Shri R. Pratap, Shiggaon V. ITO, Hubli

ITA 152/BANG/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0678 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-10-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 27-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Assessee Lawyers: P C CHADAGA
• Keywords: Revised return
• Section: 133A; 143(1); 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NOS.152 & 153/BANG/2009 ASSESSMENT YEARS : 2003-04 & 2004-05 SHRI R. PRATAP, C/O. M/S. MAHARAJA WINES, SHIGGAON. : APPELLANT VS. THE INCOME TAX OFFICER, WARD 3(1), HUBLI. : RESPONDENT APPELLANT BY : SHRI P.C. CHADAGA RESPONDENT BY : SMT. JACINTA ZIMIK VASHAI O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THESE TWO APPEALS INSTITUTED BY THE ASSESSEE AN INDIVIDUAL ARE DIRECTED AGAINST THE ORDERS OF THE CIT(A), HUBLI FO R THE ASSESSMENT YEARS 2003-04 AND 2004-05. 2. IN THESE APPEALS, THE ASSESSEE HAS RAISED SIX GROUNDS WHICH ARE IDENTICAL FOR BOTH THE ASSESSMENT YEARS. ON A PERU SAL, WE FIND THAT GROUND NOS: 1 AND 6 ARE GENERAL IN NATURE AND NO SPECIFIC ISSUES INVOLVED WHICH, IN OUR VIEW, DO NOT SURVIVE FOR CONSIDERATION AND THUS DISMISSED. IN THE REMAINING GROUNDS, THE ISSUES RAISED ARE REFORMULAT ED IN A CONCISE ITA NOS. 152 & 153/B/09 PAGE 2 OF 13 MANNER, FOR THE SAKE OF CONVENIENCE AND CLARITY WHI CH ARE LISTED OUT AS UNDER: FOR AYS 03-04 & 04-05 [COMMON GROUNDS]: (I) THE CIT(A) ERRED IN DIRECTING THE AO TO INCLUDE THE INCOME OF M/S.MAHARAJA WINES IN THE HANDS OF THE ASSESSEE THO UGH HE DIFFERED FROM AO WHO HAD HELD THE INCOME FROM LIQ UOR BUSINESS TO BE ASSESSABLE IN THE STATUS OF AOP; - HE HAD FAILED TO APPRECIATE THE FACT THAT THE SAID FIRM WAS EVIDENCED BY A DEED OF PARTNERSHIP AND WAS BEING AS SESSED AS SUCH FROM THE AY 01-02; (II) THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO OF DISALLOWING SALARY AND INTEREST PAID TO R.RAGHUNATH, PARTNER OF THE SAID FIRM; & (III) THE CIT(A) ERRED IN SUSTAINING 1/4 TH OF EXPENSES DEBITED UNDER THE HEAD CARRIAGE OUTWARDS AS AGAINST 1/3 RD BY THE AO THOUGH NO DISALLOWANCE WAS WARRANTED. FOR AY 04-05: (I) THE CIT(A) ERRED IN DIRECTING THE AO TO ADOPT RS.2 LAKHS IN RESPECT OF INTEREST AS AGAINST RS.90000/- INCOME DECLARED B Y THE ASSESSEE WITHOUT GIVING ANY OPPORTUNITY AS IT AMOUNTED TO EN HANCEMENT OF INCOME. AS THE ISSUES RAISED IN THESE APPEALS ARE COMMON AN D IDENTICAL, FOR THE SAKE OF CONVENIENCE, THEY ARE CONSIDERED TOGETHER A ND DISPOSED OFF IN THIS COMMON ORDER. 