Mantri Developers (Firm Since Dissolved), Pune V. ITO Rg - 3, Pune

ITA 1053/PUN/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8555 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 10-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Keywords: Recovery proceedings; Business income; Search and seizure; Document seized; Opportunity of cross examination; Question of law; Reason to believe; Documents seized
• Section: 142(1); 147; 148; 132; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 1053 / P N/ 20 1 3 ASSESSMENT YEAR : 200 4 - 05 M/S. MANTRI DEVELOPERS, C/O 929, MANTRI HOUSE, F.C. ROAD, PUNE - 411005 VS. INCOME TAX OFFICER, (TRO) - 3, PUNE (APPELLANT) (RESPONDENT) PAN NO. AABFM8468K APPELLANT BY: SHRI NARESH KUMAR RESPONDENT BY: SHRI A.K. MODI DATE OF HEARING : 18 - 11 - 2014 DATE OF PRONOUNCEMENT : 19 - 12 - 2014 ORDER P ER R.S. PADVEKAR , J.M. : TH IS APPEAL IS FILED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT(A) - II, PUNE DATED 12 - 12 - 2012 FOR THE A.Y. 2004 - 05. THE ASSESSEE HAS FILED THE REVISED GROUND S IN PLACE OF ORIGINAL GROUNDS WHICH ARE TAKEN ON RECORD AS UNDER: 1. THE LD CIT (A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN COMPUTING THE INCOME OF THE APPELLANT AT RS.1,50,00,000/ - 2. THE LD CIT (A) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE PROCEEDINGS U/S 147 INITIATED AGAINST T HE APPELLANT ARE LEGALLY VALID. 3. THE LD CIT (A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN PASSING THE IMPUGNED ASSESSMENT ORDER IN CASE OF A DISSOLVED FIRM FOR AN ASSESSMENT YEAR THAT IS POST DISSOLUTION WHEN THE FIRM IS NOT EVEN IN E XISTENCE. 4. THE LD CIT (A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN APPLYING THE PROVISIONS OF SEC. 189 FOR PASSING THE 2 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE IMPUGNED ASSESSMENT ORDER WITHOUT GIVING A FINDING THAT CONDITIONS FOR DOING SO AS LAID DOWN IN SEC. 189 HAVE BEEN FULFILLED. 5. THE LD CIT (A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN RELYING UPON THE STATEMENT OF SHRI SOHANRAJ MEHTA RECORDED AT THE BACK OF THE APPELLANT WITHOUT CONFRONTING THE APPELLANT WITH THE STATEMENT OF SHRI MEHTA AND WITHO UT GRANTING AN OPPORTUNITY OF CROSS EXAMINATION OF SHRI MEHTA TO THE APPELLANT. 6. THE LD CIT (A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN RELYING ON THE MATERIAL SEIZED FROM THE PLACE OF AN UNRELATED THIRD PARTY. 2. GROUND NOS. 2, 3 AND 4 IN WHICH THE LEGALITY AND VALIDITY OF THE PROCEEDINGS INITIATED U/S. 147 IS QUESTIONED BY THE ASSESSEE CHALLENGING THE NOTICE ISSUED U/S. 148 FOR THE A.Y. 2004 - 05. WE PREFERRED TO NARRATE THE FACTS FROM THE ORDER OF THE LD. CIT(A) WHICH ARE AS UNDE R. THE ASSESSEE IS A FIRM. THE ASSESSING OFFICER RECEIVED INFORMATION FROM THE ACIT CENTRAL CIRCLE - 1(2), PUNE VIDE LETTER DATED 15 - 0 3 - 2011 THAT DURING THE COURSE OF SEARCH AND SEIZURE ACTION CARRIED OUT ON 21 - 01 - 2010 IN THE CASE OF SHRI SOHANRAJ MEHTA C& F OF RMD GUTKA GROUP, CERTAIN DOCUMENTS WERE SEIZED WHICH SHOWED THE TRANSACTIONS RELATED TO THE ASSESSEE . FROM THE SAID SEIZED DOCUMENT S , IT WAS REVEALED THAT THE ASSESSEE HAS BEEN PAID A SUM OF RS.1,50,00,000 / - IN DEC EMBER, 2 003. THE ASSESSING OFFICER I SSUED NOTICE U/S . 148 OF THE ACT AND SERVED ON THE ASSESSEE ON 30 - 03 - 2011 . IN RESPONSE TO NOTICE U/S. 148, THE ASSESSEE FILED A LETTER DATED 12 - 0 4 - 2011 AND ALSO FILED THE RETURN OF INCOME SHOWING 'NIL' INCOME ON 12 - 0 4 - 2011 ITSELF. THE ASSESSING OFFICER PR OVIDED THE ASSESSEE WITH THE INCRIMINATING DOCUMENTS SEIZED DURING THE COURSE OF SEARCH AND OTHER RELATED DOCUMENTS AND ALSO ASKED THE ASSESSEE S EXPLANATION WITH RESPECT TO THE NOTINGS MADE ON THE SEIZED DOCUMENTS FOUND AND SEIZED DURING THE COURSE OF SEA RCH ACTION AGAINST SHRI SOHANRAJ MEHTA . THE ASSESSEE SUBMITTED ITS REPLY VIDE LETTERS DATED 3 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE 7/12, 15 - 12, 21 - 12 AND 26 - 12 AND ALSO STATED THAT THE ASSESSEE FIRM WAS DISSOLVED ON 31. 0 3.2002 AND ALSO FILED COPIES OF THE PROFIT AND LOSS ACCOUNT AND THE LAST RE TURN FILED FOR A.Y. 2002 - 03, HOWEVER, THE ASSESSEE DENIED TO HAVE RECEIVED THE AFORESAID AMOUNT. THE ASSESSING OFFICER , HOWEVER DID NOT ACCEPT THE EXPLANATION FURNISHED BY WAY OF VARIOUS SUBMISSIONS BY THE ASSESSEE . THE ASSESSING OFFICER NOT ED THAT THE SEI ZED DOCUMENT S FOUND AT THE RESIDENCE OF SHRI SOHANRAJ MEHTA , C & F OF RMD GUTKA GROUP HAD BEEN WRITTEN BY HIM AND ALSO THAT THE MODALITIES OF THE METHOD OF TRANSACTIONS ENTERED INTO BY THE RMD GUTKA GROUP HAD BEEN COMPLETELY EXPOSED AND HELD THAT THE MONEY HAD BEEN PASSED BY M/S . RMD GUTKA GROUP THROUGH THEIR AUTHORIZED STAFF ON THE BASIS OF THE SYSTEM FOLLOWED AND, THEREFORE THE ENTIRE SUM OF RS.1,50,00,000 / - WAS TAXED IN THE HANDS OF THE ASSESSEE FIRM AS UNEXPLAINED INCOME. 3. BEFORE THE ASSESSING OFFICE R , THE ASSESSEE FILED THE OBJECTION FOR ISSUING THE NOTICE TO THE ASSESSEE FIRM BY STATING THAT THE ASSESSEE FIRM HAS BEEN DISSOLVED ON 31 - 03 - 2002 AND HENCE, NO PROCEEDINGS CAN BE INITIATED U/S. 147 OF THE INCOME - TAX ACT ON THE DISSOLVED FIRM WHICH IS NOT IN EXISTENCE IN THE A.Y. 2004 - 05. IT APPEARS THAT THE ASSESSEE FILED THE RETURN OF INCOME IN RESPONSE TO NOTICE ISSUED U/S. 148 DECLARING NIL INCOME ON 12 - 04 - 2011. THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER AND HE COMPLETED THE ASSESSMENT EX - PARTE U/S. 144 R.W.S. 147 OF THE ACT. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE LD. CIT(A). IT WAS STATED BEFORE THE LD. CIT(A) THAT THE ASSESSEE FIRM HAS ALREADY BEEN DISSOLVED ON 31 - 03 - 2002. THE ASSESSEE FIRM WAS REGISTERED IN NOVEMBER, 1988 AND WAS CARRYING ON THE SUCCESSFUL BUSINESS IN REAL ESTATE TILL THE YEAR 2002 AND WAS ALSO REGULARLY FILING THE RETURNS OF INCOME TILL ITS DISSOLUTION. 4 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE 4. THE ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT THE NOTICE WAS SERVED ON SHRI PANDURANG JIVRAJ MANTRI, WHO WAS A PARTNER IN THE DISSOLVED FIRM AND SAID SHRI P.J. MANTRI INFORMED THE ASSESSING OFFICER THAT THE ASSESSEE FIRM HAS ALREADY BEEN DISSOLVED ON 31 - 03 - 2002 AND HAS NOT CARRIED OUT ANY BUSINESS AFTER 31 - 03 - 20 02. IT WAS FURTHER CONTENTION OF THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE ALLEGED DATE OF TRANSACTION FOUND DURING THE COURSE OF SEARCH AND SEIZURE ACTION AGAINST SHRI SOHANRAJ MEHTA STATING THAT RS.1.5 CRORES WAS FOUND NOTED IN THE SEIZED DOCUMENT HAS NO RELEVANCE WITH ANY OF THE TRANSACTION S OF THE ASSESSEE FIRM. THE ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT NO PROCEEDINGS CAN BE INITIATED AGAINST THE NON - EXISTING FIRM AND HENCE, THE NOTICE ISSUED U/S. 148 WAS TOTALLY BAD IN LAW. THE ASSESSEE AL SO CONTENDED THAT THE ALLEGED TRANSACTION FOUND DURING THE COURSE OF SEARCH AND SEIZURE ACTION U/S. 142(1) AGAINST SHRI SOHANRAJ MEHTA SHOWING THE ALLEGED PAYMENT OF RS.1.5 CRORES TO THE ASSESSEE FIRM IN DECEMBER, 2003 IT WAS ABSOLUTELY HAVING NO NEXUS WIT H THE ASSESSEE FIRM. THE ASSESSEE ALSO PLEADED THAT THE PROVISIONS OF SEC. 189 (1) CANNOT BE INTERPRETED TO BRING TO TAX ANY INCOME WHEN THE ASSESSEE WAS NOT IN EXISTENCE NOR