Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in allowing registration to the assessee-firm for the asst. yr. 1972-73 ?

High Court Of Delhi

CIT vs. Organisation Of Chemicals & The Entire Delhi

Sections 185

Asst. Year 1972-73

Arijit Pasayat, C.J. & D.K. Jain, J.

IT Ref. No. 281 of 1979

6th September, 2000

Counsel Appeared

Sanjeev Khanna with Ajay Jha, for the Revenue : None, for the Assessee



At the instance of the Revenue, the following question has been referred by the Tribunal, Delhi Bench C (in short “the Tribunal”), under s. 256(1) of the IT Act, 1961 (in short “the Act”), for the opinion of this Court :

“Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in allowing registration to the assessee-firm for the asst. yr. 1972-73 ?”

2. The factual position which is almost undisputed is as follows : The assessee, a partnership firm, applied for registration for the concerned assessment year, i.e., 1972-73, relevant to the accounting period ending on 30th June, 1971. The partnership was based on a partnership deed dt. 16th July, 1970, effective from 1st July, 1970. Under the deed, the profit/loss sharing ration of the partners was as follows : Name of the partner Share of profit/loss Relationship Shri Akhil Kr. Rastogi 25/80 Son Shri Deep Kr. Rastogi 25/80 Son Smt. Chandrakanta Devi Rastogi 25/80 Mother Shri Mahesh Kr. Rastogi 5/80 Son Prior to 1st July,1970, there was a differently constituted firm which was allowed registration. The AO noticed that as per copies of the capital accounts of the partners submitted, the profits had been distributed equally amongst all partners. He, therefore, refused registration on the ground that the profits of the firm had not been distributed as specified in the partnership deed. The matter was carried in appeal before the AAC, who affirmed the conclusions of the AO. Before the Tribunal, the assessee’s stand was that at the time of filing returns no profit was credited in the books of account so far as the partners’ capital accounts are concerned. In the profit and loss account, profit of the firm had been arrived at but while preparing the balance-sheet, profit was wrongly allocated as per the constitution of the firm which existed prior to 1st July, 1970, due to clerical error. There was as such no crediting of profit of the year to the accounts of the partners in the books of account of the relevant year. This wrong allocation was made only in the statement of accounts submitted for assessment. On being aware of the clerical error, the assessee credited the shares of profits in the books of account in terms of the partnership deed. The Tribunal accepted the assessee’s claim for registration. On being moved, the Tribunal referred the question as stated above.

3. The Tribunal has recorded a finding that no sooner the error came to the notice of the assessee than the position was rectified. In fact the assessee explained how the error came about. In the partnership that was constituted prior to 1st July, 1970, the partners had equal shares and that is how the allocation was incorrectly made for the relevant assessment year. The explanation was found to be plausible and it was held that there being no doubt about the genuineness of the firm, it would be entitled to registration. It has to be noted that the position was rectified much before the assessment was completed and previous allocation shall be deemed to be substituted by the correction. On the facts found by the Tribunal the conclusions arrived at by it are in order. We answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue.

The petitioner stands disposed of.

[Citation : 247 ITR 721]

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