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2004 DIGILAW 1310 (PNJ)

Cit v. Ganga Ram Jati Rant

2004-12-02

G.S.SINGHVI, TAPEN SEN

body2004
Judgment G.S.Singhvi, J. 1. The Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, the Tribunal) has referred the following question for the opinion of this Court: "Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was legally right in confirming the cancellation of penalty orders passed under section 271(1)(c) of the Income Tax Act, 1961 ?" 2. The assessee is a partnership firm. In 1972, the partners of the assesseefirm constituted another partnership firm under the name and style of M/s. Gupta Rice and General Mills. The assessee filed returns of income for the years 1972-73 and 1973-74 disclosing of income of Rs. 25,650 and Rs. 35,550 respectively. Income Tax Officer, Kaithal (hereinafter referred to as the assessing officer) completed the assessment for the two years at Rs. 27,770 and Rs. 38,370 respectively. Two separate returns for the years in question declaring income o Rs. 60,450 and Rs. 45,525 respectively were filed in the name of M/s. Gupta Rice and General Mills for which a separate registration was claimed. The returns of the assessee as well as M/s. Gupta Rice and General Mills were signed by Shri Des Raj, who was partner in both the firms. Along with the application for registration of M/s. Gupta Rice and General Mills, a partnership deed executed on 15-3-1972 was filed. The firm was stated to have eight partners. The assessing officer granted registration to M/s. Gupta Rice and General Mills and continued the same in the next year. Later on, vide order dated 16-10-1978, he cancelled the registration of M/s. Gupta Rice and General Mills by observing that it was not a genuine firm and was only a branch of the assessee and that the same was created with a view to evade the tax liability of the assessee. The order passed by the assessing officer was upheld by the Appellate Assistant Commissioner and also by the Tribunal. Thereafter, the assessment of the assessee was re-opened and amounts of Rs. 54,900 and Rs. 47,780 were added to the income of the assessee. The assessing officer also issued penalty notices to the assessee under section 27 1 (1)(c) of the Income Tax Act, 1961 (for short the Act). Thereafter, the assessment of the assessee was re-opened and amounts of Rs. 54,900 and Rs. 47,780 were added to the income of the assessee. The assessing officer also issued penalty notices to the assessee under section 27 1 (1)(c) of the Income Tax Act, 1961 (for short the Act). In the reply filed on behalf of the assessee, it was claimed that M/s. Gupta Rice and General Mills was an independent entity and its income was not liable to be added to the income of the assessee. The allegation of evasion of tax was also denied. The assessing officer did not agree with the assessee and imposed penalties amounting to Rs. 65,000 and Rs. 58,000 on account of the alleged concealment of income for the years 1972-73 and 1973-74. The CIT(A) allowed the appeals filed by the assessee and set aside the orders of penalty. The Tribunal dismissed the appeal of the revenue and held as under: "We are in agree with the reasons given by the Income Tax Officer in not accepting the contentions made before him and sustained by the Appellate Assistant Commissioner. Since the facts mentioned by the Income Tax Officer in his order under section 186(1) remain uncontroverted, we have no hesitation in coming to the conclusion that the firm constituted by the deed of partnership dated 15-3-1972 consisting of 8 partners was not a genuine firm. We also agree with the Income Tax Officer that it was a branch of the main firm Ganga Ram Jati Ram. It was, therefore, not entitled to registration under section 185(1)(a). The Income Tax Officer has, therefore, rightly cancelled the registration under section 186(1). The Appellate Assistant Commissioner also rightly sustained his order. We do not find any justification to interfere in his order. The same is, therefore, upheld." 3. In the applications filed by the revenue under section 256(1) of the Act, the Tribunal, after making a thread-bare analysis of the facts and law on the subject, referred the afore-mentioned question to this Court. 4. We have heard Shri Rajesh Bindal, learned counsel for the revenue and perused the record. A reading of order dated 22-9-1989 shows that while making the reference, the Tribunal did not feel convinced that a pure question of law arises for determination by the High Court. 4. We have heard Shri Rajesh Bindal, learned counsel for the revenue and perused the record. A reading of order dated 22-9-1989 shows that while making the reference, the Tribunal did not feel convinced that a pure question of law arises for determination by the High Court. This is clearly borne out from paragraph 11 of the impugned order, the relevant extract of which is reproduced below: "In the light of the facts contained in the preceding paragraphs, we are satisfied that a referable mixed question of fact and law arises from the consolidated order of the Tribunal." 