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TMI Blog1990 (1) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... dore, Sarvottam Supari Stores, 167, Ranipura, Indore, and Hilman Traders, 96, Siyaganj, Indore. According to the petitioner in all the three petitions, the petitioner firm is a registered partnership firm and Mohamad Munaf is one of its partners. The petitioner firm carries on the business of sale and purchase of supari, pan masala, tobacco and allied products. Respondent No. 4 in M. P. No. 317 of 1988, respondents Nos. 4 and 5 in M. P. No. 318 of 1988 and respondents Nos. 5, 6 and 7 in M. P. No. 420 of 1989 are also partnership concerns carrying on business of the same nature as that of the petitioner. However, their dealings are separate and independent of each other. The petitioner firm has been registered in the year 1972-73. The other firms which have been mentioned above as respondents in the three petitions are also registered separately and as registered firms they are being assessed under the Income-tax Act separately. The names of the partners of the petitioner firm are as under (1) Abdul Razak, (2) Abdul Majeed, (3) Noor Mohammad, (4) Mohammad Iqbal, (5) Mohammad Munaf and (6) Habib Moosa. The petitioner firm is being assessed by the Income-tax Department in the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85-86, excluding New Hilman Traders. The notices are annexed as annexures E, E-1 and E-2 in M. P. No. 318 of 1988. As such notices for filing returns for the years 1979-80 to 1982-83 have been challenged in M. P. No. 317 of 1988 and notices pertaining to the years 1983-84 to 1985-86 have been challenged in M. P. No. 318 of 1988. During the pendency of M. P. No. 317 of 1988 and M. P. No. 318 of 1988, respondent No. 1 again issued a notice dated February 22, 1989, purporting to be under section 148 of the Act in the name of the petitioner and Sarvottam Supari Stores and Hilman Traders, etc., styling them as an association of persons for the assessment year 1986-87 calling upon the petitioner and other said firms to file returns for the said assessment year. Prior to issuance of the notice, respondent No. 1 also issued a show-cause notice calling upon the petitioners and others to show cause why, notwithstanding the status of a registered firm, all the five firms should not be treated as having become a member of the association of persons. The petitioners sent a reply to that notice. The notices and reply have been filed with Petition No. M. P. 420 of 1989 and marked as annexures F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent No. 1 having passed an order under section 132(5) of the Income-tax Act in regard to Habib Moosa and Noor Mohammad in respect of the same assets sought to be assessed, cannot in the next breath make a protective assessment in regard to the same alleged assets in the hands of an imaginary association of persons. Under section 132(4A) of the Income-tax Act, there is a presumption that any books of account, other documents, money, bullion, jewellery or other valuable articles or things if found in the possession or control of any person, then such things belong to that person in whose possession they are found. In view of the aforesaid presumption also, a protective assessment is not contemplated nor is warranted under the Act. Having once held that two persons are responsible for the seized articles in accordance with section 132(5) of the Act, no other person or entity can be roped in hypothetically to seek assessment and/or reassessment against them. Therefore, a prayer has been made in all the three petitions for quashing the notices issued in the three petitions under section 148 of the Income-tax Act and further for passing an order restraining the first and second re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is also denied that the earlier orders were passed after perusing the full record and considering the material facts in respect of the petitioner firm. It is denied that there was no omission or failure on the part of the assessee in making full disclosure while making full and true disclosure. The notices under section 148 of the Act are based on the material gathered during the search operation and the Income-tax Officer came to the conclusion that the petitioner and the other firms were doing the business as an association of persons. It is also denied that the stock seized during the raid does not relate to the previous years. The provisions of section 132(5) have rightly been invoked by the Income-tax Officer. It is also denied that once an order is passed under section 132(5) of the Income-tax Act wherein two persons were held responsible for the seized articles, no other person or entity can be roped in. It has also been pleaded that the petitioner has an opportunity to show cause against the notices before the assessing authority and can avail of the other remedies. Learned counsel for the petitioners in all the three petitions, Shri Chaphekar, has argued that a registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act, means an association in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. As such, in view of the aforesaid decisions of the Supreme Court, interpreting the term "association of persons" as used in section 3 of the Income-tax Act, the Supreme Court has consistently taken the view that if two or more persons with a common purpose act jointly with a motive to produce income, profits or gains, then they can be treated as an association of persons. The Supreme Court has also held that there is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an association of persons within the meaning of section 3 ; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not- CIT v. Indira Balkrishna [1960] 39 ITR 546 (SC). Therefore, in the light of the aforesaid position of law, it has to be examined whether the petitioner firm along with the respondent-f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to come to the conclusion that the different firms are actually an association of persons shown as different entities for the purpose of assessment. In our opinion, the aforesaid facts, i.e., the cash being found at the residence of one of the partners and the stock being found, which according to the Revenue having not been identified in respect of each firm, would not constitute material under clause(a) of section 147 of the Income-tax Act because there is no nexus between the cash and stock found at the time of the raid with the escapement of the tax in the previous years for which notices under section 148 of the Income-tax Act have been given. The petitioner and the respondent firms were registered as separate and distinct entities with the Income-tax Department. In the assessment years 1979-80 to 1982-83 and for the years 1983-84 to 1985-86, the firms had filed their returns as separate entities. The assessment orders were passed by the competent income-tax authorities after examining the books of account and hearing the parties. The raid was conducted at the business premises of the firms and residences of the partners on December 17, 1986. The stock found during the rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l facts by the respective firms during the assessment years in question. Unless that requirement is satisfied, and that material is in the possession of the Revenue authorities, notice under section 148 of the Income-tax Act is clearly without jurisdiction. The notices have been challenged on another ground also. According to Shri Chaphekar, the income-tax authorities have completely ignored the provisions of section 186 before passing the impugned orders, wherein if the Income-tax Officer is of the opinion that during the previous year no genuine firm is in existence as registered, he may, after giving the firm reasonable opportunity of being heard and with the previous approval of the Inspecting Assistant Commissioner, cancel the registration of the firm for that assessment year or the cancellation can be made under clause (2) of section 186. Therefore, the first, step before passing an order treating the petitioner and the respondent-firms as an association of persons, issue of notice under section 186 was necessary which has not been given. That is why the order itself is without jurisdiction. We find force in this argument because the provisions of section 186 of the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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