THE BUSINESS WAS CARRIED OUT. THE CONTENTION OF THE ASSESSEE DID NOT FIND ANY FA VOUR AND SAME WAS REJECTED. NOW, THE ASSESSEE HAS CHALLENGED THE FINDING OF THE LD. CIT(A) QUESTIONING THE LEGALITY AND VALIDITY OF THE NOTICE ISSUED U/S. 14 8 OF THE ACT. THE REASONS GIVEN BY THE LD. CIT(A) FOR REJECTING THE CONTENTION OF THE ASSESSEE AR E AS UNDER: 3.5. THE APPELLANT HAS ALSO RAISED THE ISSUE OF INITIATING ASSESSMENT PROCEEDINGS AGAINST A NON - EXISTING PERSON AND HAS ALSO PLACED RELIANCE ON THIS DECISION OF THE APEX COURT THAT NO ASSESSMENT CAN BE MADE ON A DEAD PERSON. IN THIS REGARD SUB - SECTION (1) OF SECTION 189 STIPULATES THAT WHERE ANY BUSINESS OR PROFESSION CARRIED ON BY A FIRM HAS BEEN DISCONTINUED OR WHERE THERE HAS BEEN DISSOLUTION OF FIRM, THE ASSESSMENT SHALL BE MADE AS IF SUCH DISCONTINUANCE OR DISSOLUTION HAS NOT TAKEN PLACE. WHILE 5 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE MAKING SUCH ASSESSMENT ALL THE PROVISIONS OF THE I.T. ACT, 1961, INCLUDING THOSE RELATING TO IMPOSITION OF PENALTY OR ANY OTHER SUM, SHALL SO FAR AS MAY BE APPLICABLE TO THE ASSESSMENT. THE ALLAHABAD HIGH COURT IN RAMCHAND & SONS VS CIT (1967) 63 I TR 252 (ALL) FOLLOWING THE SUPREME COURT'S DECISION IN SHIVRAM PODDAR (1964) 51 ITR 323 (SC) HELD THAT THE ASSESSMENT MADE OF A FIRM ON ITS PRE - DISSOLUTION PROFIT AFTER ITS DISSOLUTION IS A VALID ONE. 3.6. THE BARE READING OF THE PROVISIONS OF SECTION 189 WOULD SHOW THAT THE SAID PROVISIONS ARE ATTRACTED WHERE ANY BUSINESS OR PROFESSION CARRIED ON BY A FIRM HAS BEEN DISCONTINUED OR WHEN A FIRM IS DISSOLVED. ACCORDING TO THE PLAIN LANGUAGE OF THE SECTION, IT IS NOT NECESSARY THAT THE BUSINESS OR PROFESSION OF THE DISSOLVED FIRM SHOULD STAND DISCONTINUED AND ONLY THEN THE PROVISIONS OF THIS SECTION WILL BE ATTRACTED. THE SAID PROVISIONS ARE NOT CAPABLE OF ANY OTHER INTERPRETATION THAN THE ONE THAT THE PROVISIONS OF THE SECTION ARE ATTRACTED WHERE ANY BUSINESS OR PROFESSION CARRIED ON BY A FIRM HAS BEEN DISCONTINUED OR WHERE THE FIRM IS DISSOLVED. THE PROVISIONS ARE ATTRACTED IN EITHER CASE. TO READ THE PROVISIONS OTHERWISE, WOULD BE VIOLATING THE VERY PLAIN LANGUAGE OF THE SECTION, IT WAS SO HELD IN THE CASE O F CIT VS MANGAT RAM HAZARIMAL KUTHIALA (1980) 125 ITR 91 (P & H). IN NAGARMAL BAIJNATH VS CIT (1993) 201 ITR 538 (SC), THE HON'BLE APEX COURT AFFIRMING THE DECISION OF THE BOMBAY HIGH COURT IN NAGARMAL BAIJNATH VS CIT (1978) 114 ITR 133 (BOM) AND APPROVING DECISIONS IN CIT VS DEVIDAYAL & SONS (1968) 271 ITR 88 (BOM) HELD THAT WHERE THE DISSOLUTION OF THE FIRM RESULTED IN DISCONTINUATION OF THE BUSINESS, SECTION 189(1) IS ATTRACTED WHERE EITHER OF THE TWO EVENTS - DISCONTINUANCE OF BUSINESS OR DISSOLUTION OF THE FIRM, TAKES PLACE. THE BOMBAY HIGH COURT IN CIT VS STAR ANDHERI ESTATE (1994) 208 ITR 573 (BOM) ? THE HON'BLE COURT OBSERVED THUS: 'A CAREFUL READING OF S. 189 AND S. 176(3A) AND 176(4) MAKES IT ABUNDANTLY CLEAR THAT THE IT ACT CONTEMPLATES THAT WHERE A FIRM IS DISSOLVED, THE ASSESSMENT OF THE TOTAL INCOME OF SUCH FIRM SHALL BE MADE BY THE ITO AS IF NO SUCH DISSOLUTION HAD TAKEN PLACE. THE SAME IS THE POSITION IN THE CASE OF DISCONTINUANCE OF THE BUSINESS OF THE FIRM. SEC. 189 KEEPS THE FIRM ALIVE FOR T HE PURPOSES OF ASSESSMENT UNDER THE ACT DESPITE ITS DISSOLUTION. IT DOES NOT PROVIDE FOR ASSESSMENT OF 6 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE THE PARTNERS OF THE DISSOLVED FIRM WHICH WAS THE POSITION UNDER S. 44 OF THE IT ACT, 1922 PRIOR TO ITS AMENDMENT IN THE YEAR 1958 AND WHICH IS THE POSITI ON EVEN TODAY UNDER S. 159 OF THE 1961 ACT IN RESPECT OF THE ASSESSMENT OF THE LEGAL REPRESENTATIVE OF A DECEASED ASSESSEE. SUB - S. (3A) OF S. 176 SPECIFICALLY PROVIDES THAT WHERE ANY BUSINESS IS DISCONTINUED IN A PARTICULAR YEAR, ANY SUM RECEIVED AFTER THE DISCONTINUANCE SHALL BE DEEMED TO BE THE INCOME OF THE RECIPIENT AND SHALL BE CHARGED TO TAX ACCORDINGLY IN THE YEAR OF RECEIPT, IF SUCH SUM WOULD HAVE BEEN INCLUDED IN THE TOTAL INCOME OF THE PERSON WHO CARRIED ON THE BUSINESS HAD SUCH SUM BEEN RECEIVED BEFORE SUCH DISCONTINUANCE. THIS SUB - SECTION THUS CREATES A LEGAL FICTION. IT IS INTENDED TO RESOLVE ALL DOUBTS IN REGARD TO TAXABILITY OF SUCH INCOME ON ACCOUNT OF DISCONTINUANCE OF BUSINESS IN THE YEAR OF RECEIPT OR TO PUT IT DIFFERENTLY, IT MAKES AN EXC EPTION TO THE GENERAL RULE THAT IN ORDER TO HOLD THE RECEIPTS CHARGEABLE TO TAX, IN THE YEAR OF ITS RECEIPT, THE BUSINESS MUST BE IN EXISTENCE IN THAT YEAR.' 3.7. THE KERALA HIGH COURT HAS ALSO HELD IN CIT VS PAILY PILLAI & CO. (2000) 243 ITR 557 (KER) TH AT AMOUNT RECEIVED BY THE FIRM AFTER ITS DISSOLUTION ON THE BASIS OF AN ARBITRATION AWARD WAS ASSESSABLE IN THE HANDS OF DISSOLVED FIRM U/S 176(3A). THUS, APPLYING THE RATIONALE OF THE SUPREME COURT'S DECISION IN CIT VS RAJA REDDY MALLARAM (1964) 51 ITR 2 85 (SC), IT IS CLEAR THAT IN A CASE OF DISSOLUTION OF A FIRM OR DISCONTINUANCE OF ITS BUSINESS, THE FIRM IS DEEMED TO CONTINUE FOR THE PURPOSE OF MAKING THE ASSESSMENT. HENCE, THE NORMAL PROVISIONS RELATING TO ASSESSMENT LIKE SERVICE OF NOTICE, FRAMING OF ASSESSMENT ETC. WOULD CONTINUE TO APPLY. THIS IS VIEW HAS ALSO BEEN TAKEN IN NAND KISHORE SITA RAM VS CIT (1968) 67 ITR 349 (ALL). THE AFORESAID VIEW HAS ALSO BEEN AFFIRMED AND HELD IN RAM NIRANJAN SATYANARAIN VS CIT (1967) 66 ITR 94 (ALL) THAT ASSESSMENT COMPLETED AGAINST THE FIRM AFTER ITS DISSOLUTION WOULD BE A VALID ASSESSMENT. 3.8. IN VIEW OF THE ABOVE FACTS, THE CONTENTION RAISED BY THE APPELLANT THAT PROCEEDINGS CANNOT BE INITIATED AND NOTICE ISSUED U/S. 147/148 AGAINST A NON - EXISTING PERSON I.E. A FIRM IS NOT CORRECT IS IN VIEW OF THE AFORESAID LEGAL POSITION AND ALSO THE PROVISIONS OF THE ACT. 7 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE 5. THE ISSUE OF LEGALITY AND VALIDITY OF THE ASSESSMENT PROCEEDINGS INITIATED AGAINST THE ASSESSEE FIRM U/S. 147 IS A LEGAL ISSUE WHICH GOES TO THE R OOT OF MATTER HENCE, WE PROCEED TO DECIDE THE SAME . LD. COUNSEL SUBMITS THAT THE ASSESSEE FIRM WAS LASTLY ASSESSED FOR THE A.Y. 2002 - 03 AND THEREAFTER THERE IS NO ASSESSMENT NOR ANY RETURN OF INCOME WAS FILED BY THE ASSESSEE FIRM. HE SUBMITS THAT AFTER THE DISS OLUTION OF THE FIRM ON 31 - 03 - 2002 , THE NECESSARY IN TIMATION WAS SENT TO THE REGISTRAR OF THE FIRM AND REGISTRAR OF THE FIRM, PUNE MADE THE REQUIRED CHANGES IN ITS RECORD. HE REFERRED TO PAGE NO. 3 OF THE COMPILATION WHERE THE COPY OF THE EXTRACT OF THE R EGISTER OF THE FIRM IS PLACED. HE ALSO REFERRED TO PAGE NO. 6 WHERE THE COPY OF THE ACKNOWLEDGMENT OF THE RETURN OF THE ASSESSEE FIRM FOR THE A.Y. 2002 - 03 IS PLACED. HE SUBMITS THAT THE ASSESSEE FILED ITS LAST RETURN FOR THE A.Y. 2002 - 03 AND THEREAFTER N O RETURNS ARE FILED AS THE ASSESSEE FIRM WAS DISSOLVED. HE SUBMITS THAT THE PROVISIONS OF SEC. 189(1) CANNOT BE APPLIED IN SITUATION WHERE THE FIRM HAS BEEN DISSOLVED AND BUSINESS IS ALSO DISCONTINUED AND THE SAID PROVISION ONLY CAN BE APPLIED IN RESPECT OF THE TRANSACTION OR INCOME DURING THE EXISTENCE OF THE FIRM. HE SUBMITS THAT THE DECISION RELIED ON BY THE LD. COMMISSIONER ARE TOTALLY MIS PLACED AS IN THOSE CASES THE INCOME WERE PERTAINING TO THE PERIOD DURING WHICH THOSE FIRMS WERE IN EXISTENCE AND I NCOME WAS RECEIVED SUBSEQUENT TO THE DISSOLUTION OF THOSE FIRMS. HE ARGUES THAT SEC. 189(1) CREATES FICTION BUT IT HAS A LIMITED APPLICATION AND THE SAID PROVISION CANNOT BE INTERPRETED TO BRING TO TAX EVEN THE TRANSACTIONS WHICH ARE ALLEGEDLY TOOK PLACE AFTER THE DISSOLUTION OF THE FIRMS AND DISCONTINU ANCE OF THE BUSINESS. THE LD. COUNSEL RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS PLEA. I. CIT VS. BHAGAT & C0. 