3. THE FACTS OF THE ISSUES, IN BRIEF, ARE THAT THE ASSESSEE, AN INDIVIDUAL, WAS RUNNING A LIQUOR SHOP, STYLED , MAHARAJA BAR AND ALSO A PARTNER IN M/S.MAHARAJA WINES [THE FIRM] AT SHIGGAON. HIS RET URNS OF INCOME FURNISHED FOR THE AY UNDER DISPUTE WERE ACCEPTED U/ S 143(1) OF THE ACT. SUBSEQUENTLY, M/S.MAHARAJA WINES WAS SUBJECTED TO A CTION U/S 133A OF THE ITA NOS. 152 & 153/B/09 PAGE 3 OF 13 ACT ON 15/2/2005. THE ASSESSEE VIDE HIS LETTER D T: 28/2/2005 VOLUNTEERED TO DECLARE AN ADDITIONAL INCOME OF RS.10 LAKHS FOR THE AY 03-04 AND ALSO PROMISED TO FURNISH A ROI FOR THE AY 04-05 ADMITTIN G AN INCOME OF RS.2 LAKHS TO BUY PIECE WITH THE DEPARTMENT. THE ASSESS EE HAD ALSO FURNISHED A REVISED RETURN ON 24.10.05, ADMITTING AN INCOME O F RS.11.92 LAKHS AND IN COMPLIANCE TO THE NOTICE U/S 148 OF THE ACT DT: 8.1 1.05, HE REQUESTED TO TREAT THE REVISED ROI FURNISHED EARLIER IN RESPONSE TO NOTICE U/S 148. AFTER DELIBERATION THE CASE IN AN EXHAUSTIVE MANNER, THE AO CONCLUDED THE ASSESSMENT FOR THE AY 03-04, ARRIVING AT THE TOTAL INCOME OF RS. 28,08,687/- WHICH INCLUDED TOTAL INCOME AS PER RETURN OF INCOME RS. 11,92,500 ADD:1. ADDITION MADE AS PER PARA 5 ABOVE (LIQUOR SHOP AT HANGAL) 35,500 2. INCOME OF MAHARAJA WINES, SHIGGAON 74 0770 ADD: INTEREST TO PARTNERS 1310 00 SALARY TO PARTNERS 581345 EXPENSES DISALLOWED 1275 72 15,80,687 TOTAL INCOME 28,08,687 4. FOR THE AY 2004-05, THE ASSESSEE HAD ADMITTED AN INCOME OF RS.90000/- BESIDES AGRICULTURAL INCOME OF RS.40000/ - (THOUGH THE ASSESSEE HAD VOLUNTEERED TO ADMIT AN APPROXIMATE INCOME OF R S.2 LAKHS). AS IN LAST YEAR, THE AO, AFTER A DETAILED DISCUSSION COUPLED W ITH DRAWING STRENGTH FROM THE RULINGS OF THE HONBLE APEX COURT, HAD CON CLUDED THE ASSESSMENT, DETERMINING THE INCOME OF THE ASSESSEE AT RS.148058 3/- WHICH INCLUDED THE INCOME OF MAHARAJA WINES WITH CERTAIN DISALLOWA NCES. 5. AGGRIEVED, THE ASSESSEE HAD APPROACHED THE LD.C IT(A) FOR BOTH THE AYS UNDER DISPUTE. AFTER TAKING INTO ACCOUNT THE C ONTENTIONS OF THE ITA NOS. 152 & 153/B/09 PAGE 4 OF 13 ASSESSEE AND ALSO THE REMAND REPORT OF THE AO, THE LD. CIT(A) CAME TO THE CONCLUSION THUS 6.1. IN CASE OF M/S.MAHARAJA WINES AO MADE SIMILA R ADDITIONS WHICH ARE DELETED BY MY ORDER DT: 5.11.2008 BECAUSE ADDITIONS WERE ON PROTECTIVE BASIS AND FIRM WAS NOT LEGALLY C ARRYING ON BUSINESS OF LIQUOR PURCHASE AND SALE SINCE LICENCE WAS HELD BY PRATAP. IT IS CONTENDED BY APPELLANT/AR THAT THE G ENUINITY OF FIRM IS NOT DEPENDING UPON FIRM BEING LEGAL OR ILLEGAL B USINESS AFTER AMENDMENT TO SECTION 184 OF THE ACT W.E.F. AY 93-94 , BUT IN THIS CASE POINT IS NOT GENUINITY OR FIRM AS ARGUED BY AR BUT IT IS QUESTION OF GENUINITY OF FIRM WHETHER ACTUALLY CARR IED ON BUSINESS OR NOT. FROM ASSESSMENT ORDER AND REMAND REPORT IT IS EVIDENT THAT FIRM HAS NOT CARRIED ON ANY BUSINESS EXCEPT MA INTAINING THE BOOKS IN NAME OF M/S.MAHARAJA WINES. BECAUSE AS PER CASE LAWS RELIED UPON BY AO IN ORDER STATED THAT LIQUOR LICEN SE IS NOT TRACEABLE BUT IT IS IN THE NAME OF R.PRATAP. IN KA RNATAKA STATE IT IS AMPLY CLEAR BY RULE 17, 17A, 17B & 18 THAT SUCH LICENSE IS NOT TRANSFERABLE, HENCE, LICENSE IS NOT TRANSFERABLE. IT AUTOMATICALLY MEANS THAT FIRM HAS CARRIED ON A BOGUS BUSINESS AND FOR I.T. PURPOSES CREATED A SEPARATE