5. While dealing with the issue relating to registration of M/s. Gupta Rice and General Mills and penalty imposed by the assessing officer, the Tribunal observed as under: "In this behalf, it needs be noted that the original firm Ganga Ram Jati Ram was only firm of commission agents. Prior to the disputed agreement dated 15-3-1972, there was another undisputed deed of partnership executed between the four partners who were partners in the present assessee-firm but had decided to form another firm in the name of Gupta Rice and General Mills, the business whereof was to deal in rice-selling and any other business mutually agreed upon. Ganga Ram Jati Ram, the assessee-firm, was not carrying on business of rice-selling at all. So by the partnership deed dated 1-1- 1981, a new partnership had certainly come into existence. It is correct that the partners of this new firm were again the same which constituted the assessee-fir-m. But it has been held in the case of R.N Oswal Hosiery and Mahabir Woollen Mills v. CIT (1968) 70 ITR 843 (Pb. & Hr.) that though two separate businesses may have been carried on by two different firms having common partners and identical shares but even then, as a matter of law, two different assessable units do come into existence and it is a matter essentially one of the fact for the Tribunal to determine whether there is interlacing or interlocking between the two firms so as to treat them as one unit. The creation of this new partnership is further proved beyond doubt by registration thereof with the Registrar of Firms, Haryana on 20-3-1971 under section 53(1) of the Indian Partnership Act. The creation of this new partnership is further proved beyond doubt by registration thereof with the Registrar of Firms, Haryana on 20-3-1971 under section 53(1) of the Indian Partnership Act. In other words, what had been at best established in the present case is that there was no oral agreement between the eight partners of the new firm on 1-4-1971, as was alleged by the new firm Gupta Rice and General Mills. But even if that is true, the fact remains that Gupta Rice and General Mills had come into existence as early as 1-1-1971 and between that firm and the assessee-firm there was no interlacing or interlocking of the firms. The reason for describing the new firm Gupta Rice and General Mills as Branch of the assessee firm to the Sales Tax Authorities has been explained in the affidavit of Shri Des Raj dated 17-12-1983 and appears to be quite plausible. At best, all that can be said is that all the partners of both the firms remained common till 15-3-1972. It is not the case of the department that subsequently also the two firms were identical. Gupta Rice and General Mills had a separate sales tax number, it carried on separate business and maintained that the two firms were actually carrying on different businesses and the intention of the parties appear to constitute two separate firms though originally it may be with the same constitution and profit-sharing ratio. In these circumstances, which the act of the assessee in claiming two separate assessments may not be correct in law, it could not be said to be concealment straightaway because there was nothing concealed. Both the incomes were declared and what that the assessee wanted was that they should be assessed separately. Probably, the assessee had some justification for that claim may be that it was not found in order. But this by itself would not be sufficient to levy the penalty." 6. In our opinion, the finding recorded by the Tribunal that the assessee had not concealed the income or made mis-statement about its income is based on a correct appreciation of evidence and no question of law arises from the order passed by it which requires consideration by this Court. In our opinion, the finding recorded by the Tribunal that the assessee had not concealed the income or made mis-statement about its income is based on a correct appreciation of evidence and no question of law arises from the order passed by it which requires consideration by this Court. Therefore, by applying the ratio of the judgment of the Supreme Court in CIT v. Smt. Anusuya Devi (1968) 68 ITR 750, wherein it was held that the High Court is not bound to answer a question merely because it is raised and referred and in appropriate case, it may decline to answer a question of fact or even a question of law which is purely academic, we decline to answer the question referred by the Tribunal because it is not a question of law. 7. The reference is disposed of in the manner indicated above.