Clubbing of firm incomes requires proved interlacing or interdependence; identical constitution alone is insufficient.

Income of separately constituted firms cannot be clubbed merely because they share the same constitution or profit-sharing ratio. In the absence of proved interlacing, interdependence, interlocking of funds, or benami character, there is no material basis for treating them as one assessable unit. The earlier departmental theory supporting clubbing had already been overruled, and the assessment orders rested only on identity of constitution. On the facts found, the deletion of the clubbing addition was upheld and separate assessment of the two firms was maintained.

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Issues: Whether the income of one firm could be clubbed with that of another firm merely because they had the same constitution and profit-sharing ratio, in the absence of evidence of interlacing, interdependence, or benami character.

Analysis: The earlier departmental basis for clubbing rested on a legal proposition that had been overruled. The record did not show that the assessing authority had proceeded on any proved facts of interlocking or interlacing of funds between the two firms. The assessment orders were made on identity of constitution alone, and the department's own grounds indicated that any alternative factual basis was not part of the original assessment reasoning. On the facts found, there was no material to justify treating the firms as one for assessment purposes.

Conclusion: The clubbing of income was not sustainable and the deletion ordered by the appellate authority was upheld, in favour of the assessee.

Final Conclusion: The departmental appeals failed and the separate treatment of the two firms was maintained.

Ratio Decidendi: Income of separately constituted firms cannot be clubbed merely on identity of constitution or profit-sharing ratio unless there is proved interlacing, interdependence, or other material justifying single assessment.

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