Law:

Section:

Section 185 of the Income-tax Act, 1961 [Corresponding to section 26A of Indian Income-tax Act, 1922] – Firm – Position prior to 1-4-1993 – Assessment year 1959-60 – Assessee firm applied for registration – Tribunal found that whereabouts of partners were not known; that firm had maintained three sets of accounts and there was difference of in figures of purchases and sales in various sets; that there was great difference between income returned and income finally determined and that concealed part of profits was not proved to have been distributed among partners – Tribunal accordingly held that firm was not genuine and, therefore, no registration could be granted to it – Whether no question of law arose from Tribunal's order - Held, yes FACTS The assessee firm filed application for registration of the firm. The ITO required the firm to produce all its partners, but it was stated before the ITO that the present whereabouts of all the partners were not known. During the course of the assessment proceedings, one partner appeared before the ITO, in his capacity as a complainant, and stated that the firm was engaged in suppression of sales and evasion of income-tax and sales-tax. The ITO found that the firm had maintained three different sets of accounts, and the purchases and sales were recorded at different figures in said sets. There was great difference between the income returned and the income finally determined. The firm had filed copies of the accounts of the partners along with the return of income, but no profit was shown to have been credited in the account of any partner. Considering the fact that the firm had not distributed concealed income amongst the partners in their profit-sharing ratio, the ITO held that the terms of the deed of partnership were not acted upon. He further held that the accounts had not been closed in accordance with the terms of the partnership deed. He also observed that the total in the books were intentionally done wrongly. He even observed that this was a fit case for launching prosecution. Finally, he held that the firm was not genuinely constituted and was not entitled to registration. On appeal, the AAC held that the ITO…

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