9911796707
TMI Blog1989 (10) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... . Shri Biswa Kanta Barkataky. 5. Smt. Malabika Barkataky. 6. Sangit Dutta. 7. Smt. Amala Nath. 8. Smt. Premoda Nath. 4. The ITO noted that a search was conducted in the premises of the firm and of the partners on 30-8-1985, when one of the partners Smt. Amala Nath clearly stated that she had no income from any other source apart from Govt. pension and bank interest. The ITO also noted that the signatures of the three of the partners recorded at the time of the search vastly varied from the signatures given in the application and other papers filed by the firm. Accordingly, the ITO asked the assessee firm to let him know why the registration allowed by the ITO earlier should not be cancelled and also that the assessee should produce all the partners for examination. The assessee sent a letter dated 8-1-1986 stating that the allegation of differing signatures was mere suspicion and the statements of Smt. Amala Nadi and Shri Anjan Barkataky referred to were the matters for appreciation. 5. The ITO mentioned that the assessee did not produce all the partners for examination and verification of their signatures to determine the genuineness of the firm. After being given more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignatures of some of the partners in the application and other papers for registration were very much different from the signatures obtained by the ITO from the persons concerned at the time of the search of the premises of the firm and of the partners. It is submitted that signature of the same person may vary at different times. But that would not lead to the conclusion. that the person was not in existence. In this connection, the assessee's learned counsel draws inspiration from the decision of this Bench in the case of Sri Taraknath Sutradhar [IT Appeal No. 190 (Gauhati) of 1985, dated 7-3-1986] in which on the facts of that case, at the bottom of para-9, it was observed by the Bench in a similar situation that it is a matter of common knowledge that every person gets frightened at the time of search being conducted by the income-tax authorities and, therefore, the statement made out of fear and disturbed mental condition should not be taken as correct statement. The assessee's learned counsel also refers to various papers in the paper-book to show that the conclusion of the ITO as affirmed by the AAC was wrong and was without any basis. In particular, the assessee's learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have given their signatures at the time of the raid. In fact, the ITO did not rely on that point for cancellation of registration but he, rather initiated action for cancellation of registration and asked the assessee to explain the matter and to produce all the partners for examination. Since the assessee did not produce all the partners except the two mentioned above, the ITO had no means to know or ascertain who were those persons and accordingly, he concluded that there was no genuine firm in existence and registration allowed earlier was cancelled for the years under consideration. Thus, it is not correct to say that cancellation of registration was merely due to the variation of the signatures of some of the partners. In fact, application for registration for the assessment year 1979-80 must have been made on the basis of the partnership deed and application of F. No. 11 and 11A as the case may be which were signed by the partners concerned on those earlier dates. The raid took place on 30-8-1985, i.e., after the lapse of some years. With the passage of time, there might be variations in the signature of a particular person which point cannot be ruled out. In fact, the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16-12-1986. The status of the assessee was taken as URF as a consequence of the cancellation of registration under section 186(1), dated 16-12-1986. Therefore, rectification of assessments and tax calculation had to be made. He took action under sec. 154 and the assessee's learned counsel appeared before the ITO and had no objection to the proposed rectification subject to the final decision in the matter. The ITO rectified the assessment for the assessment year 1979-80 accordingly. Total income was taken at Rs. 59,980 similar action was taken for the other assessment years under consideration. Simultaneously, the ITO passed an order under section 158 which requires the ITO statutorily to notify to the firm in writing the amount of its total income assessed and the apportionment thereof amongst the several partners whenever assessment was made as a registered firm or as an unregistered firm under section 183(b). 13. In his order under section 158, the ITO allocated the income of the URF in the hands of two partners, only Shri Jiten Nath and Shri Ajit Barkataky, who according to the ITO were found to be genuine in the course of the proceedings and on the verification of their sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm was an unregistered firm in view of the clear provisions of section 186(3). The ITO was purported to have passed an order under section 186(3) though action was directly taken under section 154 of the Act. But we have to see the substance and effect and whether the same was in conformity with or according to the intent and purpose of the Act. For this purpose, we may refer to the provisions of section 292B of the Income-tax Act, 1961. The case of the assessee is that the AAC went wrong in upholding the order passed by the ITO under section 154 when this section was not attracted at all and that the ITO erred in law in allocating the income of the firm between two partners only which was beyond the jurisdiction of the ITO and that there was no material for the ITO to determine the share of the two partners mentioned above as equal. But we have given the indication above the ITO has to give statutory effect to his cancellation of the registration under section 186(1), as provided under section 186(3). Section 186(1) deals with cases where the ITO is satisfied that registration granted earlier was without there being a genuine firm in existence and on that ground, the ITO ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to be allocated as required under section 158 which requires the ITO to take into account the provisions contained in section 183. There is force in the submissions made by the assessee's learned counsel that the ITO's order in allocating the profits of the firm to two partners only, viz., Shri Jiten Nath and Shri Ajit Barkataky at 50 per cent share of profit to each of them, is wrong and without considering the provisions of law. This part of the contention of the assessee's learned counsel is acceptable. The provisions of section 158 are mandatory. The ITO is obliged to allocate the profits or losses to the individual share of each of the partners as specified in the deed of partnership. The ITO cannot include in the share of profits allocable to the partner any other income, under section 158 when such income did not form part of the firm's income. Reference may be made to a decision of the Hon'ble Punjab High Court in the case of Seth Satya Paul Virmani v. CIT [1955] 27 ITR 109 and also to another decision of the Hon'ble Bombay High Court in the case of CIT v. Dwarkadas Vassanji [1953] 23 ITR 109. Of course, this situation has not arisen in the present position but these d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contract and by the provisions of the Partnership Act and his liability to third parties for the acts of the partnership is co-equal with that of the other partners and the other partners have no concern with the real owner and they can only look to him for enforcing their rights or discharging their obligations under the partnership deed. It was also held by the Hon'ble Supreme Court in that decided case that if a benamidar possesses the legal character to enter into a partnership with another, the fact that he is accountable for his profits, and has the right to be indemnified for his losses, on account of a third party, or even by one of the partners or even in respect of another partner would not divest him of the said character. 20. In the case of CIT v. J.P. Kanodia Co. [1970] 77 ITR 515, the Hon'ble Supreme Court had the occasion to deal with the allocation of shares of a registered firm. It was held that the ITO must allocate the profits in accordance with the deed of the registered firm and he cannot at that stage hold an enquiry whether the partners represented other persons. It was held by the Hon'ble Supreme Court that in the assessment of the individual part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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