182 ITR 212 (DEL.). II. GEORGE TALKIES CIRCUIT VS. CIT 171 ITR 386 (RAJ.). III. BANYAN & BERRY VS. CIT 222 ITR 831(RAJ.). 8 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE 6. HE SUBMITS THAT THE PROCEEDINGS INITIATED BY THE ASSESSING OFFICER AND ISSU ANCE NOTICE U/S. 148 OF THE ACT TO THE ASSESSEE FOR THE A.Y. 2004 - 05 ARE TOTALLY BAD IN LAW AND HAVE TO BE CANCELLED. HE PLEADED FOR CANCELLING THE NOTIC E ISSUED BY THE ASSESSING OFFICER U/S. 148 TO THE ASSESSEE FOR THE A.Y. 2004 - 05. PER CONTRA, THE LD. DR FOR THE REVENUE SUBMITS THAT THE ASSESSING OFFICER HAS TAKEN RIGHT ACTION AS DURING THE COURSE OF SEARCH AND SEIZURE ACTION AGAINST SHRI SOHANRAJ MEHTA , C&F OF RMD GUTKA GROUP THE DOCUMENT S WERE SEIZED FROM WHICH IT WAS REVEALED THAT THE ASSESSEE FIRM WAS PAID RS.1.5 CRORES IN DECEMBER, 2003. HE ARGUES THAT THERE IS NO BAR TO TAKE ACTION AGAINST THE ASSESSEE FIRM AS THE ASSESSING OFFICER ACTION IS PROT ECTED BY SEC. 189 (1) OF INCOME - TAX ACT E VEN IF THE ASSESSEE FIRM WAS DISSOLVED ON 31 - 03 - 2002. HE PLACED HIS HEAVY RELIANCE ON THE DECISION OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF HEMENDRA RANCHHODDAS MERCHANT, MUMBAI VS. DIRECTOR OF INCOME TAX (INV), MUMBAI & ORS. 351 ITR 206 (BOM.). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND ALSO PERUSED THE RECORD. AS PER THE FACTS STA TED HERE - IN - ABOVE , THERE WAS SEARCH AND SEIZURE ACTION AGAINST ONE SHRI SOHANRAJ MEHTA, C&F OF RMD GUTKA GROUP . DURING THE COURSE OF SEARCH AND SEIZURE ACTION SOME DOCUMENTS WERE SEIZED FROM WHICH IT WAS REVEALED THAT IN THE MONTH OF DECEMBER, 2003 ( PAGE NO. 11 OF THE COMPILATION ) A SUM OF RS.1.5 CRORES WAS SHOWN TO HAVE BEEN PAID TO SHRI MANTRI DEVELOPERS, PUNE . AS PER THE DOCUMENTARY EVIDENCE ON RECORD THERE IS NO DISPUTE ABOUT THE FACT THAT THE PROCEEDINGS U/S. 147 WAS INITIATED ON THE BASIS OF THE SAID SEIZED DOCUMENT S WHICH DISCLOSED THE ALLEGED PAYMENT OF RS.1.5 CRORES TO ONE SHRI MANTRI DEVELOPERS, PUNE . THE ASSESSEE HAS FILED THE COMPILATION IN WHICH THE COPIES OF REPLY GIVEN TO THE ASSESSING OFFICER FROM TIME TO TIME ARE ALSO PLACED. IT IS SEEN THAT AFTER RECEIPT OF THE NOTICE FROM THE ASSESSING OFFICER , THE ASSESSEE INFORMED THAT THE 9 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE ASSESSEE FIRM HA S BEEN DISSOLVED W.E.F. 31 - 03 - 2002 AND ALL NECESSARY FORMALITIES FOR CLOSURE ARE COMPLETED (PAGE NO. 16 OF THE COMPILATION). THE ASSESSEE INFORMED TO THE ASSESSING OFFICER THAT SINCE THE ASSESSEE FIRM IS NOT IN EXISTENCE IN A.Y . 200 4 - 05 THERE IS NO REASON TO INITIATE THE ACTION AGAINST THE ASSESSEE. THE ASSESSEE AGAIN FILED THE REPLY ON 17 - 11 - 2011 WHICH WAS IN RESPECT OF THE NOTICE S ISSUED U/S. 142(1) AND 148 OF THE I.T. ACT REITERATING THE STAND THAT THE ASSESSEE FIRM GOT DISSOLVED W.E.F. 31 - 03 - 2002 AND THEY HAVE COMPLETED ALL NECESSARY FORMALITIES INCLUDING THE COPY OF DISSOLUTION DEED WAS SENT TO ASSISTANT REGISTRAR OF THE FIRMS AND DUE ENTRY WAS ALSO MADE IN THE REGISTER OF THE ASSISTANT REGISTRAR OF THE FIRM, PUNE. IT APPEARS THAT THE RETURN OF INCOM E WAS FILED ON BEHALF OF THE ASSESSEE FOR THE A.Y. 2004 - 05 ON 12 - 04 - 2011 (C OPY AT PAGE NO. 5 OF THE COMPILATION ) DECLARING NIL INCOME. THE ASSESSEE HAS ALSO FILED THE COPY OF THE SEIZED DOCUMENTS ON THE BASIS OF WHICH THE ASSESSEE WAS ISSUED THE NOTICE U/ S. 148 OF THE ACT (PAGE NOS. 9 TO 11 OF THE COMPILATION). 8. IN THIS CASE THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT REJECTING ALL THE CONTENTIONS OF THE ASSESSEE AND COMPLETED THE ASSESSMENT U/S. 144 R.W.S. 147 OF THE I.T. ACT , BRINGING TO TAX O F RS.1.5 CRORES AS AN UNEXPLAINED INCOME OF THE ASSESSEE FOR THE A.Y. 2004 - 05. THE CONTENTION OF THE ASSESSEE IS THAT IN DECEMBER, 2003 , WHEN THE ALLEGED TRANSACTION WAS FOUND RECORDED ON THE LOOSE SHEETS FROM SHRI SOHANRAJ MEHTA D URING THE COURSE OF SEAR CH AND SEIZURE ACTION U/S. 132(1) OF THE ACT , AT THAT TIME THE ASSESSEE FIRM WAS NOT IN EXISTENCE AT ALL AND BUSINESS W AS ALSO DISCONTINUED. AS PER THE DOCUMENTS FILED BY THE ASSESSEE MORE PARTICULARLY THE EXTRACT FROM THE REGISTER OF THE FIRM FROM THE OFF ICE OF ASSISTANT REGISTRAR OF THE F IRM , PUNE (PAGE NO. 3 OF THE COMPILATION) , I T IS SEEN THAT THE ASSISTANT REGISTRAR HAS MADE THE CHANGE S IN ITS RECORD BY PASSING THE ENTRY ON 16 - 06 - 2003 BY MAKING THE 10 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE ENDORSEMENT THAT THE ASSESSEE FIRM HAS BEEN DISSOLVED ON 31 - 03 - 2002. WE ALSO FIND THAT THE ASSESSEE HAS TAKEN A CONSISTENT STAND BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE LD. CIT(A) THAT AFTER THE A.Y. 2002 - 03 , NO BUSINESS WAS CARRIED OUT NOR ANY RETURN OF INCOME WAS FILED. THE REVENUE ALSO COULD N OT CONTROVERT THE SAID FACTUAL SUBMISSIONS MADE BY THE ASSESSEE IN THE OPEN COURT . A S PER THE EVIDENCE PLACED BEFORE US AND ON T HE FACTS, W E HOLD THAT THE ASSESSEE HAS PROVED THAT THE ASSESSEE FIRM HAS BEEN DISSOLVED ON 31 - 03 - 2002 AND NO BUSINESS WAS CARR IED OUT AFTER ITS DISSOLUTION. 9. NOW, THE NEXT QUESTION IS WHETHER SEC. 189(1) EMPOWERS THE ASSESSING OFFICER TO BRING TO TAX ANY INCOME ARISING OUT OF ANY TRANSACTION WHEN THE F IRM WAS NOT IN EXISTENCE AND NO BUSINESS WAS CARRIED OUT. THE RELEVANT PART OF SEC. 189(1) READS AS UNDER: 189. (1) WHERE ANY BUSINESS OR PROFESSION CARRIED ON BY A FIRM HAS BEEN DISCONTINUED OR WHERE A FIRM IS DISSOLVED, THE ASSESSING OFFICER SHALL MAKE AN ASSESSMENT OF THE TOTAL INCOME OF THE FIRM AS IF NO SUCH DISCONTIN UANCE OR DISSOLUTION HAD TAKEN PLACE, AND ALL THE PROVISIONS OF THIS ACT, INCLUDING THE PROVISIONS RELATING TO THE LEVY OF A PENALTY OR ANY OTHER SUM CHARGEABLE UNDER ANY PROVISION OF THIS ACT, SHALL APPLY, SO FAR AS MAY BE, TO SUCH ASSESSMENT . (2). .. (3). .. 10. IN THE OPINION OF THE LD. CIT(A) THE BARE READING OF SEC. 189(1) WOULD SHOW THAT THE SAID PROVISIONS ARE ATTRACTED WHERE ANY BUSINESS OR PROFESSION CARRIED ON BY A FIRM HAS BEEN DISCONTINUED OR WHERE A FIRM I S DISSOLVED. THE LD. CIT(A) HAS RELIED ON FOLLOWING PRECEDENTS TO SUPPORT HIS ABOVE VIEW: I. CIT VS. MANGAT RAM HAZARIMAL KUTHIALA 125 ITR 91 (P & H). II. NAGARMAL BAIJNATH VS. CIT 201 ITR 538 (SC). 