DOSHI VASTRALAYA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) PURSUANT to the order dt. 6th Aug., 1988, made by this Court in Misc. Civil Case No. 303 of 1985 [reported as Doshi Vastralaya vs. CIT (1988) 73 CTR (MP) 100 : (1989) 175 ITR 309 (MP)], the Tribunal, Indore Bench, Indore, has under S. 256(2) of the IT Act, 1961, (for short, "The Act"), referred the following question of law to this Court for its opinion :

(2.) IN short, the facts material for the purpose of this reference are as follows: The assessee is a partnership firm and as per partnership deed the shares of the partners were specified as under : On 24th Oct., 1978, the assessee filed an application on Form No. 11 along with the deed of partnership for registration of the firm for the asst. year 1979 80. The ITO noticed that the profits were distributed between the partners in equal proportion not in conformity with the deed of partnership. He, therefore, held that no genuine firm has come into existence in conformity with the terms and conditions of the instrument of partnership. He, therefore, vide his order dt. 7th Dec., 1981, refused to grant registration. The assessee went in appeal before the AAC who, however, upheld the decision of the ITO, vide his order dt. 23rd April, 1983. The assessee then came up in the second appeal before the Tribunal. The Tribunal also endorsed the aforesaid two orders and dismissed the appeal (vide order dt. 29th April, 1985). On an application made by the assessee under S. 256(2) of the Act, this Court on 6th Aug., 1988 (supra), directed the Tribunal to state the case and refer the aforesaid question of law for its opinion, hence this reference.

(3.) IN the instant case, the ITO and also the two appellate authorities have held that the firm was not genuine because there was a mistake in the matter of distribution of profits. The mistake, however, appeared to be bona fide inasmuch as it was rectified on 15th Nov., 1982, by making an adjustment entry. We find that the Tribunal did not accept the situation as mistake as a result of repetition of mistakes. In our view, this was not the correct approach. The fact remains that the assessee immediately on discovery of the mistake has properly corrected the mistake from the period it had occurred. There is no material on record to infer that the different allocation of share inconsistent with the terms of the partnership deed was made for some ulterior motive.