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Issues Involved:
1. Cancellation of registration of the firm under Section 186(1) for the assessment year 1971-72. 2. Refusal of registration under Section 185(1)(B) for the assessment years 1972-73 and 1973-74. Detailed Analysis: Issue 1: Cancellation of Registration under Section 186(1) for AY 1971-72 The firm was initially registered under an instrument of partnership dated 7th January 1969. For the assessment year 1971-72, the Income Tax Officer (ITO) issued a show-cause notice under Section 186(1) on 20th July 1973, questioning the genuineness of the firm due to the presence of a benamidar partner, Smt. Jatu Bai, who was alleged to be a front for her son, Shri Vimal Chand. Despite the assessee's detailed reply and submission of affidavits and accounts, the ITO canceled the registration on 28th February 1974, citing the previous year's findings and the approval of the IAC. The Appellate Assistant Commissioner (AAC) cancelled the ITO's order, observing that the ITO's decision was mechanical and lacked consideration of substantial evidence provided by the assessee. The AAC noted that Smt. Jatu Bai had made significant investments and was a genuine financing partner, not a benamidar for Shri Vimal Chand. The AAC emphasized that the ITO failed to provide concrete reasons for the cancellation of registration and had ignored the detailed material on record. The Tribunal upheld the AAC's order, agreeing that the firm was genuine and that Smt. Jatu Bai was a partner in her own right. The Tribunal noted that the ITO had overlooked substantial evidence, including partnership deeds, affidavits, and financial records, which demonstrated the firm's genuineness and Smt. Jatu Bai's legitimate partnership. Issue 2: Refusal of Registration under Section 185(1)(B) for AY 1972-73 For the assessment year 1972-73, the ITO issued a notice on 8th October 1974, questioning the genuineness of the firm due to a change in its constitution and the introduction of a minor, Shri Navratan Mal, to the benefits of the partnership. The ITO also questioned a loan of Rs. 50,000 introduced by Smt. Jatu Bai, suspecting it was not genuinely borrowed by her. The AAC cancelled the ITO's order, noting that the loan was genuine and supported by affidavits from partners of the Bombay firm. The AAC found no evidence to support the ITO's claim that Smt. Jatu Bai was a benamidar. Additionally, the AAC dismissed the ITO's objection regarding the minor partner, stating that the law does not require a minor to contribute capital or skill to be admitted to the benefits of a partnership. The Tribunal upheld the AAC's order, agreeing that the ITO's reasons for refusing registration were unfounded. The Tribunal emphasized that the minor's admission to the partnership was legitimate and that Smt. Jatu Bai's financial contributions were genuine and well-documented. Issue 3: Refusal of Registration under Section 185(1)(B) for AY 1973-74 For the assessment year 1973-74, the ITO refused registration based on the same grounds as for 1972-73. The AAC allowed the assessee's claim, relying on the findings and conclusions for the previous year. The Tribunal upheld the AAC's order, stating that the circumstances for the assessment year 1973-74 were identical to those of 1972-73. Consequently, the Tribunal dismissed the Departmental appeal, affirming that the firm was entitled to registration for this year as well. Conclusion: The Tribunal dismissed the Departmental appeals for all three assessment years, affirming the AAC's orders that the firm was genuine, and the partners, including Smt. Jatu Bai, were legitimate. The Tribunal found that the ITO had failed to provide adequate evidence to support the cancellation and refusal of registration.
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