rs. 1,06,084 and noted that the ITO failed to give a definite finding regarding Rs. 67,957. - Tribunal's Analysis: The Tribunal found that the ITO's disallowance was not justified. The assessee provided confirmation letters from all brokers, and the majority appeared before the ITO. The Tribunal noted that the ITO did not take further steps to secure the attendance of the six brokers who failed to appear. The Tribunal also found that the ITO's reliance on the statement of Shri K.L. Trivedi and the loose sheet of paper was misplaced as they related to a different period. The Tribunal concluded that the payments to brokers were genuine and deleted the disallowance of Rs. 1,59,406. 2. Cancellation of Registration of the Assessee Firm: - Background: The ITO cancelled the registration of the assessee firm under section 186(1), citing that the firm was not genuine. This conclusion was based on excess withdrawals by partners without consent, non-attendance of two partners to the business, and improper maintenance of accounts. - CIT(A)'s Decision: The CIT(A) upheld the ITO's action, agreeing that a genuine firm did not exist. - Tribunal's Analysis: The Tribunal found that the reasons cited by the ITO and CIT(A) were not sufficient to cancel the registration. The Tribunal referred to the Supreme Court's decision in K.D. Kamath and Co. vs. CIT, which outlines the legal requirements for a partnership. The Tribunal noted that the partnership deed specified the profit-sharing ratio and that the business was carried on behalf of all partners. The Tribunal also found that excess withdrawals and non-attendance of two partners did not invalidate the genuineness of the firm. The Tribunal concluded that the firm was genuine and directed the ITO to allow continuation of registration for the assessment year 1981-82. Conclusion: Both appeals filed by the assessee were allowed. The Tribunal deleted the disallowance of Rs. 1,59,406 out of the brokerage payments and directed the ITO to allow continuation of registration for the assessment year 1981-82.
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