TaxTMI 
TaxTMI 
1995 (4) TMI 310
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....h September, 1984 declaring total income of Rs. 2,60,000. The assessment was completed on 16th March, 1985 computing the total income at Rs. 2,62,646. The assessment was set aside under section 263 of the Act by the Commissioner vide order dated 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 dated 31st March, 1989 in which the income for assessment year 1984-85 was determined at Rs. 8,24,206. 4. Survey operation under section 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) Hiralal Chandulal Chokshi, (ii) Hirabhai & Sons, (iii) Bhagwati Textiles Proprietor Hiralal H. Bhagwati (HUF) and (iv) Prakash Textiles. The Assessing Officer 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....
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....s 1985-86 and 1986-87 also and the assessee's claim for grant of registration/continuation of registration was also refused. In the cases of the sister-concerns, the Assessing Officer gave reference of the order under section 263 passed by the Commissioner in the case of H. Bhagwati & Sons. He also relied on the material gathered as a result of survey under section 133A on 9th July, 1986. The Assessing Officer 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 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) (Bhagwati Textiles). 5. The Commissioner (Appeals) vide his common order passed in the case of H. Bhagtwati & Sons for assessment years 1984-85 to 1986-87 in relation to refusal to grant continuation of registration under section 184(7) held t....
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....regate income of all firms as the income of this group of persons. The learned Departmental Representative also placed reliance on following other judgments : 1. Commissioner v. Durga Prasad More (1971) 82 ITR 540 (SC); 2. Simhadri Narasingh Prusty v. Commissioner (1971) 79 ITR 219 (Ori.); 3. S.P. Gramophone Co. v. Commissioner (1986) 158 ITR 313 (SC); 4. Manilal Dharmchand v. Commissioner (1970) 78 ITR 96 (Bom.); 5. Commissioner v. Ravi Constructions (1988) 169 ITR 662 (AP); 6. Commissioner v. Kanaiyalal Ram Chand (1979) 119 ITR 377 (P&H); 7. Addl. Commissioner v. Jay Engineering Works Ltd. (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 Commissioner (Appeals) should be cancelled and that of the Assessing Officer should be restored. 8. The learned counsel for the assessee strongly supported the order of the Commissioner (Appeals). He reiterated almost similar arguments as were advanced on behalf of the assessee before the learned Commissioner (Appeals). I....
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....v. K. Kelukutty (1985) 155 ITR 158 (SC); 2. K.D. Kamath & Co. v. Commissioner (1971) 82 ITR 680 (SC); 3. Kanoi Udhyog v. ITO (1987) 28 TTJ (Cal.) 288 : (1987) 20 ITD 347 (Cal.); 4. Vijeta Engg. Works v. ITO (1989) 34 TTJ 546; 5. ITO v. H. Ajitbhai & Co. (1989) 35 TTJ (Ahd.) 476. 9. The learned representatives of both the parties submitted that other grounds raised in remaining appeal relate to petty additions made in different years. The learned Senior Departmental Representative submitted that he would like to rely upon the reasons mentioned in the assessment order in relation to those additions which have been deleted by the Commissioner (Appeals). The counsel for the assessee relied on the reasons and conclusion mentioned in the order of the Commissioner (Appeals). 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 Assessing Officer refused to grant registration/continuation of registration....
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....rofit of so called main firm H. Bhagwati & Sons which came into existence on 29th July, 1975. The other firm Prakash Textile Associates came into existence on 1st June, 1976 and has been regularly assessed to tax as a separate and independent taxable entity and was treated as a genuine partnership firm ever since its inception upto assessment year 1983-84. Likewise Hirabhai & Sons was also formed on 1st April, 1980 with five partners and was assessed to tax as a separate taxable entity and was also treated as a genuine partnership firm upto assessment year 1983-84. 10.2 The stock inventory found during the course of survey operations conducted under section 133A dated 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 Assessing Officer has not indicated anythin....
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.... 12 per cent 8. Kaushik R. Shah Trustee of Ramanlal 15 per cent Bhogilal Shah Family Trust 5. Hirabhai & Sons . Names of Partners : . 1. Atulbhai K. Bhagwati 25 per cent 2. Smt. Prabhavatiben K. Bhagwati 25 per cent 3. Dhirubhai Vadilal Patwa HUF 19 per cent 4. Rasiklal M. Nanavati HUF 19 per cent 5. Mahesh R. Doshi 12 per cent The aforesaid chart reveals that the various business concerns do not have common partners nor the three families have equivalent shares in different partnership firms. The assessee has also submitted the details of various employees employed by different business concerns which does not support the contention of the Revenue that the employees are common. One or two employees may be common in some of the business concerns but that by itself cannot lead to the conclusion that the four sister-concerns are benamis of the main firm. 10.4 The reliance placed by the learned Senior Departmental Representative on the various judgments also do not in any manner support the Revenue's contenti....
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....tion. The ratio of this judgment does not in any manner support the Revenue's contention but on the other hand, it may support the assessee's contention in view of the fact that all these sister-concerns were treated by the Department as separate, distinct and genuine taxable entities for last several years. The mere fact that some survey was conducted in the year 1986 would not lead to the conclusion that because the cash and stock was found in the common premises or the mere fact that management of some of the business activities was carried on under the supervision of a few individuals belonging to the three groups of families would not justify a conclusion that the four sister-concerns are benamis of the main firm. 10.5 It would be worthwhile to make a useful reference to some of the judgments relied upon by the learned counsel for the assessee. In the case of Dy. CST (Law) Board of Revenue Taxes v. K. Kelukutty (supra), the Hon'ble Supreme Court held that where it is claimed that there are two partnership firms and not one constituted by the same persons and carrying on different businesses, the Assessing Officer must test the claim in the light of the partnersh....
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....1. In our view, the learned Commissioner (Appeals) has elaborately dealt with each and every point raised by the Assessing Officer in the assessment order and he has also supported his decision by meeting all these points by giving proper and convincing reasons. The income of different partnership firms and the concerns belonging to the HUF by no stretch of imagination can be clubbed in the hands of the main firm unless all these sister-concerns are held to the benami concerns. The burden lies on the Department to prove that all the four sister-concerns are benami concerns. Such burden can be discharged only if it is proved that the capital employed in the four sister-concerns floated from the main firm and the destination of the profit derived by the four sister-concerns had directly or indirectly flown back in favour of the main firm. The Department has not brought any material on records to prove any of these aspects. The burden further lies on the Department to prove not only that the four sister-concerns are benami concerns but it has also to prove by bringing some positive or definite material on records to prove that the main firm is the real owner of the entire income earne....
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....st received from H. Bhagwati & Sons on the ground that interest paid on inter firm transactions is required to be disallowed as the same is only an adjustment made for manipulating the books results. The Commissioner (Appeals) deleted the same on the ground that all these sister-concerns have been held to be independent and separate taxable entities and, therefore, interest paid or received from them will have to be treated as genuine transactions. We, therefore, delete the net addition of Rs. 1,01,323 made on this count. Since we have approved the view taken by the learned Commissioner (Appeals) with regard to grant of registration to the partnership firm, with regard to genuineness of all the four sister-concerns, the deletion of disallowance of interest made by him is also approved. 11.2 The facts relating to ground No. 4 regarding addition made in the declared gross profit has been discussed by the Commissioner (Appeals) in paras 8 and 9. The Assessing Officer made a lump sum addition of Rs. 25,000 in the declared gross profit as per discussion in para 5 of the assessment order. The Commissioner (Appeals) has observed that the addition made by the Asstt. Commissioner by pres....