1983 (11) TMI 150 - AT - Income Tax

Summary

Issues:
1. Assessment of a resident registered firm for the assessment year 1978-79 involving two accounting periods.
2. Determination of whether there was a change in the constitution of the firm or a succession of a new firm.
3. Addition of Rs. 10,000 to the income of the firm based on estimated sales.

Analysis:

1. The appeal pertains to the assessment of a resident registered firm for the assessment year 1978-79, covering two accounting periods. The assessee filed returns for two periods, but a single assessment was framed for both periods, which was upheld by the ld. CIT(A). The issue revolved around whether there was a change in the constitution of the firm or a succession of a new firm. The assessee claimed it was a case of succession under section 188 of the IT Act, 1961, not governed by section 187(2) of the Act. The Tribunal noted the deed of dissolution and the new partnership deed. The ld. CIT(A) confirmed the ITO's decision, citing a discrepancy with the decision of another High Court. However, the Tribunal held in favor of the assessee, directing two separate assessments in line with the decision of the Hon'ble Madhya Pradesh High Court.

2. The second issue involved the addition of Rs. 10,000 to the firm's income, which was sustained by the ld. CIT(A) out of a larger addition made by the ITO. The ITO applied a GP rate of 20% on estimated sales for both periods, justifying the addition. The Tribunal found that since it was a case of two distinct firms for each period, the addition was not warranted. Additionally, the ITO's reference to the past accounts did not support the addition. The assessee presented a comparative chart of sales and GP data for previous years, highlighting favorable appellate orders. Relying on a previous ITAT decision, the Tribunal concluded that the addition was not justified, and the trading results declared by the assessee for both periods were acceptable.

3. In conclusion, the Tribunal allowed the appeal, setting aside the lower authorities' orders. The Tribunal directed the ITO to frame two separate assessments for the two accounting periods, as per the decision of the Hon'ble Madhya Pradesh High Court. The addition of Rs. 10,000 to the firm's income was deemed unwarranted, and the trading results declared by the assessee were accepted.