TaxTMI 
TaxTMI 
2011 (4) TMI 885
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....e course of the assessment proceedings the Assessing Officer called upon the assessee to produce the partners for examination 10 partners out of 18 partners appeared and their statements on oath were recorded under section 131 on 23-3-2005 and 24-3-2005. After examination of the partners, the Assessing Officer took the view that they were all well tutored and the replies given by them were similar in almost all the aspects of the questions posed to them. He noted that none of them had any past experience of civil contract works before joining the firm, that they did not know each other, that they knew only A.C. Chenna Reddy who was the man behind the firm, that they did not have any knowledge of the affairs or accounts of the firm which were being managed by one Konda Reddy, who was a relative of A.C. Chenna Reddy, that all the so called partners were only labour supervisors of A.C. Chenna Reddy, that they did not make any withdrawals from their capital accounts in their capacity as partners, that they did not make any capital contribution to the firm and that in these circumstances the firm cannot be considered to be a genuine firm for purposes of assessment. The Assessing Officer....
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....he Assessing Officer submitted a report to the CIT(A). He reported that the assessee had shifted its office from Mulund (East) to some other place without any intimation to the Assessing Officer and therefore no details could be collected from the assessee on the written submissions made before the CIT(A). The Assessing Officer however pointed out from the record that for the assessment year 2001-02 the firm was assessed on protective basis and the appeal of the assessee to the CIT(A) had been dismissed by order dated 9-11-2004. For the assessment year 2003-04, it was pointed out, the assessment was completed under section 143(1) without any scrutiny. 5. The Assessing Officer's report was sent to the assessee for its comments. The assessee reiterated that there was no change in the address and stated that all the correspondence can be sent at the Mulund address. It also enclosed the copy of the Partnership Deed giving the names and addresses of all the 18 partners. On 22-10-2007 the Assessing Officer submitted a supplementary report to the CIT(A), in which it was stated that 3 partners were produced before him for examination on 15-10-2007, that they admitted that they were being ....
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.... of A.C. Chenna Reddy and that no genuine firm was in existence. 8. Section 184 as it stands now was introduced by the Finance Act, 1992, with effect from 1-4-1993. From the assessment year 1993-94 the assessments of firms and the partners underwent a change. The procedure for registration of a partnership firm with the benefit of reduced rates of tax was abolished. The firm was to be assessed at the normal rates and the share of the partners became exempt from tax under section 10(2A) which was simultaneously introduced with effect from 1-4-1993. Since the procedure for registration of partnership firms under the Income-tax Act became redundant after the change, section 185 which provided for a detailed procedure for the registration also underwent a change and from 1-4-1993 it was provided in this section that if the firm does not comply with the provisions of section 184 then it will be assessed as if it is an association of persons. Section 186 which provided earlier for the cancellation of registration if the Assessing Officer was of opinion that there was no genuine firm in existence as registered, was also omitted from 1-4-1993. Thus on and from 1-4-1993 the procedure for r....
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....irm. Some authorities were also cited before us in the form of orders of the several Benches of the Income-tax Appellate Tribunal in support of the proposition. We are afraid that such an extreme proposition cannot be countenanced and we are also satisfied, as we shall presently show, that the orders of the Tribunal on which the assessee has placed reliance do not support him on this point. It cannot be postulated that the Legislature intended that even a non-genuine firm can be assessed as such. When section 184 contemplates the assessment of a firm as such, it contemplates a genuine firm in existence. For that matter any assessment of a taxable entity under the Income-tax Act presupposes that the entity is genuine. If the entity is not genuine and is a alias for somebody else, then the Legislature cannot be attributed the intention to confer genuineness upon such an entity by some deeming provision, nor can we attribute an intention on the part of the Legislature to condone such a fatal flaw but still recognize the same as a taxable entity. It must be remembered that prior to 1-4-1993 the procedure for registration of the firm was prescribed in detail only because the firms were ....
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...." and "partnership". It says that these words shall have the meanings respectively assigned to them in the Indian Partnership Act, 1932. The Indian Partnership Act, 1932, defines a "partnership" in section 4 as "the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all". In Dy. CST v. K. Kelukutty [1985] 155 ITR 158/22 Taxman 25, the Supreme Court noted that it is the relationship between those persons which constitutes the partnership and such relation is founded in the agreement between them. A partnership agreement, observed the Supreme Court, is the source of partnership and it gives expression to the other ingredients defining the partnership. The relationship between the partners is an organic relationship. At pages 163-164 of the report the Supreme Court further noted that "in every case when the assessee professes that it is a partnership firm and claims to be taxed in that status, the first duty of the Assessing Officer is to determine whether it is, in law and in fact, a partnership firm". In that case the Supreme Court was concerned with the provisions of the Kerala General Sales Tax Act which did not ....
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....annot examine the genuineness of the firm under section 184 of the Act as it exists now. The first is an order of the Mumbai "D" Bench of the Tribunal in the case of ITO v. Mansi Enterprises [2007] 17 SOT 564. A careful perusal of the order shows that the proposition canvassed on behalf of the assessee before us was not decided. The question there was whether merely because a partner was not aware about the business activities of the firm, the firm can be rendered non-genuine for the purpose of section 184. The Tribunal held that merely because a partner was not aware about the business activities of the firm, the firm cannot be said to be non-genuine. This order, contrary to what the assessee contends, shows that it is open to the Assessing Officer to examine the genuineness of the partnership firm under section 184 even after the amendment made with effect from 1-4-1993. The second is the order of the Bangalore "A" Bench of the Tribunal in the case of Dy. CIT v. H.E.D. Bros. Co. [2005] 1 SOT 881. This decision is of a Coordinate Bench and it certainly supports the assessee. However, the judgment of the Supreme Court in the case of K. Kelukutty (supra) does not appear to have been....
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.... 158BD and the block assessment made on the firm without following the procedure prescribed under that section was bad in law. 15. One of the contentions urged before us on behalf of the assessee was that based on sub-section (3) of section 184. It says that where a firm is assessed as such for any assessment year, it shall be assessed in the same capacity for every subsequent year provided there is no change in the constitution of the firm or the shares of the partners as evidenced by the Partnership Deed on the basis of which the assessment as a firm was first sought. It is pointed out on behalf of the assessee that right from the assessment year 1997-98 the assessee was assessed as a firm and it was not open to the Assessing Officer, for the first time in the assessment year 2002-03 to examine the genuineness of the firm. We are unable to accept the contention. There has been a development after the completion of the assessments for the earlier years and this is that on 26-3-2003 there was a search under section 132 of the Income-tax Act, 1961. The assessee had filed its return on 19-9-2002 itself and the assessment was pending and it is during the pendency of the return that a....