ENTITY AS A FIRM BUT AC TUALLY BUSINESS IS CARRIED ON BY R.PRATAP. SECONDLY LICENSE HOLDER R.PRATAP IS HAVING ONLY 10% SHARE AND OTHER PERSON IS HAVING 90 % SHARE AND AO HAS NOT FURTHER GONE INTO INVESTMENTS MADE BY TH E PARTNERS TOWARDS CAPITAL. IN SPITE OF THE SAME, STILL FIRM CANNOT CARRY ON LIQUOR BUSINESS WITHOUT LIQUOR LICENSE FROM KARNATA KA STATE GOVERNMENT WHICH IS STANDING IN NAME OF R.PRATAP. THEREFORE, IT IS HELD THAT THOUGH THERE WAS FIRM AS PER SECTION 1 84 OF THE I.T. ACT BUT THERE IS NO GENUINE BUSINESS CARRIED ON BY FIRM , THEREFORE ENTIRE INCOME IS CLUBBED IN HANDS OF R.PRATAP WHO I S LEGALLY LICENSE HOLDER OF LIQUOR BUSINESS AS PER KARNATAKA STATE RULES AND REGULATIONS. THOUGH, STATUS OF FIRM IS NOT AFFECTE D KEEPING IN VIEW OF AMENDED PROVISIONS, BUT, ENTIRE BUSINESS ACTIVIT Y AND INCOME IS CLUBBED IN HANDS OF R. PRATAP ON SUBSTANTIVE BASIS. THEREFORE ADDITION MADE BY AO I.E., INCOME FROM M/S. MAHARAJA WINES OF RS.740770/-, INTEREST PAID TO PARTNERS OF RS.131000 /- AND SALARY PAID TO PARTNERS OF RS.581345/- IS ADDED TO THE INC OME OF R. PRATAP, APPELLANT. 6.2. IT IS ARGUED BY AR THAT ORIGINALLY RETURN WAS FILED DECLARING INCOME OF RS.128000/- BUT REVISED RETURN WAS FILED AFTER SURVEY SHOWING INCOME AT RS.1192500/- WHICH INCLUDES ADDIT IONAL INCOME DECLARED OF RS.10 LAKHS. THEREFORE, INCOME AS PER REVISED RETURN IS ACCEPTED BY AO IS CORRECT. ITA NOS. 152 & 153/B/09 PAGE 5 OF 13 6.3. R.PRATAP HAS DECLARED RS.1 LAKH IN RESPECT O F HIS LIQUOR BUSINESS AT HANGAL BUT SHOWN IN THE RETURN OF INCOM E OF RS.65400/-, THEREFORE ADDITION OF BALANCE AMOUNT OF RS.35500/- DONE BY AO IS HELD AS CORRECT AND ADDITION IS CONFI RMED. LIKEWISE FOR THE AY 04-05, THE CIT(A) HAD VIRTUALLY UPHELD THE ACTION OF THE AO EXCEPT IN RESPECT OF EXPENSES DISALLOWANCE WHERE IN HE HAD RESTRICTED THE DISALLOWANCE TO 1/4 TH AS AGAINST 1/3 RD DISALLOWED BY THE AO. 6. DISILLUSIONED WITH THE STAND OF THE LD.CIT(A), T HE ASSESSEE HAS COME UP WITH THE PRESENT APPEALS. THE LD. A R HAD VEHEMENTLY ARGUED THAT THE LOWER AUTHORITIES HAVE GROSSLY ERRED IN AS SESSING THE FIRMS INCOME IN THE HANDS OF THE ASSESSEE. THE ELABORATE SUBMIS SION OF THE LD. A R IS SUMMARIZED AS UNDER: (I) THE ITO WHO MADE THE ASSESSMENT OF THE ASSESSEE AS WELL AS THE ACIT WHO MADE THE ASSESSMENTS OF THE FIRM HELD THAT THE LICENCE FOR THE BUSINESS OF THE FIRM IS IN THE NAME OF R.PR ATAP AND, HENCE, THE FIRM WAS NOT A GENUINE FIRM. THE ENTIRE INCOME OF THE FIRM WAS ASSESSED BY THE ACIT ON A PROTECTIVE BASIS IN T HE HANDS OF THE FIRM AND THE ITO ON HIS PART ASSESSED THE SAME INCO ME ON A REGULAR BASIS IN THE HANDS OF THE ASSESSEE; - THUS, THE SAME INCOME HAD BEEN ASSESSED TWICE ONC E IN THE HANDS OF THE FIRM AND AGAIN IN THE HANDS OF THE ASS ESSEE; (II) WHILE DECIDING THE ISSUE IN THE CASE OF THE FIRM, T HE CIT(A) HAD ACCEPTED THE CONTENTION OF THE FIRM AND