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TMI Blog1995 (4) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... de order dt. 24th March, 1987 on the ground that registration was granted to the said firm without examining the basic facts and the ITO had not brought to tax the real and actual incomes derived by the assessee. A fresh assessment was made vide assessment order dt. 31st March, 1989 in which the income for asst. yr. 1984-85 was determined at Rs. 8,24,206. 4. Survey operation under s. 133A was carried out on 9th July, 1986 at the business premises situated at 169, New Cloth Market, Ahmedabad. It has been observed by the Assessing Officer (AO) in the assessment order that there are 4 sister concerns of the assessee-firm. These concerns are (i) M/s Hiralal Chandulal Chokshi, (ii) M/s. Hirabhai & Sons, (iii) M/s Bhagwati Textiles Proprietor Hiralal H. Bhagwati (HUF) and (iv) M/s Prakash Textiles. The AO inter alia, observed that (a) during the course of survey it was found that entire cash of all the sister concerns was kept together under the control of one single person, (b) the business of all the five concerns was carried on from the same premises, (c) the nature of business was identical, (d) accountants and some other employees were common, (e) business of all the sister concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gathered as a result of survey under s. 133A on 9th July, 1986. The AO thereafter came to the conclusion that income in the hands of the assessee- firm is to be assessed on protective basis without prejudice to the finding as may be given in the case of M/s H. Bhagwati & Sons. Certain additions and disallowances were also made in the cases of the sister concerns. The registration to the three sister concerns which are partnership firms was also refused on similar grounds. One of the sister concerns is not a partnership firm but that is a sole proprietorship concern owned by Mr. Hiralal H. Bhagwati (HUF) (M/s Bhagwati Textiles). 5. The CIT(A) vide his common order passed in the case of M/s H. Bhagtwati & Sons for asst. yrs. 1984-85 to 1986-87 in relation to refusal to grant continuation of registration under s. 184(7) held that the assessee-firm as well as the three other sister concerns which are partnership firms are genuine firms and are entitled to grant of registration/continuation of registration. He, accordingly, directed the AO to treat the firm as genuine and grant registration. He also held that all the four sister concerns are genuine business concerns and has been separ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1987) 66 CTR (AP) 210 : (1988) 169 ITR 662 (AP); 6. CIT vs. Kanaiyalal Ram Chand 1977 CTR (P&H) 103 : (1979) 119 ITR 377 (P&H); 7. Addl. CIT vs. Jay Engineering Works Ltd. 1978 CTR (Del) 156 : (1978) 113 ITR 389 (Del). On the strength of the aforesaid judgments and in view of the elaborate reasons mentioned in the orders passed by the assessing authority, the learned Senior Departmental Representative strongly urged that the orders of the CIT(A) should be cancelled and that of the AO should be restored. 8. The learned counsel for the assessee strongly supported the order of the CIT(A). He reiterated almost similar arguments as were advanced on behalf of the assessee before the learned CIT(A). It was further pointed out that out of the four sister concerns treated as non-genuine or benami concerns one sister concern, viz., M/s Bhagwati Textiles is owned by Hiralal H. Bhagwati (HUF). The business carried on by the said HUF was always treated to be genuine ever since its inception, i.e., from asst. yrs. 1972-73 to 1983-84. The partnership firm M/s Hiralal Chandulal Chokshi which is being alleged to be a concern created for diverting the profits of the main firm, in fact was formed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons mentioned in the assessment order in relation to those additions which have been deleted by the CIT(A). The counsel for the assessee relied on the reasons and conclusion mentioned in the order of the CIT(A). 10. We have given a very thoughtful consideration to the arguments advanced before us by the learned representatives and have also carefully gone through the orders of the learned Departmental authorities as well as the various decisions cited by the learned representatives. 10.1 The main grounds on the basis of which the AO refused to rant registration/continuation of registration to the main firm as well as to the three other partnership firms which are described as sister concerns 'are that the nature of business carried on by the said sister concerns is almost similar, the business is carried on by all of them from the same premises, the management vested in the hands of a few members of the family of three groups, some of the employees are common and cash and stocks found during the course of survey were found at the same place and were under the control of the common persons. Some more points have been discussed in the assessment order. Extracts of the statements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions conducted under s. 133A dt. 9th July, 1986 has been placed at page 14 of the compilation. The said stock inventory clearly indicated that which particular bale of the cloth found in its stock belonged to which firm. The inventory prepared by the officers of the Department itself indicate the name of the different concerns to which the particular lot of stock belongs. This has been indicated by mentioning the name of the respective concerns in an abbreviated form like PTA, HCC, BT, HBS, HCC, etc. The AO has not indicated anything in the assessment order showing that