11 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE III. CIT VS. RAJA REDDY MALLARAM 51 ITR 285 (SC). IV. CIT VS. STAR ANDHE RI ESTATE 208 ITR 573 (BOM.) V. CIT VS. PAILY PILLAI & CO. 243 ITR 557 (KER.) 11. IN THE CASE OF CIT VS. MANGAT RAM HAZARIMAL KUTHIALA (SUPRA) , THE ISSUE WAS IN RESPECT OF PENALTY IMPOSE D U/S. 271 (1)(A) OF THE INCOME - TAX ACT. IN THE SAID CASE , AS PER THE F ACTS ON RECORD , THE ASSESSEE FIRM CARRIED ON THE BUSINESS OF EXPLOITATION OF FOREST S AND SALE OF TIMBER . T HE ACCOUNTS WERE CLOSED ON 30 TH JUNE OF EACH YEAR. THERE WERE TWO PARTNERS IN THE SAID FIRM . O N 30 - 05 - 1958 , SHRI MANGAT RAM KUTHIALA, PASSED AWAY A ND HENCE, THE FIRM WAS DISSOLVED. BY AGREEMENT DATED 07 - 06 - 1958 THE SURVIVING PARTNER OF THE DISSOLVED FIRM TRANSFERRED ALL THE RIGHTS AND INTEREST IN THE FIRM TO OTHER PARTIES AND SUBSEQUENTLY THE SURVIVING PARTNER ALSO DIED IN SEPTEMBER, 1960. A NOTICE U/S. 22(2) OF THE I.T. ACT, 1922 WAS ISSUED IN THE NAME OF THE ASSESSEE FIRM WHICH WAS SERVED ON SHRI RADHAK ISHAN , WHO HA D TAKEN OVER THE BUSINESS OF THE ASSESSEE FIRM. THERE WAS A DELAY IN FILING THE RETURN OF INCOME OF DISSOLVED FIRM FOR THE A.Y. 1959 - 60 AND HENCE, THE PENALTY WAS LEVIED. IT IS CLEAR FROM THE FACTS ON RECORD THAT THE ISSUE OF PENALTY WAS IN RESPECT OF ASSESSMENT YEAR DURING WHICH THE ASSESSEE FIRM WAS IN EXISTENCE AND RETURN WAS NOT FILED IN TIME BY THE PERSONS WHO HA D TAKEN OVER THE B USINESS OF FIRM AND CONTINUED THE BUSINESS. 12. IN THE CASE OF NAGARMAL BAIJNATH (SUPRA) THE FOLLOWING SUBSTANTIAL QUESTION OF LAW WAS BEFORE THE HON'BLE SUPREME COURT W HETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE INCOME TAX ASSESSM ENTS FOR THE YEARS 1946 - 47 AND 1947 - 48 AND EXCESS PROFITS TAX ASSESSMENTS FOR THE CHARGEABLE ACCOUNTING PERIODS ENDING NOVEMBER 4, 1945, AND MARCH 31, 1946, MADE ON MESSRS. NAGARMAL BAIJNATH, A FIRM, WHICH WAS DISSOLVED AND WHOSE BUSINESS WAS DISCONTINUED AT THE TIME OF THE 12 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE ASSESSMENTS, WERE VALIDLY MADE? THE SAID ASSESSEE FIRM DID BUSINESS DURING THE ACCOUNTING YEARS RELEVANT TO THE A.YS. 1946 - 47 AND 1947 - 48. THE SAID FIRM WAS DISSOLVED BY A DEED OF DISSOLUTION DATED 02 - 12 - 1946 AND ITS BUSINESS WAS DIS CONTINUED. THE ASSESSING OFFICER ISSUED THE NOTICE U/S. 22(2) OF 1922 ACT ON THE NAME OF THE DISSOLVED PARTNERSHIP FIRM AND ASSESSMENT WAS COMPLETED. AS PER THE FACTS ON RECORD IN THE SAID CASE THE ADDITIONAL GROUND WAS RAISED BEFORE THE TRIBUNAL CHALLEN GING THE VALIDITY OF THE ASSESSMENTS ON THE REASON THAT THE ITO WAS AWARE THAT THE BUSINESS OF THE FIRM WAS CLOSED. IN THE SAID CASE ALSO INTERPRETING SEC. 44 OF 1922 ACT , IT WAS HELD THAT IF THERE IS A DISCONTINUANCE OF BUSINESS ON THE DISSOLUTION OF FIR M THEN THE TAX LIABILITY IN RESPECT OF BUSINESS DONE DURING THE EXISTENCE OF THE FIRM CANNOT BE ESCAPED. 13. IN THE CASE OF RAJA REDDY MALLARAM (SUPRA) AGAIN THE ISSUE OF INTERPRETATION OF SEC.44 OF THE 1922 ACT WAS BEFORE THE HON'BLE SUPREME COURT. IN T HE SAID CASE THE ASSESSEE WAS AOP AND THE ASSESSEE AOP CARRIED OUT THE BUSINESS FROM 01 - 10 - 1948 TO 30 - 09 - 1949. THE SAID AOP WAS CARRIED OUT THE BUSINESS OF LIQUOR CONTRACTS OBTAINED FROM THE FORMER STATE OF HYDERABAD. THE CONTRACTS CAME TO AN END AND THE N THE BUSINESS WAS DISCONTINUED AND THE ASSESSEE GROUP WAS DISSOLVED. THE ASSESSEE AOP DID NOT FILE RETURN PURSUANT TO THE NOTICE U/S. 22(1) OF THE 1922 ACT . IN THIS BACKGROUND OF THE FACTS INTERPRETING THE PROVISIONS OF SEC. 44 , IT WAS HELD THAT EVEN IF THE BUSINESS WAS DISCONTINUED , THE INCOME EARNED DURING EXISTENCE OF THE AOP WAS LIABLE TO BE TAXED. IT IS CATEGORICALLY HELD BY THE HON'BLE SUPREME COURT THAT WHAT C OULD BE ASSESSED IS THE INCOME OF THE ASSOCIATION RECEIVED PRIOR TO ITS DISSOLUTION AND THE MEMBERS OF THE ASSOCIATION WOULD BE JOINTLY AND SEVERALLY ASSESSED THERETO IN THEIR CAPACITY AS MEMBERS OF THE AOP . THE SAID OBSERVATION BY THEIR L ORDSHIPS ON THE INTERPRETATION OF THE PROVISIONS OF 13 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE SEC. 44 OF 1922 ACT AS THEN IT WERE. 14. IN THE C ASE OF STAR ANDHERI ESTATE (SUPRA) IT HELD AS UNDER: THE CONTROVERSY IN THIS CASE IS IN A NARROW COMPASS. THE FACTS RELEVANT FOR THE DETERMINATION OF THE CONTROVERSY ARE ALSO BRIEF. SO FAR AS THE AMOUNT OF RS. 12,90,000 IS CONCERNED, THE MATERIAL FACTS ARE THAT THE ASSESSEE - FIRM WAS DISSOLVED ON 31ST MARCH, 1975, I.E., ON THE LAST DAY OF THE PREVIOUS YEAR RELEVANT TO THE ASST. YR. 1975 - 76. THE AMOUNT OF RS. 12,90,000 WAS DUE TO THE ASSESSEE - FIRM IN RESPECT OF TRANSACTION ENTERED INTO BEFORE ITS DISSOLUTION. A SUM OF RS. 3,10,000 HAD BEEN RECEIVED BY THE SAID FIRM PRIOR TO ITS DISSOLUTION AND THE BALANCE AMOUNT OF RS. 9,80,000 WAS RECEIVED AFTER DISSOLUTION. THE CONTENTION OF THE ASSESSEE IS THAT ON THE DATE OF RECEIPT OF THE SAID AMOUNT, THE ASSESSEE - FIRM BE ING NOT IN EXISTENCE, THE SAID AMOUNT CANNOT BE HELD TO BE THE RECEIPT OF THE ASSESSEE - FIRM AND CANNOT BE ASSESSED TO TAX. WE HAVE CAREFULLY CONSIDERED THIS SUBMISSION. THE RELEVANT PROVISIONS OF THE IT ACT, HAVING A BEARING ON DETERMINATION OF THE POINT I N ISSUE, ARE SS. 189 AND 176 OF THE IT ACT. SEC. 189 PROVIDES FOR THE ASSESSMENT OF A FIRM WHICH HAS BEEN DISSOLVED OR WHOSE BUSINESS HAS BEEN DISCONTINUED. SUB - S. (1) OF THE SAID SECTION, WHICH IS MATERIAL FOR THE PRESENT PURPOSE, IS IN THE FOLLOWING TERM S: '189. FIRM DISSOLVED OR BUSINESS DISCONTINUED. (1) WHERE ANY BUSINESS OR PROFESSION CARRIED ON BY A FIRM HAS BEEN DISCONTINUED OR WHERE A FIRM IS DISSOLVED, THE ITO SHALL MAKE AN ASSESSMENT OF THE TOTAL INCOME OF THE FIRM AS IF NO SUCH DISCONTINUANCE OR DISSOLUTION HAD TAKEN PLACE, AND ALL THE PROVISIONS OF THIS ACT, INCLUDING THE PROVISIONS RELATING TO THE LEVY OF A PENALTY OR ANY OTHERSUM CHARGEABLE UNDER ANY PROVISION OF THIS ACT, SHALL APPLY, SO FAR AS MAY BE, TO SUCH ASSESSMENT.' . 176 OF THE ACT MA KES CERTAIN EXCEPTIONS TO THE GENERAL RULE THAT IF THE BUSINESS OR PROFESSION IS DISCONTINUED BEFORE THE COMMENCEMENT OF THE ACCOUNTING YEAR, THE PROFITS OF THE BUSINESS OR PROFESSION RECEIVED IN THE ACCOUNTING YEAR CANNOT BE TAXED BECAUSE THE SOURCE OF IN COME DID NOT EXIST IN THE ACCOUNTING YEAR. SUB - S. (3A), WHICH WAS INSERTED BY THE TAXATION LAWS (AMENDMENT) ACT, 1975 W.E.F. 1ST APRIL, 1976 READS : 14 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE '176(3A) WHERE ANY BUSINESS IS DISCONTINUED IN ANY YEAR, ANY SUM RECEIVED AFTER THE DISCONTINUANCE SHALL BE DEEMED TO BE THE INCOME OF THE RECIPIENT AND CHARGED TO TAX ACCORDINGLY IN THE YEAR OF RECEIPT, IF SUCH SUM WOULD HAVE BEEN INCLUDED IN THE TOTAL INCOME OF THE AFORESAID PERSON HAD IT BEEN RECEIVED BEFORE SUCH DISCONTINUANCE.' IT MAY ALSO BE EXPEDIENT TO SET OUT SUB - S. (4) OF THE SAID SECTION WHICH PROVIDES FOR TAXATION OF INCOME FROM PROFESSION RECEIVED AFTER THE DISCONTINUANCE OF THE PROFESSION. IT READS : '(4) WHERE ANY PROFESSION IS DISCONTINUED IN ANY YEAR ON ACCOUNT OF THE CESSATION OF THE PROFESSION BY, OR THE RETIREMENT OR DEATH OF, THE PERSON CARRYING ON THE PROFESSION, ANY SUM RECEIVED AFTER THE DISCONTINUANCE SHALL BE DEEMED TO BE THE INCOME OF THE RECIPIENT AND CHARGED TO TAX ACCORDINGLY IN THE YEAR OF RECEIPT, IF SUCH SUM WOULD HAVE BEEN INCLUD ED IN THE TOTAL INCOME OF THE AFORESAID PERSON HAD IT BEEN RECEIVED BEFORE SUCH DISCONTINUANCE.' A CAREFUL READING OF S. 189 AND S. 176(3A) AND 176(4) MAKES IT ABUNDANTLY CLEAR THAT THE IT ACT CONTEMPLATES THAT WHERE A FIRM IS DISSOLVED, THE ASSESSMENT OF THE TOTAL INCOME OF SUCH FIRM SHALL BE MADE BY THE ITO AS IF NO SUCH DISSOLUTION HAD TAKEN PLACE. THE SAME