HELD THAT I N LIEU OF AMENDMENT INTRODUCED TO S.184 W.E.F. 1.4.93 AND FOL LOWING THE FINDING OF THE HONBLE TRIBUNAL IN ITA NOS.139 & 18 3/2001 DATED: 30.11.04, THE AO ERRED IN TREATING THE FIRM AS AOP; - IN THE CASE OF THE ASSESSEE, THE CIT(A) HELD THAT T HOUGH THERE WAS A FIRM AS PER S.184 OF THE ACT, THERE WAS NO GE NUINE BUSINESS CARRIED ON BY THE FIRM AND UPHELD THE ACTI ON OF THE AO IN CLUBBING THE ENTIRE INCOME OF THE FIRM IN THE HANDS OF THE ASSESSEE; (III) THE DECISIONS RENDERED BY THE HONBLE SUPREME COURT IN THE CASES OF (I) BIHARILAL JAISWAL V. CIT REPORTED IN 217 IT R 746; & (II) CIT V. RANGILA RAM & OTHERS [245 ITR 23) AND (III) THE HONBLE ITA NOS. 152 & 153/B/09 PAGE 6 OF 13 HIGH COURT OF P & H IN CIT V. HARDIT SINGH PAL CHAN D & CO. [120 ITR 289] RELIED ON BY THE AO DEALT WITH THE PO SITION OF LAW UP-TO THE AY 92-93 AND IS NOT RELEVANT THEREAFTER; (IV) FOR HAVING ACCEPTED THE FIRM IN ITS ENTITY, HIS ACT ION IN TAXING THE INCOME OF THE FIRM IN THE HANDS OF THE ASSESSEE ON THE GROUND THAT THE LICENSE IS HELD BY HIM IS AWFUL; (V) EVEN THE COMMERCIAL TAX DEPARTMENT OF THE STATE HAD ACCEPTED THE EXISTENCE OF THE FIRM AND HAD MADE ASSESSMENTS OF THE FIRM; & (VI) RELY ON THE FINDING OF THE HONBLE TRIBUNAL IN DCIT V. H.E.D BROS. CO. (2005) 1 SOT 881 (BANG) DURING THE COURSE OF HEARING, THE LD. A.R HAD FURN ISHED A VOLUMINOUS PAPER BOOK CONTAINING 1 99 PAGES WHICH CONSIST OF , INTER ALIA, COPIES OF WRITTEN SUBMISSION MADE BEFORE THE CIT(A), PARTNER SHIP DEED, RETURNS OF INCOME OF THE ASSESSEE AND THE FIRM ETC., 7. ON THE OTHER HAND, THE LD. D R WAS EMPHATIC IN H ER RESOLVE THAT THE AO AS WELL AS THE FIRST APPELLATE AUTHORITY HAVE AN ALYZED THE ISSUE IN GREAT DETAIL AND ARRIVED AT A CONCLUSION WITH JUDICIOUS B ACKING WHICH REQUIRES TO BE UPHELD IN TOTO. 8. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT RECORDS AND ALSO THE PAPER BOOK FURNISHED BY THE LD. A.R. THE ACIT, DURING THE COURSE OF ASSESSMENT PROCEEDIN GS IN THE CASE OF MAHARAJA WINES FOR THE ASST. YEARS UNDER DISPUTE FO UND THAT THE ASSESSEE FIRM WAS A WHOLE-SALE LIQUOR DEALER AND THE LICEN CE TO DEAL IN LIQUOR WAS IN THE NAME OF R.PRATAP WHOSE SHARE IN THE PARTNERSHIP WAS 10% WHEREAS THE OTHER PARTNERS WAS 90%. TAKING CUE FROM THE R ULINGS IN THE CASES OF (I) BIHARILAL JAISWAL V. CIT 217 ITR 746 (SC); (II) CIT V. RANGILA RAM & OTHERS 245 ITR 230 (SC) ITA NOS. 152 & 153/B/09 PAGE 7 OF 13 AND REJECTING THE ASSESSEES CONTENTION, THE ASSESS EES STATUS WAS TREATED AS AN AOP WHEREBY THE ASSESSMENTS WERE CONCLUDED ON PROTECTIVE BASIS. 9. ON BEING CHALLENGED THE ACTION OF THE ACIT BY THE ASSESSEE FIRM, THE LD.CIT (A) [IN ITA NO-40/CIT(A)HBL/06-07 DT:5.1 1.2008] [PAGES 89-92 OF THE ASSESSEES PAPERBOOK], AFTER MUCH DELIBERATI ONS, HAD OBSERVED THAT 5.. DISREGARDING THE AMENDMENT AO HAS TREATED STATUS OF FIRM AS AOP WHICH IS CLEAR FROM AMENDMENT AND CASE LAWS QUOTED BY AR, THEREFORE, STATUS IS DIRECTED TO BE ADOPTED AS REGISTERED FIRM . 