IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 30TH DAY OF JANUARY 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HONBLE MR. JUSTICE RAVI V.HOSMANI I.T.A. NO.321 OF 2010 BETWEEN: M/S. SRI. VENKATESHA BOTTLES KESHAVAPUR EXTNSION, OLD TOWN BHADRAVATHI 577301 SHIMOGA DISTRICT, PAN:ABBFS7539C REPRESENTED BY ITS PARTNER SRI. K. NAGESHAM AGED ABOUT 62 YEARS S/O SRI. NAGAIAH. ... APPELLANT (By Sri. S. PARTHASARATHI, ADV.) AND: ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2(2), ROOM NO.6 CENTRAL REVENUE BUILDING (ANNEXE) No.1, QUEEN S ROAD BANGALORE-560001. ... RESPONDENT (By Sri. K.V. ARAVIND, ADV.) --- THIS I.T.A IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 30-12-2009 2 PASSED IN IT(SS)A NOS.60 & 61/BANG/2008, FOR BLOCK PERIOD 1/4/1990 TO 18/1/2001, PRAYING TO FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. ALLOW APPEAL AND SET ASIDE ORDER PASSED BY ITAT BANGALORE BENCH B , BANGALORE IN IT(SS)A NOS.60 & 61/BANG/2008 DATED 30/12/2009 TO EXTENT URGED IN ABOVE APPEAL IN INTEREST OF JUSTICE AND EQUITY. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act , for short) has been preferred by assessee, which was admitted by bench of this court vide order dated 08.11.2010 on following substantial questions of law: (i) Whether Tribunal was justified in upholding validity of assessment passed under Section 158BD read with Section 143(3) of Act in absence of valid satisfaction recorded by assessing officer after application of his mind on materials gathered in course of search of partner of appellant firm? (ii) Whether Tribunal was justified in surmising that alleged undisclosed 3 income from transaction of used empty bottles belonged to Appellant firm and whether finding in this regard was not perverse and unsupported by evidence? (iii) Whether Tribunal was justified in surmising that document found in partner s premises refers to entity with 9 shares belonged to appellant firm which has only 5 partners to justify impugned addition? (iv) When appellant having complied with provisions of Section 184 of Act, can appellant be assessed in status of AOP? (v) Whether while computing undisclosed income, tribunal was justified in upholding estimate of undisclosed income in assessment years fallen within block period when actual statement found related only to excise period from 01.08.1998 to 31/07.1999 and while doing so, Tribunal was justified in not allowing deduction of payments made to 4 persons than five partners of appellant? 4 (vi) Whether Tribunal was justified in upholding levy of interest under Section 158BFA(1) of Act by passing order under Section 154 of Act? (vii) Whether impugned order and demand notice under Section 154 of Act amending order of assessment under Section 143(3) read with Section 158BD being not in name of appellant was sustainable? 2. Facts giving rise to filing of appeal briefly stated are that appellant is partnership firm engaged in business of buying and selling empty liquor bottles. It is case of assessee that partnership firm comprises five partners as per partnership deed dated 16.08.1996 and in which one of partner viz., G.T.Krishna Murthy has 10% share. search was conducted on HET GROUP in Shimoga on 18.01.2001. search was also conducted on premises of aforesaid G.T.Krishna Murthy, from where one of documents was seized and panchanama was prepared. aforesaid document as per revenue contains details with regard to sales, gross profit, net 5 profit of appellant and share of profit of G.T.Krishna Murthy at rate of 9/105 pertaining to excise accounting year ending 31.01.1997, 31.07.1998 and 31.07.1999. statement of G.T.Krishnmurthy was also recorded on 14.03.2009 and it is case of assessee that on basis of aforesaid statement, notice under Section 158BD of Act was issued to appellant on 10.02.2003, to proceed under Section 158BC of Act. 3. appellant furnished NIL return on basis of commercial tax returns showing retail trade business on 17.10.2003. Notices under Section 142 as well as Section 143(2) dated 07.10.2003 and 25.11.2003 respectively were also served by Assessing Officer. Assessing Officer proposed to determine appellants income with help of seized material. On 22.01.2004, Assessing Officer sent questionnaire to persons who were alleged to be sharing profits of firm. In response to aforesaid questionnaire, appellant stated that persons named by G.T.Krishna Murthy were not even aware of name of firm and filed affidavit to that effect. Assessing 6 Officer made assessment of appellant s total income under Section 158BD read with Section 143(3) of Act for block period by proportionately determining appellant s income by order dated 28.02.2005, on basis of income of G.T.Krishna Murthy. Thereafter, Assessing Officer issued notice dated 04.1.2006 under Section 154 of Act proposing to levy interest under Section 158BFA(i), which was omitted to be charged in order of assessment. By order dated 24.01.2006, Assessing Officer charged interest under Section 158BFA(i) vide order under Section 154 of Act for block period in name of M/s Venkateshwara Bottles. 