IS THE POSITION IN THE CASE OF DISCONTINUANCE OF THE BUSINESS OF THE FIRM. SEC. 189 KEEPS THE FIRM ALIVE FOR THE PURPOSES OF ASSESSMENT UNDER THE ACT DESPITE ITS DISSOLUTION. IT DOES NOT PROVIDE FOR ASSESSMENT OF THE PARTNERS OF THE DISSOLVED FIRM WHICH WAS THE POSITION UNDER S. 44 OF THE IT ACT, 1922 PRIOR TO ITS AMENDMENT IN THE YEAR 1958 AND WHICH IS THE POSITION EVEN TODAY UNDER S. 159 OF THE 1961 ACT IN RESPECT OF THE ASSESSMENT OF THE LEGAL REPRESENTATIVE OF A DECEASED ASSESSEE. THIS SECTION, ON THE OTHER HAND, CLEARLY PROVIDES THAT THE DISSOLVED FIRM SHALL BE ASSESSED ON ITS TOTAL INCOME AS IF NO SUCH DISSOLUTION HAS TAKEN PLACE. THE POSITION IS THUS CLEAR THAT DESPITE ITS DISSOLUTION, FOR THE PURPOSES OF LEVY OF TAX UNDER THIS ACT, THE DISSOLVED FIRM IS DEEMED TO BE IN EXISTENCE. SUB - S. (3A) OF S. 176 SPECIFICALLY PROVIDES THAT WHERE ANY BUSINESS IS DISCONTINUED IN A PARTICULAR YEAR, ANY SUM RECE IVED AFTER THE DISCONTINUANCE SHALL BE DEEMED TO BE THE INCOME OF THE RECIPIENT AND SHALL BE CHARGED TO TAX ACCORDINGLY IN THE YEAR OF RECEIPT, IF SUCH SUM WOULD HAVE BEEN INCLUDED IN THE TOTAL INCOME OF THE PERSON WHO CARRIED ON THE BUSINESS HAD SUCH SUM BEEN RECEIVED BEFORE SUCH 15 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE DISCONTINUANCE. THIS SUB - SECTION THUS CREATES A LEGAL FICTION. IT IS INTENDED TO RESOLVE ALL DOUBTS IN REGARD TO TAXABILITY OF SUCH INCOME ON ACCOUNT OF DISCONTINUANCE OF BUSINESS IN THE YEAR OF RECEIPT. OR TO PUT IT DIFFERENTLY, IT MAKES AN EXCEPTION TO THE GENERAL RULE THAT IN ORDER TO HOLD THE RECEIPTS CHARGEABLE TO TAX, IN THE YEAR OF ITS RECEIPT, THE BUSINESS MUST BE IN EXISTENCE IN THAT YEAR. 8. IN THE INSTANT CASE, THE BUSINESS OF THE ASSESSEE - FIRM WAS DISCONTINUED FROM 31ST MARCH, 1975 WHEN THE FIRM WAS DISSOLVED. A SUM OF RS. 9,80,000 WAS RECEIVED AFTER THE DISCONTINUANCE OF THE BUSINESS. THE RECIPIENT WAS, HOWEVER, THE ASSESSEE - FIRM ITSELF. THAT IS SO BECAUSE BY VIRTUE OF S. 189, THE FIRM CONTINUED FOR THE PURPOSE OF ASSES SMENT DESPITE ITS DISSOLUTION. FACTUALLY ALSO, IT IS ADMITTED POSITION THAT DESPITE DISSOLUTION, THE RECEIPT WAS DISTRIBUTED AMONGST THE PARTNERS OF THE DISSOLVED FIRM IN THEIR RESPECTIVE PROFIT SHARING RATIOS. THERE IS NO DISPUTE THAT THE INCOME FROM THE ABOVE RECEIPTS WOULD HAVE BEEN INCLUDED IN THE INCOME OF THE FIRM HAD THE INCOME BEEN RECEIVED BEFORE DISCONTINUANCE. THE ONLY OBJECTION TO ITS CHARGEABILITY TO TAX IN THE HANDS OF THE FIRM IS ON THE GROUND THAT AT THE TIME OF RECEIPT, THE FIRM HAD DISCONT INUED ITS BUSINESS. THIS OBJECTION, HOWEVER, IS NO MORE VALID AFTER INCORPORATION OF SUB - S. (3A) IN S. 176 OF THE ACT WHICH IS INTENDED SPECIFICALLY TO MEET SUCH OBJECTIONS. SUB - S. (3A) CLEARLY PROVIDES THAT ANY SUM RECEIVED AFTER THE DISCONTINUANCE OF THE BUSINESS SHALL BE DEEMED TO BE THE INCOME OF THE RECIPIENT AND CHARGED TO TAX ACCORDINGLY IN THE YEAR OF RECEIPT, IF THE SAME WOULD HAVE BEEN CHARGEABLE AS INCOME HAD IT BEEN RECEIVED BEFORE SUCH DISCONTINUANCE. THIS SUB - SECTION CONSTITUTES AN EXCEPTION T O THE RULE THAT BUSINESS RECEIPTS ARE CHARGEABLE ONLY IF THE BUSINESS OR PROFESSION IS CARRIED ON IN THE YEAR OF RECEIPT. IN THAT VIEW OF THE MATTER, WE ARE OF THE CLEAR OPINION THAT THE AMOUNT OF RS. 9,80,000 WAS ASSESSABLE IN THE HANDS OF THE ASSESSEE - FI RM IN THE YEAR OF RECEIPT DESPITE DISSOLUTION AND DISCONTINUANCE OF ITS BUSINESS BY VIRTUE OF SUB - S. (3A) OF S. 176 R/W S. 189 OF THE ACT. 9. WE ARE FULLY SUPPORTED IN OUR ABOVE VIEW BY THE RECENT DECISION OF THE SUPREME COURT IN NAGARMAL BAIJNATH VS. CIT (1993) 111 CTR (SC) 171 : (1993) 201 ITR 538 (SC), WHERE THE SUPREME COURT DISCUSSED AT LENGTH THE POSITION OF ASSESSMENT OF DISSOLVED FIRM UNDER THE LAW AS IT STOOD PRIOR TO 1958 AND THE LAW AS IT STANDS NOW. THE SUPREME COURT QUOTED WITH APPROVAL THE FO LLOWING 16 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE OBSERVATIONS OF SHAH, J. IN C.A. ABRAHAM VS. ITO (1961) 41 ITR 425 (SC) (AT 429) : 'IN EFFECT, THE LEGISLATURE HAS ENACTED BY S. 44 THAT THE ASSESSMENT PROCEEDINGS MAY BE COMMENCED AND CONTINUED AGAINST A FIRM OF WHICH BUSINESS IS DISCONTINUED AS I F DISCONTINUANCE HAS NOT TAKEN PLACE. IT IS ENACTED MANIFESTLY WITH A VIEW TO ENSURE CONTINUITY IN THE APPLICATION OF THE MACHINERY PROVIDED FOR ASSESSMENT AND IMPOSITION OF TAX LIABILITY NOTWITHSTANDING DISCONTINUANCE OF THE BUSINESS OF FIRMS. BY A FICTIO N, THE FIRM IS DEEMED TO CONTINUE AFTER DISCONTINUANCE FOR THE PURPOSE OF ASSESSMENT UNDER CHAPTER IV.' IT WAS ALSO OBSERVED THAT THE ABOVE OBSERVATIONS WOULD SQUARELY APPLY TO A CASE WHERE THE DISSOLUTION OF THE PARTNERSHIP FIRM LEADS TO DISCONTINUANCE OF ITS BUSINESS. 10. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO A NUMBER OF DECISIONS IN SUPPORT OF THE CONTENTION THAT THE ANALOGY OF S. 159 WOULD APPLY TO S. 189. WE FIND IT DIFFICULT TO ACCEPT THE ABOVE CONTENTION BECAUSE, IN OUR OPINION, THE SCHEME OF THESE TWO SECTIONS IS COMPLETELY DIFFERENT. SEC. 159 IS AKIN TO S. 44 OF THE IT ACT, 1922, AS IT STOOD BEFORE ITS AMENDMENT BY THE 1958 ACT. THE SCHEME OF ASSESSMENT OF INCOME OF A DISSOLVED FIRM ORIGINALLY WAS SAME AS OF A DECEASED ASSESSEE BUT THAT S CHEME IS NO MORE APPLICABLE FOR ASSESSMENT OF INCOME OF DISSOLVED FIRMS. NOW, UNDER S. 189 OR UNDER THE AMENDED S. 44 OF THE 1922 ACT, THE ITO HAS TO MAKE AN ASSESSMENT OF THE TOTAL INCOME OF THE FIRM AS SUCH AS IF NO SUCH DISCONTINUANCE OR DISSOLUTION HAD TAKEN PLACE. THE ANALOGY OF S. 159 IS, THEREFORE, NOT APPLICABLE TO INTERPRETATION OF S. 189. IT MAY ALSO BE PERTINENT TO MENTION THAT S. 176(3A) DEALS WITH ALL ASSESSEES WHEREAS S. 189 DEALS WITH ONLY BUSINESS CARRIED ON BY FIRMS. IT MAY ALSO BE OBSERVED THAT S. 176(3A) AND S. 189 DEAL WITH TWO DIFFERENT ASPECTS THE FORMER WITH CHARGEABILITY OF RECEIPT TO TAX DESPITE DISCONTINUANCE OF THE BUSINESS IN THE YEAR OF RECEIPT, THE LATTER WITH ASSESSMENT OF A FIRM DESPITE ITS DISSOLUTION. 15. IN ABOVE ALL THE CASES WHAT WAS BROUGHT TO TAX BY FRAMING THE ASSESSMENT , EVEN AFTER THE DISSOLUTION OF THE FIRM OR THE AOP , WAS THE INCOME EARNED DURING THE EXISTENCE OF THOSE FIRMS OR AOP BUT RECEIVED 17 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE SUBSEQUENTLY . THE LD. CIT(A) MISINTERPRETED OR MISUNDERSTOOD ALL THE ABOVE JUDGMENTS FOR COMING TO HIS ERRONEOUS CONCLUSION. SO FAR AS THE PRESENT CASE BEFORE US IS CONCERNED THERE IS NO DISPUTE ABOUT THE FACT THAT A TRANSACTION FOUND RECORDED WITH THE ANALOGOUS CLAIM OF THE DISSOLVED ASSESSEE FIRM IS IN THE MONTH OF DECE MBER, 2003. NOWHERE IT IS THE CASE OF ASSESSING OFFICER THAT THE SAID SUM BELONG TO THE PERIOD DURING WHICH THE ASSESSEE FIRM WAS IN EXISTENCE AND CARRIED OUT ITS BUSINESS. IN FACT THE CASE OF THE ASSESSEE IS WELL SUPPORTED BY THE FOLLOWING DECISIONS: I. CI T VS. UNITED TRADING CO. 212 ITR 532 (RAJ.). II. BANYAN & BERRY VS. CIT 222 ITR 831 (GUJ.). 