10. WITH REGARD TO THE INCOME DECLARED DURING SURVEY, IT WAS OBSERVED BY THE CIT (A) THAT 5.2. INCOME DECLARED DURING THE COURSE OF SURVEY : IT IS STATED BY AO THAT DURING COURSE OF SURVEY ON 15/16- 2-05 IN INDIVIDUAL STATUS R.PRATAP HAS VOLUNTARILY DECLARED RS.10 LAKHS IN RE SPECT OF SEIZURE OF NON- DUTY PAID LIQUOR AND RS.1 LAKH IN RESPECT OF LIQUOR SHOP AT HANGAL WHICH IS DISPUTED IN CASE OF FIRM BUT NOT DISPUTED IN CASE O F INDIVIDUAL APPEAL, AS STATED BY AR, THEREBY ACCEPTING IN INDIVIDUAL CAPAC ITY WHICH GOING TO BE A SUBSTANTIAL ADDITION AS AGAINST THE PROTECTIVE ADDI TION IN CASE OF FIRM. THEREFORE, THE ADDITION IN THE CASE OF FIRM IS DIRE CTED TO BE DELETED. 11. TURNING TO THE ISSUE OF THE PRESENT ASSESSEE, THE CIT(A), AFTER DISCUSSING THE ISSUE IN DETAIL, HAD CONCLUDED THAT THE AO WAS JUSTIFIED IN TREATING THE INCOME OF THE FIRM IN THE HANDS OF THE ASSESSEE AND, THUS, UPHELD THE ACTION OF THE AO FOR BOTH THE YEARS UNDE R DISPUTE [THE VERBATIM OF THE CIT(A)S OBSERVATIONS HAS BEEN EXTRACTED AND REPRODUCED IN THE FORE-GOING PARAGRAPH OF THIS ORDER). ITA NOS. 152 & 153/B/09 PAGE 8 OF 13 12. ON A CLOSER READING OF THE RULINGS OF THE HON BLE HIGH COURT, WITH DUE REGARDS, WE QUOTE A LICENSEE COULD NOT BE PERMITTED TO BRING IN STRANGERS INTO THE BUSINESS, WHICH WOULD MEAN THAT INSTEAD OF THE LICENSEE CARRYING ON THE BUSINESS, IT WOULD BE CARRIED ON BY OTHERS-A SITUATION NOT CONDUCIVE TO EFFECTIVE IMPLEMENTATION OF THE EXCISE LAW AND CONSEQUENTLY DELETERIOUS TO PUBLIC INTEREST. FOR THIS VERY REAS ON THE TRANSFER OR SUBLETTING OF THE LICENCE IS UNIFORMLY PROHIBITED BY SEVERAL S TATE EXCISE ENACTMENTS. IT, THEREFORE, FOLLOWS THAT ANY AGREEMENT WHERE-UNDER T HE LICENCE IS TRANSFERRED, SUBLET OR A PARTNERSHIP IS ENTERED INTO WITH RESPEC T TO THE PRIVILEGE/BUSINESS UNDER THE SAID LICENCE, CONTRARY TO THE PROHIBITED BY LAW. (UNQUOTE). ACCORDINGLY, IT WAS HELD THAT THIS NOT BEING A GENU INE AGREEMENT, IT COULD NOT BE REGISTERED UNDER THE INCOME-TAX ACT. 13. LET US HAVE A GLIMPSE OF S.184 ASSESSMENT AS A FIRM [AMENDED BY THE FINANCE ACT, 1992 W.E.F. 1.4.1993]: 184. (1) A FIRM SHALL BE ASSESSED AS A FIRM FOR THE PURP OSES OF THIS ACT, IF- (I) THE PARTNERSHIP IS EVIDENCED BY AN INSTRUMENT; AND (II) THE INDIVIDUAL SHARES OF THE PARTNERS ARE SPECIFIED IN THAT INSTRUMENT. (2) A CERTIFIED COPY OF THE INSTRUMENT OF PARTNERS HIP REFERRED TO IN SUB-SECTION (1) SHALL ACCOMPANY THE RETURN OF INCOME OF TH E FIRM OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR, COMM ENCING ON OR AFTER THE 1 ST DAY OF APRIL 1993, IN RESPECT OF WHICH, ASSESSMENT AS A FIRM IS FIRST SOUGHT. EXPLANATION-FOR THE PURPOSES OF THIS SUB-SECTION, T HE COPY OF THE INSTRUMENT OF PARTNERSHIP SHALL BE CERTIFIED IN WRITING BY ALL THE PARTNERS (NOT BEING