4. Being aggrieved, appellant preferred appeals before Commissioner of Income Tax (Appeals), which were disposed of by orders dated 26.05.2008. Being aggrieved, revenue filed appeals before Income Tax Appellate Tribunal (hereinafter referred to as tribunal for short). appellate tribunal has allowed appeal preferred by revenue. In aforesaid factual background, this appeal has been filed. 7 5. Learned counsel for appellant submitted that warrant was issued against G.T.Krishna Murthy and his residence was searched. However, no satisfaction has been recorded for initiating proceedings under Section 158BC of Act against aforesaid G.T.Krishna Murthy. It is further submitted that aforesaid provision is held to be mandatory by Supreme Court in case of COMMISISONER OF INCOME TAX-III VS. CALCUTTA KNITWEARS , (2014) 362 ITR 0673 (SC) and recording of satisfaction note is prerequisite for purpose of Section 158BD of Act. In this connection, reference has been made to Circular No.24/2015 dated 31.12.2015. It is pointed out that appellant is firm with five partners and if return is not filed, Assessing Officer should have invoked Section 147 of Act. It is also pointed out that G.T.Krishna Murthy was sleeping partner in firm. It is also submitted that appellant has been treated to be association of persons, whereas, appellant which is firm is altogether different entity from association of persons and income of firm cannot be clubbed with income of association of persons. It is submitted that all 8 four persons whose name do not appear in partnership deed have filed affidavits stating that they are not partners in firm. It is also submitted that fresh notice should have been given when assessment was being made in respect of association of persons. finding recorded by Income Tax Appellate Tribunal that assessee has been indulging in two types of businesses in same line and parallel business was being carried out clandestinely with active participation of four other persons is based on surmises and conjectures and association of person cannot be treated as firm. 6. On other hand, learned counsel for revenue has submitted that aforesaid G.T.Krishna Murthy in his statement has admitted that he is partner in M/s Venkateshwara Bottles. Our attention has also been invited to statement of G.T.Krishamurthy in support of submission that four persons viz., Mallikarjuna, H.V.S., Vijay Kumar Shetty and Kareem Sab were being paid profits. aforesaid witness has further stated that he does not know as to why profits of firm were being given to 9 them. Learned counsel for revenue has also invited our attention to trial balance sheet, in which names of aforesaid persons have been mentioned and percentage of profits have been shown. It is also pointed out that in statement, G.T.Krishna Murthy has not stated that there is another partnership firm, which is carrying on same business with nine partners. It is also pointed out that requirement contained in Section 184 of Act has not been complied with and therefore, appellant cannot be treated as firm and rightly been treated as Association of persons. 7. We have considered submissions made by learned counsel for parties and have perused record. Circular dated 31.12.2015 clearly provides that satisfaction note has to be prepared by Assessing Officer in respect of such other person under Section 158BD of Act. It has further been clarified that even if Assessing Officer finds that searched person and other person is one and same then also he is required to record his satisfaction. Assessing Officer in instant case, has recorded satisfaction note, which reads as under: 10 BLOCK ASSESSMENT (158 BD) M/s Sri.Venkatesha Bottles Keshavapur Extension Old Town Bhadravathi 10.02.2003 Search under Section 132 was carried out in HED Group of cases, Shimoga on 18.01.2001. During course of search, Exhibit No.A/GTK/1 was seized from residence