16. IN THE CASE OF UNITED TRADING CO. (SUPRA ) THE HON'BLE HIGH COURT OF RAJASTHAN HAS EXPLAINED THE SCOPE OF SEC. 189 AND IT IS HELD AS UNDER: 5. WE HAVE CONSIDERED T HE MATTER. A DEEMING FICTION IS CREATED BY S. 189 IN RESPECT OF A BUSINESS OR PROFESSION CARRIED ON BY THE FIRM WHICH IS DISCONTINUED OR THE FIRM IS DISSOLVED AS IF THERE IS NO SUCH DISCONTINUANCE OR DISSOLUTION. THE PROVISIONS CONTEMPLATE THAT ASSESSMENT COULD BE MADE AND ALL THE PROVISIONS OF THE ACT SHALL APPLY TO SUCH AN ASSESSMENT. THIS SECTION REFERS TO THE BUSINESS OR PROFESSION CARRIED ON BY A FIRM WHICH HAS BEEN DISCONTINUED OR WHERE THE FIRM IS DISSOLVED. THE POWER TO MAKE AN ASSESSMENT IN SUCH A CASE IS IN RESPECT OF THAT PERIOD FOR WHICH THE BUSINESS OR PROFESSION WAS CARRIED ON BY THE FIRM. SEC. 42 OF THE PARTNERSHIP ACT CONTEMPLATES THE CONTINGENCY OF DISSOLUTION OF THE FIRM AND UNDER S. 42(C), THE FIRM STANDS DISSOLVED BY DEATH OF A PARTNER. T HE PROVISION OF S. 189 HAS BEEN MADE FOR THE LIMITED PURPOSE THAT ANY FIRM WHICH IS DISSOLVED MAY NOT ESCAPE THE LIABILITY TO TAX AFTER ITS DISSOLUTION. IT IS NOT THE POWER OF RECOVERY OF TAX WHICH IS TO BE EXAMINED, BUT AS TO WHETHER THERE COULD HAVE BEEN ANY ASSESSMENT OF TAX BY INVOKING THE PROVISIONS OF S. 189 WHEN THE FIRM HAD NOT CARRIED ON ANY BUSINESS AND WAS NOT IN EXISTENCE (BECAUSE IT WAS DISSOLVED). SEC. 2(31) OF THE ACT DEFINES 'PERSONS' AND A FIRM HAS BEEN INCLUDED IN THE DEFINITION OF PERSON. IT HAS NOT BEEN BROUGHT ON RECORD AS TO WHO ARE THE PERSONS ON BEHALF OF THE DECEASED PARTNERS WHO HAVE 18 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE INHERITED THE PROPERTY OF SUCH DECEASED PARTNERS. IF THE FIRM IS NOT IN EXISTENCE THEN ASSESSMENT COULD BE MADE OF THE PERSONS WHO ARE THE LEGAL HEIRS. THE FACT THAT THE FIRM WAS NOT IN EXISTENCE DURING THE ASST. YR. 1982 - 83 HAS NOT BEEN STRESSED AND THE FINDING WHICH HAS BEEN RECORDED BY THE TRIBUNAL IS THAT 'THE UNDISPUTED FACT IN THE INSTANT CASE IS THAT THE REMAINING TWO PARTNERS WHO COMPRISED THE FI RM FROM 1953 ALSO DIED ABOUT 5 - 10 YEARS BACK'. SEC. 189, THEREFORE, CANNOT BE INVOKED IN SUCH A SITUATION WHERE THE FIRM WAS NOT IN EXISTENCE AND HAD NOT CARRIED ON ANY BUSINESS. THE FINDING WHICH HAS BEEN RECORDED BY THE TRIBUNAL THAT NO BUSINESS WAS CARR IED ON BY THE FIRM IN THE ASST. YR. 1982 - 83 AND THE PROVISIONS OF S. 189 CANNOT BE INVOKED IS UNASSAILABLE. FOR THE PURPOSE OF CAPITAL GAINS ALSO, THE SAME POSITION OF LAW IS APPLICABLE. THE ASSESSMENT IN RESPECT OF CAPITAL GAINS COULD NOT HAVE BEEN MADE O N THE FIRM WHICH HAS NOT CARRIED ON ANY BUSINESS DURING THE YEAR 1982 - 83 WHEN THE SALE OF THE PROPERTY WAS EFFECTED. 17. IN THE CASE OF BANYAN & BERRY (SUPRA) IT IS HELD AS UNDER: 44. SO FAR AS S. 189(1) IS CONCERNED, HISTORICALLY S. 44 CORRESPONDED TO TH IS PROVISION UNDER THE INDIAN IT ACT, 1922. IN THE FIRST INSTANCE IT ACCEPTS THE FACT OF DISCONTINUANCE OF THE BUSINESS BY THE FIRM WHICH MAY OR MAY NOT HAVE BEEN DISSOLVED. IN THE CASE OF DISSOLUTION THE FACT OF DISSOLUTION IS ACCEPTED WHETHER THE BUSINES S HAS BEEN DISCONTINUED OR NOT. IT IS ON THAT ACCEPTED PREMISE THAT PROVISION FOR ITS DEEMED CONTINUATION HAS BEEN MADE FOR THE PURPOSE OF MAKING ASSESSMENT OF THE TOTAL INCOME OF THE FIRM. OBVIOUSLY, THE PURPOSE OF MAKING ASSESSMENT OF THE TOTAL INCOME OF THE FIRM RELATED TO THE INCOME OF THE FIRM EARNED BY IT WHILE IT WAS IN EXISTENCE. THERE IS NO ASSUMPTION THAT A FIRM CONTINUES TO EXIST FOR THE PURPOSE OF EARNING INCOME FROM A BUSINESS WHICH IT HAS DISCONTINUED OR AFTER IT HAS CEASED TO EXIST AS A RESUL T OF DISSOLUTION. IT WOULD BE A PARADOX TO SAY THAT A FIRM HAS DISCONTINUED ITS BUSINESS, YET, IT IS DERIVING PROFITS FROM ITS DISCONTINUED BUSINESS THEREAFTER OR TO SAY THAT A FIRM, WHICH HAS CEASED TO EXIST, BUT CONTINUES TO EARN PROFIT EVEN IN THE STATE OF NON - EXISTENCE AFTER ITS DISSOLUTION. AS SOON AS A FIRM IS DISSOLVED, ALL ITS ASSETS BECOME THE CAPITAL AVAILABLE FOR DISCHARGE OF ITS LIABILITIES INCURRED WHILE IN EXISTENCE AND TO DISBURSE THE REMAINDER AMONGST PARTNERS. AS THE FIRM IS A SEPARATE ENTI TY FOR 19 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE ASSESSMENT UNDER THE ACT WHICH CAN BE ASSESSED AS SUCH, FOR THE PURPOSE OF CONTINUITY IN MAKING ASSESSMENT OF ALL LIABILITIES INCLUDING TAX OR PENALTY OF ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT WHICH IT HAD INCURRED UPTO ITS DISCONT INUANCE OF BUSINESS OR DISSOLUTION, IN THAT STATUS, A LEGAL FICTION HAS BEEN CREATED FOR DEEMING THE DISSOLVED FIRM TO EXIST AND IT IS DEEMED TO EXIST UNDER THE IT ACT ONLY FOR THE PURPOSE OF ASSESSMENT AND NOT FOR ANY OTHER PURPOSE. BUT FOR THIS PROVISION , PERHAPS, IT WOULD NOT HAVE BEEN POSSIBLE TO CONTINUE OR TO INITIATE PROCEEDINGS AGAINST THE NON - EXISTING FIRM OR IN RESPECT OF NON - EXISTING BUSINESS IN RESPECT OF INCOME EARNED BY THE FIRM WHILE IN EXISTENCE OR OF THE BUSINESS WHILE IT WAS CONTINUING. TH ERE BEING TWO SEPARATE ENTITIES, NAMELY, THE FIRM AND PARTNERS IN THE INDIVIDUAL CAPACITY, IT WOULD NOT HAVE BEEN POSSIBLE TO PROCEED AGAINST THE PARTNERS IN THEIR INDIVIDUAL CAPACITY IN THE ABSENCE OF THIS PROVISION TO IMPLEMENT THE PROVISIONS OF THE ACT IN RESPECT OF THE LIABILITY WHICH HAD ALREADY BEEN INCURRED. IN OUR OPINION, S. 189 CANNOT EXTEND TO INCOME OR PROFITS WHICH CAN BE SAID TO HAVE ACCRUED, ARISEN OR RECEIVED AFTER THE DISCONTINUANCE OF SUCH BUSINESS OR DISSOLUTION OF THE FIRM. 45. IN THIS C ONNECTION, WE MAY ALSO NOTICE THAT S. 189 DOES NOT LAY DOWN PROCEDURE FOR THE ASSESSMENT IN SUCH CASES. HOWEVER, S. 176 WHICH DEALS WITH DISCONTINUANCE OF BUSINESS LAYS DOWN THE PROCEDURE THAT WHERE ANY BUSINESS OR PROFESSION IS DISCONTINUED IN ANY ASSESSM ENT YEAR, THE INCOME OF THE PERIOD FROM EXPIRY OF PREVIOUS YEAR FOR THAT ASSESSMENT YEAR UPTO THE DATE OF SUCH DISCONTINUANCE MAY BE CHARGED IN THE SAME ASSESSMENT YEAR. IT ALSO PROVIDES SEPARATE ASSESSMENTS TO BE MADE FOR THE COMPLETED ASSESSMENT YEAR AND PART OF THE ASSESSMENT YEAR THAT IS TO SAY THAT THE PROVISION IS MADE FOR MAKING ASSESSMENT UPTO THE DATE OF DISCONTINUANCE OF THE BUSINESS ONLY. IN THE CASE OF DISSOLUTION, S. 176 SPECIFICALLY DOES NOT TALK OF DISSOLUTION. IT IS APPARENT THAT TWO SITUATI ONS MAY ARISE : (I) THAT BY DISSOLUTION OF THE FIRM, THE BUSINESS CARRIED ON BY IT MAY NOT DISCONTINUE BUT MAY HAVE DEVOLVED ON SOME OTHER ENTITY AS A RESULT OF SUCCESSION. IN THAT EVENT, S. 170 PROVIDES THAT WHERE A PERSON CARRYING ANY BUSINESS OR PROFESS ION HAS BEEN SUCCEEDED THEREIN BY ANY OTHER PERSON AND THE SUCCESSOR CONTINUES TO CARRY ON THAT PROFESSION OR BUSINESS, THE PREDECESSOR IS TO BE ASSESSED IN RESPECT OF THE INCOME OF THE PREVIOUS YEAR UPTO THE 20 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE DATE OF SUCCESSION AND SUCCESSOR SHALL BE ASSES SED IN RESPECT OF THE INCOME OF THE PART OF PREVIOUS YEAR AFTER THE DATE OF SUCCESSION. IN CASE THERE IS NO SUCCESSION OF BUSINESS, DISSOLUTION RESULTS IN CESSATION OF BUSINESS ALSO, THAT IS TO SAY, IT ALSO AMOUNTS TO DISCONTINUANCE OF BUSINESS, THEN THE C ASE WOULD BE COVERED BY SUB - SS. (1), (2) AND (3) OF S. 176 BRINGING THE SAME RESULT. ORDINARILY, UNDER THE IT ACT ASSESSMENT IS MADE FOR THE ASSESSMENT YEAR IN RESPECT OF INCOME EARNED BY ASSESSEE DURING PREVIOUS YEAR ENDING BEFORE COMMENCEMENT OF THE ASSE SSMENT YEAR. SECS. 170 AND 176 BOTH PROVIDE EXCEPTIONS TO THE USE AND PERMIT THE INCOME OF THE YEAR DURING THE SAME YEAR, WHERE BUSINESS IS DISCONTINUED. 