MINORS) OR, WHERE THE R ETURN IS MADE AFTER THE DISSOLUTION OF THE FIRM, BY ALL PERS ONS (NOT BEING MINORS) WHO WERE PARTNERS IN THE FIRM IMMEDIA TELY ITA NOS. 152 & 153/B/09 PAGE 9 OF 13 BEFORE ITS DISSOLUTION AND BY THE LEGAL REPRESENTAT IVE OF ANY SUCH PARTNER WHO IS DECEASED. (3) WHERE A FIRM IS ASSESSED AS SUCH FOR ANY ASSESS MENT YEAR, IT SHALL BE ASSESSED IN THE SAME CAPACITY FOR EVERY SUBSEQUENT YEAR, IF THERE IS NO CHANGE IN THE CONSTITUTION OF THE FIRM OR THE SHARES OF THE PARTNERS AS EVIDENCED BY THE INST RUMENT OF PARTNERSHIP ON THE BASIS OF WHICH THE ASSESSMENT AS A FIRM WAS FIRST SOUGHT. .... 14. AN IDENTICAL ISSUE THAT OF THE CASE ON HAND HAD CROPPED UP BEFORE THE JURISDICTIONAL HONBLE TRIBUNAL IN THE CASE OF DCIT V/S. H.E.D. BROS. CO REPORTED IN (2005) 1 SOT 881 (BANG) WHEREIN THE FOL LOWING TWO ISSUES WERE TAKEN UP FOR CONSIDERATION: (I) WHETHER THOUGH IT IS TRUE THAT EVERY ASSESSMENT YEA R INVOLVES SEPARATE ASSESSMENT, YET AS PER PROVISIONS OF SECTI ON 184 ONCE A FIRM IS ASSESSED AS SUCH, SO LONG AS THERE IS NO CH ANGE IN CONSTITUTION OF FIRM, SAME IS REQUIRED TO BE ASSESS ED AS SUCH AND NOT AS AN AOP BECAUSE THERE IS NO PROVISION IN ACT TO TREAT A FIRM AS AN AOP IN A SUBSEQUENT YEAR; & (II) WHETHER FACT THAT ASSESSEE WHO HELD LICENCE IN HIS NAME, HAD NOT OBTAINED APPROVAL FOR TRANSFER OF LICENSE FOR CARRY ING ON ARRACK BUSINESS IN NAME OF FIRM, WOULD AMOUNT TO VIOLATION OF STATE EXCISE ACT AND RULES FRAMED THERE-UNDER, BUT WHERE PROVISIONS OF SECTION 184 WERE COMPLIED WITH, ON APPLICABILITY OF SECTION 184, FIRM WAS TO BE ASSESSED AS SUCH. BRIEF FACTS OF THAT CASE ARE THAT THE ASSESSEE FIRM , CONSISTING OF FOUR PARTNERS ENGAGED IN THE ARRACK VENDING BUSINESS, WA S ASSESSED AS SUCH. HOWEVER, FOR THE AY 1994-95, THE AO, WHILE ANALYZIN G THE PROVISIONS OF KARNATAKA EXCISE ACT, 1965 [EXCISE ACT] ALONG WITH ITS RULES, HELD THAT SINCE THE LICENSE WAS IN THE NAME OF ONE OF ITS PARTNERS AND SINCE THE ASSESSEE- FIRM DID NOT HAVE THE LICENSE, IT HAD VIOLATED THE EXCISE ACT. ACCORDING TO ITA NOS. 152 & 153/B/09 PAGE 10 OF 13 THE AO, SINCE THE ASSESSEE WAS NOT A GENUINE PARTNE RSHIP FIRM, AS PER SECTION 184 OF THE ACT, IT COULD NOT BE CONSIDERED AS FIRM AND NEEDED TO BE ASSESSED AS AN AOP. BEING A PARTIAL RELIEF GOT ON A N APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE HAD APPROACHED TH E TRIBUNAL FOR SOLACE. 15. THE HONBLE TRIBUNAL IN ITS WISDOM HAD OBSERVED THAT THE PROVISION RELATING TO ASSESSMENT OF FIRM HAS U NDERGONE A SUBSTANTIAL CHANGE WITH EFFECT FROM 1.4.1993. THE CONCEPT OF REGISTERED FIRM AND UNREGISTERED FIRM IS DONE AWAY WITH. AS PER THE EARLIER PROVISION OF SECTION184, THE ASSESSEE W AS TO MAKE NECESSARY APPLICATION FOR REGISTRATION OF THE FIRM AND TO CLAIM THE STATUS AS REGISTERED FIRM. AS PER SECTION 185, THE ASSESSING OFFICER, ON AN APPLICATION RECEIVED FOR REGISTRATIO N, WAS