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TMI Blog2011 (4) TMI 885X X X X Extracts X X X X X X X X Extracts X X X X ..... be examined in the assessment for the assessment year under appeal. AO was therefore well within his powers to examine the genuineness of the firm in the light of the materials gathered during the search. His powers cannot be curtailed merely because of sub-section (3) of section 184, which only provides for the rule of consistency. AO has been able to get statements from about 10 partners and they have been compiled in the paper book - a cursory perusal of some of the statements of partners shows that some basic and relevant details including the capital, activities of the firm, etc., have been given by the partners. They have also in some cases referred to their profit share. It is not proper to brush aside the statements. Thus the fact that the assessee firm had claimed to have taken Government contracts is also relevant because before awarding contracts the genuineness or credentials of the assessee firm would have been examined by the Government. All these are relevant considerations which the AO ought to have kept in mind - restore the matter to the file of the AO with directions to him to decide the assessment afresh - assessee's appeal allowed by of remand to AO. - 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the entire work all by himself, that most of the contracts were in his name though the income was offered in the hands of various firms, that in the accounts of the firms the income was distributed by debiting the salary and interest to a large number of partners in such a manner that the income of each of the partners was below the taxable limit and that in this way the firms were being created only for purposes of reduction of the real tax liability. He accordingly held as follows : "9. In view of the above facts, I hold that M/s A.C. Chenna Reddy is not a genuine firm, rather it is a front created by Shri A.C. Chenna Reddy to divert his income and defraud the revenue by further sub-dividing the diverted income. Correct income from all contracts shown in the hands of the various so called firms including this firm shall be taxed in the hands of Shri A.C. Chenna Reddy in the block assessment proceedings pending in this case." To safeguard the interest of the revenue, the Assessing Officer however accepted the returned income on protective basis. 3. On appeal, the assessee made written submissions dated 19-2-2007, in which it was contended that the firm was a genuine f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir salary. The Assessing Officer also noted that though A.C. Chenna Reddy had assured that the other partners will be produced before the Assessing Officer by 19-10-2007, they were not produced. He therefore reiterated his view that the firm was only a namesake and is actually a proprietary concern of A.C. Chenna Reddy. 6. The aforesaid supplementary remand report was sent by the CIT(A) to the assessee for comments on 9-1-2008 requesting compliance by 15-1-2008. There was no compliance on this date and thereafter three more notices were issued to the assessee, all of which went without compliance. The CIT(A) therefore inferred that the assessee had no comments to offer vis-a-vis the supplementary report. He thereafter examined the assessment order, the written submissions, the remand report and other relevant documents. On going through them he found that the Assessing Officer's conclusion cannot be faulted. He accordingly upheld the same. He also held that mere documentation regarding the existence of partnership is not sufficient evidence to prove that a genuine firm was in existence and the Assessing Officer was well within his powers under the Act to go beyond such documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be assessed as a firm if - (1) the partnership is evidenced by an instrument; and (2) the individual shares of the partners are specified in that instrument. The firm has to submit a certified copy of the Partnership Deed along with the return of income filed for the assessment year 1993-94 onwards. Sub-section (3) provided that if a firm is assessed as such for any assessment year, and if there is no change in the constitution of the firm or the shares of the partners, the firm shall continue to be assessed in the same capacity for all the subsequent years. If there is any change in the constitution or the shares, the firm has to submit a certified copy of the modified Partnership Deed seeking assessment of the newly constituted firm. Section 185 as inserted from 1-4-1993 provided that where a firm does not comply with section 184, it shall be assessed for that assessment year in the same manner as an association of persons and all the provisions of the Act shall apply accordingly. From 1-4-2004, the Finance Act, 2003, amended section 185 to provide that in case of default by the firm with respect to the procedure prescribed in section 184, the consequence will be that the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm was itself made liable to tax at the normal rates of taxation and the share income of the partners was exempt under section 10(2A). The absence of a procedure for registration of the partnership firms from the aforesaid date does not mean that a firm which seeks an assessment can be a non-genuine firm, an alias or benami for somebody else. The Act gives the Assessing Officer the power to assess a person to tax under section 143. There is no express power conferred in the section upon the Assessing Officer to enquire into the genuineness of the person. That however does not mean, and it can never be argued, that an Assessing Officer cannot examine or enquire into the genuineness of a person liable to tax. A specific power conferred upon the Assessing Officer to examine or enquire into the genuineness of a person as defined in section 2(31) of the Act, who is liable to pay tax under the charging section 4 is in our opinion not necessary at all. The power expressly conferred upon the Assessing Officer under section 185 of the Act, as it stood before 1-4-1993 was dropped only because it was redundant and not because the Legislature thought that it would permit even a non-genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There was no provision in the Sales Tax Act to indicate what would be the nature of two separate agreements entered into between the same partners, but with respect to carrying on different businesses. Whether those two agreements can be combined and treated as one partnership firm for purposes of the Sales Tax law was the question before the Supreme Court, the answer to which was not provided in the State Sales Tax law. It was in this context that the Supreme Court observed at page 164 : ". . . But for determining whether there is a firm, the Assessing Officer will apply the partnership law, subject of course, to any specific provision in that regard in the tax law modifying the partnership law. If the tax law is silent, it is the partnership law only to which he will refer. Having decided the legal identity of the assessee that it is a partnership firm, he will then turn to the tax law and apply its relevant provisions for assessing the partnership income." The ratio of the judgment of the Supreme Court is attracted to the present case. It is the duty of the Assessing Officer under section 184 of the Income-tax Act to examine whether the firm which seeks an assessment as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 746/84 Taxman 236, to hold that the partnership firm was not genuine. Apparently the Tribunal considered that this judgment was not applicable to the case before it, as the case involved the assessment year 1994-95, by which time section 184 had been wholly substituted. However, a respectful perusal of the judgment shows that at page 759 the Supreme Court has observed that "it would be wrong to think that while acting under the Income-tax Act, the Income-tax Officer need not look to the law governing the partnership which is seeking registration". This observation fully accords with the ratio of the earlier judgment of the Supreme Court in the case of K. Kelukutty (supra). Apparently the attention of the Bangalore Bench of the Tribunal was not drawn to the aforesaid observation of the Supreme Court. Thus the decision of the Bangalore Bench, with respect, is not in conformity with the ratio of the two judgments of the Supreme Court cited hereinabove. 12. In the order of the Hyderabad "SMC" Bench of the Tribunal in the case of ITO v. Amrutha Wines [2008] 21 SOT 401, there are observations to the effect that under the amended provisions of section 184 the Assessing Officer is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the firm and proceeded to examine whether there was a genuine firm in existence. In such circumstances when there was material before him, which has been referred to in paragraph 8 of the assessment order, which throws considerable doubt as to the genuineness of the firm, it is not open to invoke the provisions of section 184(3) to contend that since the firm has been assessed as such in the earlier years, its genuineness cannot be examined in the assessment for the assessment year under appeal. The status of an assessee is to be determined by the Assessing Officer on a consideration of all the facts and circumstances of the case. Genuineness of a firm goes to the very root of the matter. The Assessing Officer was therefore well within his powers to examine the genuineness of the firm in the light of the materials gathered during the search. His powers cannot be curtailed merely because of sub-section (3) of section 184, which only provides for the rule of consistency. This rule is subject to exceptions and one such exception is where there is just cause for a departure from the past practice in the light of the evidence and material gathered by the Assessing Officer. The sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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