Sabyasachi Mukharji, J. - (1.) The assessee is M/s. Lalit Trading Corporation. It was claimed to be a partnership irm constituted of Smt. Indira Rani Poddar and Smt. Sarada Devi Poddar, being the two major partners, and three minors who had been shown to have been admitted to the benefits of the partnership. The two major partners are related as mother-in law and daughter-in-law whereas the three minors are grandsons of Smt. Indira Rani Poddar. The firm was said to have been constituted by an instrument of partnership dated 27th April, 1957, with effect from 1st January, 1957. The assessment year involved in this reference is 1959-60, for which the relevant accounting year is the year commencing from 27th July, 1957, and ending on 30th June, 1958. For the immediately preceding assessment year, viz., the assessment year 1958-59, which was the first year of assessment, the assessee had filed an application for registration under Section 26A of the Indian I.T. Act, 1922, on the 27th June, 1957. The assessee had also filed a return showing " nil " income for the assessment year 1958-59. During the course of assessment proceeding for that year, the authorised representative of the assessee filed a letter dated 7th September, 1962, in which it was stated that no business was done during the period from 1st January, 1957, to 25th July, 1957, and, therefore, a " nil " return of income was filed. It was further brought to the notice of the ITO that the business had actually commenced on the 26th July, 1957, and the books of accounts were closed for the first time on 30th June, 1958, which accounting year was relevant to the assessment year 1959-60, and for which a return of income was also made.
(2.) The ITO on these facts found that the very first year of business of the assessee was for the assessment year 1959-60, and for that assessment year the assessee had filed an application for renewal of registration on 29th June, 1959. However, when pointed out by the ITO that for the assessment year 1959-60, an application for registration under Section 26A of the Indian I.T. Act, 1922, should have been filed, the assessee actually filed the said application for registration on 31st December, 1963. It was clear that the assessee had not filed any application for registration under Section 26A of the Indian I.T. Act, 1922, for the assessment year 1959-60, during the accounting year which was 26th July, 1957, to 30th June, 1958. According to the ITO, therefore, the registration application under Section 26A was belated and could not be entertained in the absence of satisfactory explanation for the delay. The ITO, therefore, considered the various factors and found that one of the lady partners, Smt. Indira Rani Poddar, was the mother-in-law, and the other lady partner, Smt. Sarada Devi Poddar, was the daughter-in-law and the three minors were grandsons of Smt. Indira Rani Poddar, who were admitted to the benefits of the so-called partnership. According to the ITO, the scrutiny of the books of account showed that the entire business was managed and looked after by M/s. K. L. Poddar & Sons Pvt. Ltd. In the above concern, Biswanath Poddar and Kashi Prosad Poddar were directors and they were the two sons of Smt. Indira Rani Poddar, partner of this alleged firm. One of the minors, Lalit Kumar Poddar, was the son of Sri Biswanath Poddar and 1he other minor, Sri Vikram, was the son of Sri Kashi Prosad Poddar and the third minor, Sri Bharat Kumar, was the son of Sri Ram Niwas Poddar who was the first son of Smt. Indira Rani Poddar. Scrutiny of the books of accounts further showed that the entire purchases were made from M/s. Martin and Mining & Minerals Pvt. Ltd. of Bangalore. In this concern also, Sri Kashi Prosad Poddar was a director. The assessee could not produce a single original voucher from the above company showing that the purchases were made from them. The assessee's firm had got a bank account in the State Bank of Mysore. These accounts were operated by Smt. Indira Rani Poddar and Smt. Sarada Rani Poddar as per the letter of the bank dated 29th November, 1963. Scrutiny of the bank account showed that during the entire accounting year, there were six transactions only in this bank account; of these five transactions were small and negligible. The only transaction worthy of notice was the credit of Rs. 1,47,377.54 deposited on the 4th October, 1957, as sale proceeds realised from Hind Mercantile Pvt. Ltd., Madras. On the same date, the amount was transferred to M/s. K.L. Poddar & Sons Pvt. Ltd. Therefore, according to the ITO, it was clear that the bank account was created only as an eyewash in order to create evidence that the partners were carrying on business. The ITO further held that the application was belated. The firm consisted of ladies and minors who lacked the requisite knowledge of carrying on an intricate and complicated manganese ore business which was mostly exported to foreign market with a little use in local steel industries. All the purchases and sales were actually conducted by M/s. K.L. Poddar & Sons Pvt. Ltd. in which the husbands or parents of the partners were vitally interested. The above bank account in the Bank of Mysore did not show any transaction being done in the course of the day to day business except one or two stray transactions relating to the business. In reply to the queries made by the ITO, the assessee stated that the partners consulted the guardians of the minor beneficiaries and agreed to carry on the business. The lady partners thus consulted their husbands and other relatives and decided to start the business. Further, the partners carried on the partnership business, according to the assessee, with the help of their assistants and the transactions of the bank were made as and when these were necessary. The ITO, therefore, refused registration of the firm for the year 1959-60.