TO ENQUIRE INTO GENUINENESS OF THE FIRM AND ITS CONSTI TUTION. HE WAS FURTHER EMPOWERED TO REFUSE REGISTRATION IN CASE HE WAS NOT SATISFIED WITH THE EXISTENCE OF A GENUINE FIRM. IN THE CURRENT SCHEME OF THE ACT, WITH EFFECT FROM THE ASSESSMENT YEAR 1993-94 ONWARDS, NO POWER IS AVAILABLE TO THE ASSESSING OFF ICER TO VERIFY THE GENUINENESS OF THE FIRM. ALL WHAT IS REQUIRED UNDER SECTION 184, TO CLAIM THE STATUS OF FIRM AS SUCH, IS TO FIL E A COPY OF PARTNERSHIP DEED SPECIFYING THE INDIVIDUAL SHARE OF PARTNERS THEREIN. ONCE THE CERTIFIED COPY OF PARTNERSHIP DE ED IS FILED ALONG WITH RETURN OF INCOME IN RESPECT OF WHICH THE ASSESSMENT AS A FIRM IS FIRST SOUGHT, THE FIRM IS TO BE ASSESSED AS SUCH AND NOT AS AN AOP, UNLESS IN THE CIRCUMSTANCES MENTIONED IN SE CTION 185 (SIC). THE POWER TO VERIFY THE GENUINENESS OF THE FIRM IS NOWHERE AVAILABLE TO THE ASSESSING OFFICER. THEREFORE, IN THE INSTANT CASE, SINCE THE PROVISION OF SECTION 184 WAS COMPLIED WIT H, THE FIRM WAS TO BE ASSESSED AS SUCH. IT WAS ALSO AN ACCEPTE D FACT THAT FOR THE ASSESSMENT YEARS 1992-93 AND 1993-94 THE FIRM W AS ASSESSED AS SUCH AND, ACCORDINGLY, THE FIRM WAS FOUND TO BE GENUINE FIRM. THOUGH IT IS TRUE THAT EVERY ASSESSMENT YEAR INVOLV ES SEPARATE ASSESSMENT, YET, AS PER THE PROVISIONS OF SECTION 1 84, ONCE THE FIRM IS ASSESSED AS SUCH, SO LONG AS THERE IS NO CH ANGE IN THE CONSTITUTION OF THE FIRM, THE FIRM IS REQUIRED TO B E ASSESSED AS SUCH AND NOT AS AN AOP. THERE IS NO PROVISION IN T HE ACT TO TREAT THE FIRM AS AN AOP IN A SUBSEQUENT YEAR. THE ASSES SING OFFICER WAS, ACCORDINGLY, DIRECTED TO ASSESS THE FIRM AS SU CH FOR THE ENTIRE FINANCIAL YEAR IRRESPECTIVE OF THE TERMS OF LICENSE. THOUGH IT WAS NOT CORRECT TO SAY THAT THE KARNATAKA EXCISE RULES DID NOT SPECIFICALLY PROHIBIT CARRYING ON BUSINESS BY THE F IRM UNLIKE ITA NOS. 152 & 153/B/09 PAGE 11 OF 13 MADHYA PRADESH ACT, SO LONG AS THE ASSESSEE HAD NOT OBTAINED THE APPROVAL FOR TRANSFER OF LICENSE FOR CARRYING O N THE BUSINESS IN THE NAME OF FIRM, IT WOULD AMOUNT TO VIOLATION O F STATE EXCISE ACT AND RULES FRAMED THERE-UNDER. HOWEVER, ON APPL ICABILITY OF SECTION 184, THE FIRM WAS TO BE ASSESSED AS SUCH. CONSEQUENTLY, THE INTEREST AND REMUNERATION PAYABLE TO PARTNERS W AS TO BE ALLOWED. ON A PERUSAL OF THE IMPUGNED ORDER OF THE CIT(A), W E FIND THAT ON PARA 6.1. THE CIT(A) HAD MENTIONED THAT FROM ASSESSMENT ORDER AND REMAND REPORT IT IS EVIDENT THAT FIRM HAS NOT CARRIED ON ANY BUSI NESS EXCEPT MAINTAINING THE BOOKS IN NAME OF M/S.MAHARAJA WINES. AO IN ORDER S TATED THAT LIQUOR LICENSE IS NOT TRACEABLE BUT IT IS IN THE NAME OF R .PRATAP. IN KARNATAKA STATE IT IS AMPLY CLEAR BY RULE 17, 17A, 17B & 18 THAT SU CH LICENSE IS NOT TRANSFERABLE, HENCE, LICENSE IS NOT TRANSFERABLE. IT AUTOMATICALLY MEANS THAT FIRM HAS CARRIED ON A BOGUS BUSINESS AND FOR I.T. P URPOSES CREATED A SEPARATE