COMMISSIONER OF INCOME-TAX Vs. AGRAWAL REFRIGERATION

JUDGEMENT

(1.) These are two connected applications under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), in respect of the assessment years 1985-84 and 1984-85. The common question proposed in these applications is as under : "Whether in law and on the facts of the case in granting registration to the firm which was wrong and prejudicial to the interests of the Revenue, the Income-tax Appellate Tribunal was correct in cancelling the order of the Commissioner of Income-tax passed under Section 263 of the Income-tax Act, 1961 ?"

(2.) We have heard learned standing counsel for the Revenue. In our opinion, the applications are devoid of any merit and are liable to be rejected.

(3.) Briefly, the facts leading to the filing of these applications are that Messrs. Agrawal Refrigeration, Jhansi, respondent-assessee, is a partnership firm. Initially, the assessments for the two years in question were made in the status of a registered firm. The Commissioner of Income-tax initiated proceedings under Section 263 of the Act and cancelled the assessments directing the Income-tax Officer to make fresh assessments in the status of an unregistered firm. On appeal, the order of the Commissioner of Income-tax was set aside. Registration of the firm had been cancelled by the Commissioner of Income-tax on the sole ground that the profits were not allocated amongst the partners in the share ratio as provided in the instrument of partnership. Up to the assessment year 1982-83, the assessee was throughout assessed in the status of a registered firm. In the previous year relevant to the assessment year 1983-84, there was a change in the constitution of the firm when a fresh deed of partnership was drawn up which provided for apportioning of profit or loss in the ratio of 40 : 20 : 40 but the profits were actually allocated equally (one-third each) among the partners. The Tribunal accepted the explanation of the assessee that the omission to divide the profits in accordance with the terms of the partnership deed, was because of the inadvertent fault of the accountant. It was pointed out that prior to the change in the constitution of the firm each of the three partners had a one-third share in the profit or loss of the business carried on by the firm. It was under that erroneous impression that the accountant divided the profits incorrectly omitting to take into account that there was a change in the share ratio in which the profits were to be allocated. The Tribunal found that after the error in allocation of profit was noticed, the same was corrected by reallocating the profits and dividing the same in terms of the instrument of partnership. The firm was held to be a genuine firm. In accepting the case that for a clerical mistake, the assessee cannot be denied the benefit of registration, the Income-tax Appellate Tribunal relied upon a Division Bench decision of this court in Gurudeo Prasad Jagannath Prasad v. ITO [1981] 131 ITR 486, where the view expressed is that registration cannot be refused or cancelled on the ground of improper allocation of shares if it had been made due to an omission, inadvertence or mistake. The said decision of this court, in turn, is based on an earlier decision of this court in CIT v. Hari Ram Khanna [1979] 116 ITR 886. To the same effect is another decision of this court in Addl. CIT v. Mardan Khan Rafiq Ahmad Khan [1978] 115 ITR 559.