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TMI Blog1981 (12) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... ed return, on 2-2-1976, offering Rs. 7,088 as additional income which was claimed to have arisen from business conducted by an accountant of the assessee-firm, without the knowledge of the assessee-firm, and though the firm reiterated that it did not derive any income from the said business, it still offered the estimated income of Rs. 7,088 for assessment. It may be mentioned that there was a raid by the Sales Tax Department on the assessee's premises, on 15-5-1973, and sale transactions in sweet oil and purchase of ground nuts outside the account books were found by them. The ITO, after recapitulating these facts, rejected the assessee's contention that the accountant could do business of this magnitude without instructions from the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 184(7) for continuation of registration in Form No. 12 required the firm to certify that there was no change in the constitution of the firm or the shares of the partners and as it was not known how the undisclosed profits outside the account books were apportioned between the partners, it cannot be verified whether there was any change in the shares of the partners. He, accordingly, upheld the order under section 186. 4. At the hearing before us, learned counsel for the assessee urged that both the ITO and the AAC, while relying on Khanjan Lal Sewak Ram, had not established how the assessee's case fell under section 186 and that the assessee-firm was not genuine. A distinction was drawn between granting of registration to firms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the constitution of the firm or the shares of the partners. Similarly in Addl. CIT v. Chanderbhan Harichand Co. [1980] 126 ITR 709 (Delhi), it was held that the firm was entitled to continuation of registration under section 184(7) if there was no change in the constitution of the firm or the shares of the partners and an enquiry as to the genuineness of the firm was to be made only in the first year, at the time of registering the firm, and not in any subsequent years in contradistinction to the position under the 1922 Act. It was, therefore, urged that non-distribution of profits outside the account books by the assessee-firm would not make the assessee-firm a non-genuine firm and the fact that the ITO in his order under section 185 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of partnership, the Allahabad High Court upheld cancellation of registration. 6. We have carefully considered the submissions of both the parties. We find that the assessee has a good case. The lower authorities have nowhere given the definite finding that the firm was not genuine. The fact that the firm has been granted registration since the assessment year 1972-73 showed that the revenue had accepted the firm to be a genuine firm. The question for consideration is whether registration, though originally granted in the year under consideration (assessment year 1974-75), can be cancelled subsequently on the short ground that profits of business outside the account books have not been shown to be apportioned between the partners in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io as per the instrument of partnership. It is this vital difference between the provisions of the 1922 Act and that of the 1961 Act that distinguishes the assessee's case from that of Khanjan Lal Sewak Ram. In the latter case, the said firm had applied for renewal of registration for the assessment year 1948-49 under section 26A of the 1922 Act, and the said application was signed by all the partners and in paragraph 3 thereof they had appended a certificate to the effect that the profits of the previous year were divided or credited as shown below. The Tribunal had found that the firm had earned profits in the black market and though it had distributed its book profits among the partners according to instrument of partnership, it had not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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