ENTITY AS A FIRM BUT ACTUALLY BUSINESS IS CARRIED ON BY R PRATAP. HOWEVER, THE AO HAD NOT TERMED THE FIRMS BUSINESS AS BOGUS AS CLAIMED BY THE CIT(A). IN FACT, THE ACIT WHO CONCLUDED THE ASSESSMENT IN THE CASE OF FIRM (PAGE 65 OF PAPER BOOK) HAD STATED THAT THE EXCISE LICENSE IS IN THE NAME OF R.PRATAP AND THE ASSESSMENT REQUIRES TO BE DONE IN THE INDIVIDUAL STATUS OF R PRATAP. AS THE RETURN OF INCOME IS FIL ED IN THE STATUS OF RF THE ASSESSMENT IS COMPLETED ON PROTECTIVE MEASURE IN TH E STATUS OF AOP TO DISPOSE OFF THE RETURN OF INCOME REJECTING THE CLAI M OF RF HENCE, WE ARE IN TOTAL DISAGREEMENT WITH THE ASSERTION OF THE CIT(A) ON THIS COUNT. 16. IN AN OVERALL CONSIDERATION OF THE FACTS AND CI RCUMSTANCES OF THE ISSUE AS DISCUSSED IN THE FORE-GOING PARAGRAPHS AND ALSO IN CONFORMITY WITH ITA NOS. 152 & 153/B/09 PAGE 12 OF 13 THE FINDING OF THE JURISDICTIONAL TRIBUNAL REFERRED SUPRA, WE ARE OF THE UNANIMOUS VIEW THAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED TO (I) INCLUDE THE INCOME OF MAHARAJA WINES PARTNERS HIP FIRM - IN THE HANDS OF THE ASSESSEE FOR BOTH THE YEARS UNDER DISPUTE; (II) SINCE THE INCOME OF THE FIRM CANNOT BE ASSESSE D IN THE HANDS OF THE ASSESSEE, THE QUESTION OF ALLOWABILITY OR OTHERWISE OF THE SALARY AND INTEREST PAYMENT TO THE PARTNER OF THE FIRM DOES NOT ARISE IN THE PRESENT DISPUTE; (III) WITH REGARD TO 1/4 TH OF DISALLOWANCE OF EXPENSES TOWARDS CARRIAGE OUTWARDS, THERE WERE NO CLAIMS OF SUCH E XPENSES IN THE COMPUTATION OF INCOME OF THE ASSESSEE AS IND IVIDUAL (PAGES 2 8 OF PB) FOR BOTH THE AYS UNDER DISPUTE. PRESUMING THAT IT PERTAIN TO THE FIRM, NO FINDING I S HANDED OUT AS THE ISSUE BEFORE US IS IN THE CASE OF INDIVI DUAL; A.Y 2004-05: 17. THE ASSESSEE HAS RAISED A GROUND THAT THE CIT A ) ERRED IN DIRECTING THE AO TO ADOPT RS.2 LAKHS IN RESPECT OF INTEREST A S AGAINST RS.90000/- INCOME DECLARED BY THE ASSESSEE WITHOUT GIVING AN O PPORTUNITY AS IT AMOUNTED TO ENHANCEMENT OF INCOME. 18. ON A PERUSAL OF THE IMPUGNED ORDER OF THE CIT( A), WE ARE UNABLE TO FIND OUT THE REASON FOR SUCH A DIRECTION. HOWEVER, WE FIND THAT THE ASSESSEE HAS SUBMITTED AN APPLICATION U/S 154 OF TH E ACT ON 26/3/2009 BEFORE THE CIT(A) FOR RECTIFICATION OF THE APPELLAT E ORDER FOR AY 04-05 [PAGE 46 OF PB] WHICH IS, PERHAPS, STILL PENDING FOR DIS POSAL. SINCE THE MATTER IS STILL PENDING AT THE LEVEL OF THE CIT(A), THIS GROU ND DOESNT SURVIVE FOR ADJUDICATION, AS THE ISSUE RAISED IS PRE-MATURE. H OWEVER, THE CIT (A) SHALL DISPOSE OFF OF THE APPLICATION OF THE ASSESSEE EXPE DITIOUSLY. ITA NOS. 152 & 153/B/09 PAGE 13 OF 13 19. IN THE RESULT THE ASSESSEES APPEAL FOR THE A Y 2003-04 AND 2004- 05 ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF NOVEMBER, 2009. SD/- SD/- (GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 13 TH NOVEMBER, 2009. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.