TaxTMI 
TaxTMI 
1998 (7) TMI 121
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....r section 186(1) of the Income-tax Act. The firms were treated as unregistered and the income of the two firms namely M/s. Industrial Fabricators and M/s. Mohit Steel Fabricators was brought to tax in the hands of M/s. Steel & Steel Fabricators. Against the orders passed under section 186(1) of the Act by the concerned Assessing Officers the assessee filed appeals and the learned CITs(A) for the detailed reasons given in their orders, held that the concerned Assessing Officers were not justified in cancelling the registration in the case of three firms and directed the Assessing Officer to allow continuation of the registration under section 184(7) of the Act for assessment year 1989-90 in case of all the assessee. Aggrieved against these orders, the department is in appeal. 3. Relying strongly on the orders of the Assessing Officers the learned DR emphasised reasons leading to the cancellation of registration under section 186(1) of the Act in respect of the three concerned firms. It was submitted that while all the partners of three firms are closely related, the businesses of all the firms were carried on in the common premises. The books of account of all the firms and the c....
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....sp; (2) (3) (4) (5) (6) --------------------------------------------------------------------- M/s. Steel Sh. V. B. 60% Father 4-4-1976 30-12-1977 Steel Gulati Fabricators Sh. Sunil 40% Son Gulati M/s. Indu- Sh. Sunil 1/3 Son of Sh. 4-2-1978 4/80 Strial Gulati V.B. Gulati Fabricators Deepak 1/3 -do- Gulati Smt. Sudha &nbs....
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....Officers. Separate books of account were maintained by all the firms. On these facts the learned CIT(A) rightly held that the facts available in the case of Ladhu Ram Taparia(supra) were different. Coming to the legal aspect of the issue it was submitted that the conditions laid down for cancellation of registration under section 186(1) of the Act do not include the case of non-disclosure of income by a genuine firm. On the other hand, as held by the Hon'ble Allahabad High Court in the case of Raj Stores v. CIT [1988] 170 ITR 119 / [1987] 35 Taxman 28, the concept of a genuine firm for the purposes of the provisions of sections 184, 185 & 186 of the Act is that the firm seeking either a registration or continuation of registration must continue with the identity of the partners and the share ratio in the profits and losses as specified in the instrument. In the absence of any evidence brought on record to show that the genuine firms did not exist, the learned CIT(A) was justified in setting aside the findings of the concerned Assessing Officer. 5. We have carefully considered the rival submissions and have also gone through the material placed on record. The undisputed facts are....
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....ath Hanuman Bux 28-6-41 3. Jagan Nath Har Narain 11-8-41 4. Ganpat Rai Jorawar Mull 21-10-43 5. Seth Ladhu Ram Taparia 8-3-43 6. Ladhu Ram 1-3-44 ---------------------------------------------------------- The salient features noted by the Assessing Officer while examining the case as reproduced by the learned CIT(A) were as under :- (a) Each firm had been considerably financed by the other firm. (b) Almost the same outside parties had financed the aforesaid firms namely 1 to 6. (c) Huge purchases have been made from and huge sales have been made to allied concerns (excepting firms No. 5 & 6). (d) The goods had been shifted from one concern to another and only a divided portio....
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....to enquire into the genuineness of the firm and its constitution as specified in the instrument of partnership. Since enquiry into the constitution of the firm has been separately provided for, the same would be an additional factor for granting or refusing registration to the firm. Genuineness on the other hand, is one of the pre-requisite conditions for both grant and continuance of registration. Though commonly and properly understood as something real, the expression 'genuine' had not been defined as such. What is genuine then ? The expression 'genuine' as defined in Chambers 20th Century Dictionary - reads as natural, native, not spurious, real, pure, sincere. These characteristics or qualities cannot be examined in vacuum. These have to be qua some standard or something which exists in reality. For example purity is to be judged vis-a-vis impurity, real against fictitious and genuine against false or bogus. Transported to the arena of firms what is required to be found is whether whatever is provided in the instrument of partnership is there in reality or not. 8. There can be no set formula for determining whether the firm is genuine or not. Each case has to be decided on ....
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....orpn. [1983] 141 ITR 656 / 14 Taxman 481 (Mad.), the facts were that one of the partners of the firm alongwith the wives of other 8 partners entered into the partnership and constituted the financing corporation. The eight ladies had to their credit certain amounts in other firm which were withdrawn and credited as capital contribution to the firm. On the same date the firm advanced the same amount to another firm from where the 8 ladies had withdrawn their sums. Similar Act was repeated by the other partners of the firm. The entries were made by book adjustments and no cash actually passed in these transactions. While the ITO held that the assessee firm was not genuine, the AAC and the Tribunal allowed registration to the same. Their Lordships of Madras High Court held that the entries in the transaction are posted in such a manner that there is a triangle and ultimately as the amounts reach the same point, there is no passing of any cash. On the facts it was held that "the execution of partnership deed is not by itself a talisman which can entitle a firm to be registered. Apart from the execution of the partnership deed, there must be circumstances and facts to show that it had c....
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....on to whole or any part of profit of the firm, the firm is to be treated as ingenuine. As regards other factors we find that they are not present in the case of the assessee. 12. In the case of Arya Confectionery Works v. CIT[1983] 143 ITR 814 (MP), the facts are that the assessee firm derived income from manufacture and sale of confectionery and biscuits. The assessee's accounts were rejected and it was held that the assessee's income could not be properly deduced from the accounts as maintained. It was further found that (Head Note)-"(i) a business in the name of G agencies was carried on from the assessee's business premises; (n) account books in the name of G agencies were found in the premises of the assessee, and the books revealed that purchases were made by G agencies from the assessee-firm without bills; (iii) G agencies carried on the same business which the assessee carried on and the sale proceeds were handed over daily by G to a senior partner of the assessee-firm, who initialled in the cash book of G agencies in token of having received the sale proceeds; (iv) no rent or shop expenses were recovered by the assessee from G agencies; (v) G had no capital of his own a....