(3.) Being aggrieved by the said decision of the ITO, the assessee preferred an appeal before the AAC. The AAC was of the view that the delay should be condoned. But the AAC accepted the other finding of the ITO and referred to the facts mentioned by the ITO. He further mentioned that the ladies and the minors lacked the requisite knowledge for carrying on the intricate and complicated business of manganese ore exportation and they could not have canied on this business. He further observed that all the purchases and sales were effected through M/s. K.L. Poddar & Sons Pvt. Ltd. and the fact that the purchase price was paid by M/s. K.L. Poddar & Sons Pvt. Ltd. and the sale price was also received by M/s. K.L. Poddar & Sons Pvt. Ltd. indicated that it was M/s. K.L. Poddar & Sons Pvt. Ltd. who were really carrying on the business. The AAC, further, held that it was clear that the partners never took any active part in the business as such, excepting signing some correspondence or cheques, etc., on some occasions. It was also noteworthy that the business was stated to be carried on at Bangalore in Mysore State while the two partners were housewives living at Calcutta with their husbands. It was also not out of place to mention that one of the limited companies, M/s. K.L. Poddar & Sons Pvt. Ltd., which is practically a family concern of M/s. Kissenlal and his sons was also doing the same manganese business at Bangalore on a vast scale. The AAC further observed, inter alia, as follows : " It also appears that the purchases are made from the same parties who were supplying Manganese Ore to M/s. K.L. Poddar & Sons Pvt. Ltd. including M/s. Poddar Martin Mining & Minerals Ltd., which is also one of the family concerns of Poddars. Similarly, sales are also shown to have been made to certain of the family concerns like M/s. Poddar Martin Mining & Minerals Ltd., James & Company (P.) Ltd., and Agarwal Bros. Ltd., etc., all of which are family concerns of Poddars ; other sales shown in this year are to another concern which was one of the constituents of M/s. K.L. Poddar & Sons Pvt. Ltd. It was also observed that these two partners, Smt. Indira Rani Poddar & Smt. Sarada Devi Poddar, are shown to have contributed capital to the extent of Rs. 10,000 each. In the case of the three minors who are admitted to the business of the partnership each of them is stated to have contributed Rs. 5,000 as capital. It is found that the amount shown as contributed by the minors was withdrawn by 31st December, 1957, during the very first year and in the case of the adult partners entire capital contributed excepting Rs. 5,000 in each of the cases of Smt. Indira Rani Poddar and Smt. Sarada Devi Poddar is shown as withdrawn during the very first year. Thus, the amount of Rs. 10,000 contributed by these two partners was hardly sufficient for carrying on the manganese business, the turnover in which was more than Rs. 3,00,000 in the very first year. It was also observed that the entire business was financed by M/s. K.L. Poddar & Sons Pvt. Ltd. and all the sale proceeds alleged to belong to this appellant-firm were credited in the account of M/s. K.L. Poddar & Sons Pvt Ltd. and the entire purchase price is also shown to have been paid by M/s. K.L. Poddar & Sons Pvt. Ltd. It was explained that this was done to use the overdraft facilities to which K.L. Poddar & Sons Pvt. Ltd. were entitled from various banks at Bangalore. Thus, the purchase price is being paid out of funds of K.L. Poddar & Sons Pvt. Ltd. from the overdraft facilities they have with their banks and the sale proceeds once again went back to the same company, though the business is stated to be carried on by M/s. Lalit Trading Corpn. Though it is contended that there were a number of transactions made by M/s. Lalit Trading Corporation in the purchase and sale of man- ganese, it is surprising that no contract for purchase or sale of manganese entered into by Lalit Trading Corporation could be produced before the Income-tax Officer. Even before me at the first few hearings such contracts were not produced on the ground that they were not available. However, at the last hearing a contract alleged to have been entered into with M/s. Hind Mercantile Corporation Ltd. on 22nd February, 1967, for sale of 1,500 tons of manganese ore was produced. It appears that the signatures on this alleged contracts are fresh and one look at the alleged contract will show that it was not entered into in the usual course of business. It was also observed that there are no other contracts for other transactions of purchase and sale. It appears from the details of purchases and sales filed before me that the appellant is shown to have sold 24.12 tons of manganese ore to M/s. Agarwal Brothers on 30th June, 1957, out of a purchase of 23.76 tons of manganese stated to have been purchased from one S. D. Mining Industries on 30th June, 1957. The appellant is not in a position to explain how he could have sold the goods on 30th June, 1957, when they were actually purchased on 30th October, 1957, and how they could sell greater quantity when the manganese ore purchased was less. Though such attempt was made to explain that while the bill from S. D. Mining Industries was received on 30th October, 1957, and the supply of manganese ore was made much earlier, no evidence was produced in support of this claim. The assessee is still not able to explain as to how they could sell 24.12 tons out of 23.76 tons. These facts clearly show that business did not belong to the appellant himself but certain transactions made by others in respect of their stock are shown as the transactions of the appellant firm." ;