any unaccounted stock was found during the course of survey as compared to the position of stocks revealed by the books of accounts of the respective business concerns. Likewise, the cash found during the course of survey was also properly explained with reference to the books of accounts and other relevant records maintained in relation to different business concerns. Shri Hiralal H. Bhagwati in his statement recorded on 9th July, 1986 clearly stated that cash is kept at one place but instructions are given to the cashier to keep it separately firmwise. It has not been indicated in the assessment orders that any ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat case are totally different and distinguishable. In that case it was, inter alia, found that each of the sister concerns had been considerably financed by the other sister concerns and huge purchases have been made from them and huge sales have been made to allied concerns. Most of the outside parties to whom goods had been sold and from whom goods had been purchased were the same for each of those firms. The bank accounts on behalf of different firms were operated by persons who were not partners of those firms. The constitution notified to the bankers in respect of different partnership firms was not in conformity with the constitution of the partnership firms shown to the IT Department. Taking into consideration, the totality of the facts of that particular case, the Hon'ble Supreme Court came to the conclusion that the High Court was right in holding that no question of law arose out of the order of the Tribunal. The decision was thus based on the findings of fact given by the Tribunal on the basis of facts, material and evidence existing on the records of that case. The other judgment relied upon by the learned Senior Departmental Representative also in our considered opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the turnover is assessable in the hands of the partnership firm as a taxable entity, separate and distinct from the partners. There is first a decision under the law of partnership and thereafter, the second question, the question as to assessment, arises under the tax law. Similarly, the Hon'ble Supreme Court in the case of K.D. Kamat & Co. vs. CIT, inter alia, held as under: "The legal requirements under s. 4 of the Partnership Act to constitute a partnership in law are (i) there must be an agreement to share the profits or losses of the business and (ii) the business must be carried on by all the partners or any of them acting for all. There is implicit in the second requirement the principle of agency. Control and management of the business of a firm can be left by agreement between the parties in the hands of one partner to be exercised on behalf of all the partners. Held, reversing the decision of the High Court that the fact that the exclusive power and control, by agreement of the parties, was vested in one partner, and the further circumstance that only one partner could operate the bank accounts or borrow on behalf of the firm was not destructive of the theory o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the Department has not disputed the genuineness and the correctness of capital contributions made by the respective partners in the respective firm. The Department has also not disputed the correctness and genuineness of the capital contributed by the HUF in the sole proprietorship business carried on under the name and style of M/s Bhagwati Textiles. The profits of the respective sister concerns have been enjoyed by the partners of the three sister partnership firms and by the said HUF. The main firm as well as the three partnership firms have complied with all the legal requirements for grant of registration/continuation of registration under the provisions of the IT Act. In our view, the learned CIT(A) has dealt with the whole issue in an admirable manner with perfect clarity and the decision rendered by him is supported by proper reasoning and valid material and evidence available on records. We, therefore, confirm the finding given by him that the main firm as well as the three partnership firms are genuine firms and the income of the various sister concerns cannot be validly clubbed in the hands of the main firm. The orders passed by the CIT(A) accepting such condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT(A) has rightly deleted the lump sum addition of Rs. 25,000 made by the AO. The AO has failed to point out any specific mistake or discrepancy is the account maintained by the assessee and, therefore, there is no justification in making any such lump sum addition in the declared trading results, particularly in a case where the entire purchases and sales are properly supported by vouchers and regular books of accounts. 12. In ITA No. 1416/Ahd/1990 in the case of Prakash Textile Associates for asst. yr. 1986-87 the Revenue has raised similar ground relating to deletion of disallowance made in respect of inter-firm interest paid by the assessee as well as relating to lump sum addition of Rs. 25,000 made in the declared gross profit. The CIT(A) had deleted the said disallowance and additions on similar reasoning as given by him in the appellate order passed for asst. yr. 1985-86. In view of the facts and reasons mentioned in the order of CIT(A) with which we fully agree, the view taken by the CIT(A) is confirmed. 13. The Revenue has taken similar ground relating to deletion of disallowance of inter-firm interest in the following other appeals: ITA No. Name of Party Asst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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