46. THIS CONCLUSION IS FURTHER STRENGTHENED FROM THE FACT THAT S. 188 CLEARLY DEALS WITH THE SITUATION WHERE A FIRM CARRYING ON BUSINESS IS SUCCEEDED BY ANOTHER FIRM AND THE CASE IS NOT COVERED BY S. 187, SEPARATE ASSESSMENTS ARE TO BE MADE ON THE PREDECESSOR FIRM AND THE SUCCESSOR FIRM IN ACCORDANCE WITH THE PROVISIONS OF S. 170, THAT IS TO SAY, WHERE ON ACCOUNT OF DISSOLUTION THERE IS A CASE OF SUCCESSION OF BUSINESS OR PROFESSION WHICH WAS BEING CARRIED ON BY THE FIRM, THE ASSESSMENT OF THE PREDECESSOR FIRM (DISSOLVED FIRM) AND THE SUCCESSOR FIRM IS TO BE DONE AS IN THE CASE OF SUCCESSION OF BUSINESS UND ER S. 170 AND WHERE IT IS NOT A CASE OF SUCCESSION OF BUSINESS BUT OF DISCONTINUANCE OF BUSINESS, THE PROVISIONS OF S. 176 IN THE MATTER OF PROCEDURE OF SUCH ASSESSMENT IS ATTRACTED. THEREFORE, CONCLUSION, IN OUR OPINION, IS IRRESISTIBLE, THAT S. 189(1) BY ITSELF DOES NOT AUTHORISE ASSESSMENT OF THE FIRM IN RESPECT OF ANY INCOME EARNED AFTER IT CEASED TO EXIST AND THE DEEMING PROVISION OF TREATING THE INCOME OF THE FIRM AS IF SUCH DISSOLUTION OR DISCONTINUATION OF ITS BUSINESS HAS NOT TAKEN PLACE IS APPLICA BLE ONLY IN RESPECT OF INCOME WHICH HAS BEEN EARNED BY IT PRIOR TO ITS DISSOLUTION OR DISCONTINUANCE OF BUSINESS BY IT. FICTION CREATED UNDER S. 189 DOES NOT PROJECT INTO THE FUTURE TRANSACTIONS. WE ARE FORTIFIED IN OUR CONCLUSION BY HIGH AUTHORITY. SEC. 1 89 OF IT ACT, 1961 IS CORRESPONDING TO S. 44 OF THE INDIAN IT ACT, 1922 UNDER CHAPTER IV. IN SHIVRAM PODDAR VS. ITO (1964) 51 ITR 823 (SC) : TC 34R.800, SHAH, J. AS HE THEN WAS SPEAKING FOR THE COURT SAID : 21 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE 'THE OBJECT OF ENACTMENT IS CLEAR. IT IS TO AUTHO RISE ASSESSMENT OF TAX ON INCOME OR GAINS EARNED IN A BUSINESS, PROFESSION OR VOCATION CARRIED ON BY A FIRM OR ASSOCIATION BEFORE DISCONTINUANCE OF BUSINESS, PROFESSION OR VOCATION OR BEFORE DISSOLUTION OF ASSOCIATION......' IN CIT VS. RAJA REDDY MALLARAM (1954) 51 ITR 285 (SC), THE SUPREME COURT WHILE DEALING WITH THE CASE OF ASSESSMENT OF A DISSOLVED AOP UNDER S. 44 OF THE 1922 ACT (NOW CORRESPONDING S. 177 IN THE ACT OF 1961) SAID, S. 44 ENSURES, BY A FICTION, THE CONTINUITY OF PERSONALITY OF THE AOP EVE N AFTER ITS DISSOLUTION FOR THE PURPOSE OF ASSESSMENT AND PROCEDURE FOR ASSESSMENT AFTER ITS DISSOLUTION OF ITS PRE - DISSOLUTION INCOME OF AN AOP IS THE SAME AS THAT OF ASSESSMENT WHILE IT CONTINUED TO EXIST. BY VIRTUE OF S. 44, THE PERSONALITY OF ASSOCIATI ON IS CONTINUED FOR THE PURPOSE OF ASSESSMENT AND CHAPTER IV APPLIES THERETO. WHAT CAN BE ASSESSED IS THE INCOME OF ASSOCIATION RECEIVED PRIOR TO ITS DISSOLUTION.' THE PRINCIPLE FULLY APPLIES TO DISSOLUTION OF THE FIRM OR DISCONTINUANCE OF THE BUSINESS BY FIRM AS WELL. SEC. 44 UNDER THE 1922 ACT WAS COMPOSITE PROVISION DEALING WITH ASSESSMENT OF INCOME IN THE CASE OF DISCONTINUANCE OF BUSINESS BY AOP OR BY A FIRM OR DISSOLUTION OF ASSOCIATION. WE MAY NOTICE PRIOR TO ITS AMENDMENT IN 1958, EXPRESSION `DISSOL UTION OF FIRM' WAS ABSENT. WHEN THE NEW ACT CAME INTO FORCE REPEALING 1922 ACT, PROVISIONS OF S. 44 RE - ENACTED IN SEPARATE SECTIONS. WHILE S. 189 DEALT WITH ASSESSMENT OF INCOME IN CASE OF DISCONTINUANCE OF BUSINESS BY THE FIRM OR IN CASE FIRM IS DISSOLVED , S. 177 DEALT WITH ASSESSMENT OF INCOME IN CASE DISCONTINUANCE OF BUSINESS BY ASSOCIATION OR ITS DISSOLUTION. PROVISIONS IN SUBSTANCE REMAIN THE SAME. RAJASTHAN HIGH COURT IN THE CASE OF GEORGE TALKIES CIRCUIT VS. CIT (1987) 66 CTR (RAJ) 150 : (1988) 171 ITR 386 (RAJ) : TC 34R.828, HELD : 'IT IS CLEAR FROM THE ABOVE QUOTED PROVISIONS THAT DESPITE THE DISSOLUTION OF THE FIRM ON ACCOUNT OF ITS INSOLVENCY, IT CONTINUED TO BE A SUBSISTING FIRM UNDER THE IT ACT FOR THE PURPOSE OF ASSESSMENT OF THE TOTAL INCOME OF THE FIRM TILL THE DATE OF ITS DISSOLUTION. THEY 22 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE CONTAIN DEEMING PROVISIONS FOR THE CONTINUANCE OF THE DISSOLVED FIRM FOR THIS LIMITED PURPOSE. .... THE DEEMING PROVISIONS OF S. 189(1) OF THE ACT ARE NOT APPLICABLE TO THE INCOME ARISING LONG AFTER THE DI SSOLUTION OF THE FIRM.' THE VIEW WAS REITERATED BY THAT COURT IN CIT VS. UNITED TRADING CO. (1995) 129 CTR (RAJ) 93 : (1995) 212 ITR 532 (RAJ) : TC 34R.835 WHEREIN THE COURT HELD AS UNDER : 'A DEEMING FICTION IS CREATED BY S. 189 IN RESPECT OF A BUSINESS O R PROFESSION CARRIED ON BY THE FIRM WHICH IS DISCONTINUED OR THE FIRM IS DISSOLVED AS IF THERE IS NO SUCH DISCONTINUANCE OR DISSOLUTION. THE PROVISIONS CONTEMPLATE THAT ASSESSMENT COULD BE MADE AND ALL THE PROVISIONS OF THE ACT SHALL APPLY TO SUCH AN ASSES SMENT. THIS SECTION REFERS TO THE BUSINESS OR PROFESSION CARRIED ON BY A FIRM WHICH HAS BEEN DISCONTINUED OR WHERE THE FIRM IS DISSOLVED. THE POWER TO MAKE AN ASSESSMENT IN SUCH CASE IS IN RESPECT OF THAT PERIOD FOR WHICH THE BUSINESS OR PROFESSION WAS CAR RIED ON BY THE FIRM....' 47. IN THIS CONNECTION IT IS ALSO APPOSITE TO NOTE THAT S. 189 IS A MACHINERY SECTION AND IS NOT A CHARGING SECTION AND IT HAS BEEN ENACTED FOR THE PURPOSES OF CONTINUING FOR THE APPLICATION OF THE MACHINERY PROVISION OF THE ASSESS MENT AND IMPOSITION OF TAX LIABILITY ALREADY INCURRED BY THE FIRM WHILE IN EXISTENCE OR DURING THE COURSE WHEN BUSINESS WAS CARRIED ON BY THE FIRM. BY EXTENDING MACHINERY PROVISION, THE SUBSTANTIVE LEVY CANNOT BE EFFECTED BY CHARGING AN ENTITY WHICH IS NOT IN EXISTENCE. IT MAY BE NOTICED THAT S. 189 ASSUMES THE CONTINUANCE OF THE BUSINESS OR EXISTENCE OF THE FIRM ONLY FOR THE PURPOSE OF ASSESSMENT AND NOT FOR THE PURPOSE OF IMPOSING CHARGE WHICH HAD NOT ALREADY COME INTO EXISTENCE BEFORE SUCH DISCONTINUANCE OR ITS DISSOLUTION. THERE IS ALWAYS TIME LAG BETWEEN WHEN THE TAX BECOMES DUE AND WHEN IT CRYSTALLISE INTO A REALISABLE AMOUNT. INCOME - TAX IS A LEVY ON THE INCOME EARNED DURING A SPECIFIED PERIOD, VIZ., A YEAR. INCOME OF THE YEAR IS KNOWN AT THE END OF TH E YEAR. HENCE, ON THE COMPLETION OF THE PREVIOUS YEAR WHEN TOTAL INCOME OF THE ASSESSEE FOR THE YEAR BECOMES KNOWN, THE LEVY UNDER THE ACT COMES INTO EXISTENCE. HOWEVER, ITS COMPUTATION AND ASSESSMENT RESULTING INTO A CRYSTALLISED LIABILITY TAKES SOME TIME . MOREOVER, FIRM MAY HAVE INCURRED OTHER LIABILITIES UNDER THE ACT 23 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE WHILE IN EXISTENCE, BUT PROCEEDINGS FOR EFFECTING SUCH A LIABILITY MAY NOT HAVE BEEN COMPLETED OR INITIATED. IT IS FOR THAT REASON THAT FOR THE PURPOSE OF MAKING SUCH CHARGE OR LEVY TO WHIC H THE FIRM HAS BECOME SUBJECT TO WHILE IN EXISTENCE EFFECTIVE, A FIRM WHICH IS ACTUALLY CEASED TO EXIST IS DEEMED TO EXIST FOR CONTINUITY OF MACHINERY PROVISION FOR BRINGING TO THE CHARGE SUCH TAX AND OTHER OBLIGATIONS. 18. WE ARE OF THE OPINION THAT AS T HERE IS NO EVIDENCE TO SUGGEST THAT THE TRANSACTION ALLEGEDLY NOTED ON LOOSE PAPER WITH NAME ANALOGOUS TO THE NAME OF THE ASSESSEE FIRM PERTAINS TO THE YEAR, IN WHICH THE ASSESSEE FIRM WAS IN EXISTENCE . A DMITTEDLY THE ASSESSEE FIRM HAS BEEN DISSOLVED ON 3 1 - 03 - 2002 AND ALLEGED TRANSACTION IS FOUND IN DECEMBER, 2003 , NO INCOME CAN BE BROUGHT TO TAX TREATING UNEXPLAINED INCOME OF THE ASSESSEE IN THE A.Y. 2004 - 05. WE, ACCORDINGLY, ALLOW THE CONTENTION OF THE ASSESSEE ON THIS SPECIFIC PLEA AND QUASH THE PROCEE DINGS INITIATED U/S. 147 AND CANCEL THE ASSESSMENT FRAMED BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A). 