of Mr.G.T.Krishna Murthy. This contained share of profit earned by Mr.G.T.Krishna Murthy as partner in firm M/s Sree Venkatesha /Bottles. As on date of search, no returns of income were filed by this firm for any of years. This firm is involved in purchase and sale of used bottles. Mr.Krishna Murthy s share of profit is 9/105. Mr.G.T.Krishna Murthy profit for various yeas is recorded in page No.9 of A/GTK/1, and accounting years is as per excise accounting years i.e., August to July. Based on this, profit of M/s Sree Venkatesha Bottles is worked out as follows: 11 Profit of Year Profit of M/s Sree Ending G.T.Krishna Murthy Venkatesha Bottles 31.07.97 94,329 11,00,015 31.07.98 85, 887 10,02,015 31.07.99 1,32,600 15,47,000 Total 36,49,520 Mr.G.T.Krishna Murthy also admittd this fact under oath in statement recorded during search. In order to bring this amount to tax, Notice under Section 158BC read with Section 158BD is issued. This case has been notified to this circle by Commissioner of Income-Tax, Davanagere vide order No.F.No.Jurs/CIT/DVG/2001-02 dated 18.02.2001 from Ito, Ward-3, Shimoga. 8. Thus, from perusal of aforesaid satisfaction note, it is evident that satisfaction note has been recorded in respect of appellant and profit of G.T.Krishna Murthy as well as profit of M/s Sree Venkatesha Bottles has also been worked out. Therefore, we are satisfied that requirement as laid down by decision of Supreme Court in case of Calcutta Knitwears Supra as well as Circular dated 31.12.2015 issued by Central 12 Board of Direct Taxes has been complied with. In result, substantial question of law No.(i) framed by this court is answered in favour of revenue and against assessee. 9. From perusal of statement of G.T.Krishna Murthy, it is evident that he is partner in M/s Venkateshwara Bottles and he has affirmed that he has share of 9% out of 105%. From perusal of statement of aforesaid G.T.Krishna Murthy, it is also evident that when he was confronted with document seized during course of search, he admitted that he is not aware as to why shares are given to Mallikarjuna, H.V.S., Vijay Kumar Shetty and Kareem Sab. aforesaid witness in his evidence has not stated that there is another partnership firm with nine partners, which deals in same business. From trial balance sheets of appellant s firm, it is evident that aforesaid persons names have been reflected and their percentage of profit has also been shown. On basis of trial balance sheet seized during search operation, tribunal has recorded finding that names of all nine partners including five partners of assessee firm 13 appear therein, which goes to prove beyond any shadow of doubt that assessee firm has been indulging in two types of business in same line and parallel business was being carried out clandestinely with active participation of four other persons. aforesaid finding is finding of fact which has been recorded by Income Tax Appellate Tribunal on basis of meticulous appreciation of material on record. Therefore, substantial question of law Nos.(ii), (iii) and (viii) are answered against assessee and in favour of revenue. 10. Section 184 of Act deals with assessment as firm. Section 184(1) provides that firm shall be assessed as firm for purposes of this Act if partnership is evidenced by instrument and individual shares of partners are specified in that instrument. In instant case, even though, in registered partnership firm though names of five partners appear yet, in fact, there are nine partners. Therefore, in fact situation of case, provisions of Section 184 of Act do not apply. In result, substantial question of law No.(iv) is answered against assessee. 14 11. Since, it has been specific case of appellant that appellant is partnership firm comprising of five partners, therefore, in view of stand taken by appellant himself, substantial question of law No.(v) does not arise for consideration in this appeal. Accordingly, same is answered. This court has upheld validity of order of assessment passed under Section 158BD read with Section 143(3) of Act, we hold that Assessing Officer was justified in levying interest under Section 158BFA(1) of Act. Accordingly, substantial question of law No.(vi) is answered in affirmative and against assessee. In view of preceding analysis, we do not find any merit in this appeal. same fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE SS Sri. Venkatesha Bottles v. Asst. Commissioner of Income-tax Central Circle 2(2), Bangalore