19. THE LD. CIT (DR) HAS PLACED HIS RELIANCE ON THE DECISION IN THE CASE OF HEMENDRA RANCHHODDAS MERCHANT, MUMBAI (SUPRA) FOR THE PLEA THAT EVEN AFTER THE DISSOLUTION OF THE FIRM THE ASSESSMENT CAN BE FRAMED U/S. 189(1). IN THE SAID CASE THERE WAS A SEARCH AND SEIZURE ACTION U/S. 132 OF THE ACT AND WARRANT OF AUTHORIZATION WAS ISSUED TO ONE OF THE PARTNERS OF THE DISSOLVED FIRM WHO CHALLENGED THE WARRANT OF AUTHORIZATION BY TAKING THE STAND THAT THE FIRM WAS ALREADY DISSOLVED. THE HON'BLE HIGH COURT HAS HELD AS UNDER: SECTION 189 OF THE INCOME TAX ACT, 1961 STIPULATES THAT WHERE ANY BUSINESS OR PROFESSION CARRIED ON BY A FIRM HAS BEEN DISCONTINU ED OR WHERE A FIRM IS DISSOLVED, THE INCOME - TAX OFFICER SHALL MAKE AN ASSESSMENT OF THE TOTAL INCOME OF THE FIRM AS IF NO SUCH DISCONTINUANCE OR DISSOLUTION HAD TAKEN PLACE, AND ALL THE PROVISIONS OF THIS ACT, INCLUDING THE PROVISIONS RELATING TO THE LEVY OF 24 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE A PENALTY OR ANY OTHER SUM CHARGEABLE UNDER ANY PROVISION OF THIS ACT, SHALL APPLY, SO FAR AS MAY BE, TO SUCH ASSESSMENT. BY SUB SECTION (3) OF SECTION 189, EVERY PERSON WHO WAS AT THE TIME OF SUCH DISCONTINUANCE OR DISSOLUTION A PARTNER OF THE FIRM, AN D THE LEGAL REPRESENTATIVE OF ANY SUCH PERSON WHO IS DECEASED, SHALL BE JOINTLY AND SEVERALLY LIABLE FOR THE AMOUNT OF TAX, PENALTY OR OTHER SUM PAYABLE, AND ALL THE PROVISIONS OF THIS ACT, SO FAR AS MAY BE, SHALL APPLY TO ANY SUCH ASSESSMENT OR IMPOSITION OF PENALTY OR OTHER SUM. SUB SECTION (1) OF SECTION 189 CREATES A LEGAL FICTION. THE EFFECT OF THE FICTION CREATED BY LAW IS THAT NOTWITHSTANDING THE DISCONTINUANCE OF THE BUSINESS OF A FIRM OR THE DISSOLUTION OF A FIRM, ASSESSMENT HAS TO BE MADE BY THE A SSESSING OFFICER OF THE TOTAL INCOME OF THE FIRM AS IF NO SUCH DISCONTINUANCE OR DISSOLUTION HAS TAKEN PLACE. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITS THAT THIS WOULD BE SUBJECT TO SERVICE OF NOTICE UNDER SECTION 283(2). WHETHER AND TO WHAT EXTE NT THE PROVISIONS OF SECTION 283(2) WERE COMPLIED WITH IS A MATTER WHICH WOULD FALL FOR DETERMINATION IN THE APPEAL WHICH IS PENDING AGAINST THE ORDERS OF ASSESSMENT AND THOSE PASSED BY THE CIT (A). WE MAY, ONLY RECORD THE SUBMISSION OF THE REVENUE THAT TH E PETITIONER WAS AWARE ALL ALONG OF THE ASSESSMENT PROCEEDINGS AND PARTICIPATED IN THE ASSESSMENT. IN THE PRESENT PROCEEDINGS, THE AMBIT AND JURISDICTION OF THIS COURT IS LIMITED TO A DETERMINATION OF WHETHER THE DIRECTOR OF INCOME TAX (INVESTIGATION) HAD A REASON TO BELIEVE WITHIN THE MEANING OF SECTION 132(1). IN OUR VIEW, THE CIRCUMSTANCES WHICH ARE SET OUT IN THE SATISFACTION NOTE PROVIDED ADEQUATE MATERIAL ON THE BASIS OF WHICH THE DIRECTOR OF INCOME TAX (INVESTIGATION) HAS FORMED A REASON TO BELIEVE W ITHIN THE MEANING OF SECTION 132(1)(B). APPLYING THE TEST, THAT WAS LAID DOWN BY THE SUPREME COURT IN SETH BROTHERS AND IN POORAN MAL (SUPRA) THE POWER IN THE PRESENT CASE HAS BEEN EXERCISED IN FURTHERANCE OF THE STATUTORY DUTIES CAST UPON THE DIRECTOR OF INCOME TAX. THE DIRECTOR OF INCOME TAX (INVESTIGATION) HAS ENTERTAINED THE REQUISITE BELIEF FOR BONA FIDE REASONS WHICH FALL WITHIN THE AMBIT AND PURVIEW OF SECTION 132(1)(B). THE SUFFICIENCY OF THESE REASONS CANNOT BE QUESTIONED BY THIS COURT IN EXERCISE OF THE WRIT JURISDICTION UNDER ARTICLE 226 OF THE CONSTITUTION. THE SATISFACTION HAS BEEN ARRIVED AT ON THE BASIS OF RELEVANT AND MATERIAL CIRCUMSTANCES WHICH ARE RECORDED. 25 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE AS REGARDS THE RETURN OF THE DOCUMENTS, SECTION 132(A) PROVIDES THAT THE BOOKS OF A CCOUNT AND OTHER DOCUMENTS SEIZED UNDER SUB SECTION (1) SHALL NOT BE RETAINED BY THE AUTHORIZED OFFICER FOR A PERIOD EXCEEDING THIRTY DAYS FROM THE DATE OF THE ORDER OF ASSESSMENT UNDER SECTION 153(A) OR SECTION 158BC(C) UNLESS REASONS FOR RETAINING THE SA ME ARE RECORDED BY THE OFFICER IN WRITING AND THE APPROVAL OF THE CHIEF COMMISSIONER, COMMISSIONER, DIRECTOR GENERAL OR DIRECTOR FOR SUCH RETENTION IS OBTAINED. UNDER THE PROVISO, THE CHIEF COMMISSIONER, COMMISSIONER, DIRECTOR GENERAL OR DIRECTOR SHALL NOT AUTHORIZE THE RETENTION OF BOOKS OF ACCOUNT AND OTHER DOCUMENTS FOR A PERIOD EXCEEDING THIRTY DAYS AFTER ALL THE PROCEEDINGS UNDER THE ACT IN RESPECT OF THE YEARS FOR WHICH BOOKS OF ACCOUNT AND OTHER DOCUMENTS ARE RELEVANT ARE COMPLETED. HOWEVER, BY SUB S ECTION (3) THE PERSON FROM WHOSE CUSTODY ANY BOOKS OF ACCOUNT AND OTHER DOCUMENTS ARE SEIZED UNDER SUB SECTION (1) IS PERMITTED TO MAKE COPIES THEREOF OR TAKE EXTRACTS THEREFROM. COUNSEL FOR THE PETITIONER STATES ON INSTRUCTIONS THAT THE FIXED DEPOSIT RECE IPTS HAVE BEEN RETURNED TO THE PETITIONER. COUNSEL APPEARING ON BEHALF OF THE REVENUE HAS PLACED ON THE RECORD THE LAST ORDER DATED 16 MARCH 2012 PASSED BY THE COMMISSIONER OF INCOME TAX UNIT III MUMBAI AUTHORIZING RETENTION OF THE DOCUMENTS, HAVING REGARD TO THE PENDENCY OF THE APPEAL PROCEEDINGS, UNTIL 31 MARCH 2013 OR UNTIL THE PROCEEDINGS ARE DISPOSED OF, WHICHEVER IS EARLIER. HAVING REGARD TO THE PROVISIONS OF SECTION 132 THAT DIRECTION IS LAWFUL AND CANNOT BE FAULTED. THE PETITIONER IS ENTITLED, HOWEV ER, TO TAKE COPIES OF EXTRACTS AS MAY BE REQUIRED. 9. COUNSEL APPEARING ON BEHALF OF THE PETITIONER HAS RELIED UPON A JUDGMENT OF THE PUNJAB AND HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX VS. RAKESH KUMAR[(2009) 313 ITR 305 (P & H)] WHERE THE DIVISIO N BENCH HELD THAT SINCE THE PERSON IN WHOSE NAME THE SEARCH AUTHORIZATION WAS ISSUED, HAD DIED PRIOR TO THE ISSUANCE OF THE AUTHORIZATION AND SINCE THE SEARCH WARRANT AND PANCHANAMA WERE PREPARED IN THE NAME OF A DEAD PERSON, THE AUTHORIZATION FOR CONDUCTI NG A SEARCH WAS INVALID AND VOID AB INITIO. IN THE PRESENT CASE, HOWEVER, AS NOTED EARLIER, THE WARRANT OF AUTHORIZATION HAS ALSO SPECIFICALLY BEEN ISSUED IN THE NAME OF THE PETITIONER AND HIS SPOUSE. 26 ITA NO . 1053/PN/2013, MANTRI DEVELOPERS, PUNE 20. IT IS CLEAR FROM THE OBSERVATIONS OF THEIR LORDSH IPS THAT IT WAS AN ISSUE IN RESPECT OF WARRANT OF AUTHORISATION AND NOT IN THE CONTEST OF COMPLETING THE ASSESSMENT OF THE DISSOLVED FIRM. IN OUR HUMBLE UNDERSTANDING THE SAID DECISION IS NOT HELPFUL TO THE REVENUE E VEN IF THE PETITIONER IN SAID CASE HAS TAKEN THE SHELTER OF SEC. 189 (1) OF THE INCOME - TAX ACT. 21. THE ASSESSEE HAS ALSO TAKEN THE GROUNDS ON MERIT . A S THE ASSESSE HAS SUCCEEDED ON THE LEGAL ISSUE OF LEGALITY AND VALIDITY OF THE RE ASSESSMENT PROCEEDINGS , WE DO NOT CONSIDER IT NECESSARY TO GO INTO THE MERITS OF THE CASE. 2 2 . IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 19 - 12 - 2014 SD/ - SD/ - ( R.K. PANDA ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE , DATED: 19 TH DECEMBER, 2014 RK/PS COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - I I, PUNE 4 THE CIT - I I, PUNE 5 THE DR, ITAT B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR , INCOME TAX APPELLATE TRIBUNAL, PUNE