1982 (4) TMI 121 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 40,728 to the total income of the assessee.
2. Treatment of Rs. 8,753 as speculative loss.

Issue-wise Detailed Analysis:

1. Addition of Rs. 40,728 to the Total Income of the Assessee:

The assessee, a registered firm, sold 200 bales of cotton to its sister concern, M/s. Niranjan Trading Co., resulting in a profit of Rs. 40,728 for the latter. The ITO suspected that the assessee diverted its profits to the sister concern to mitigate its tax liability. This suspicion arose due to the close relationship between the partners of the two firms and the proximity of the purchase and sale dates. The ITO's conclusion was based on the fact that the transactions were recorded in the Sauda Register of a third party, M/s. Niamat Rai Kundan Lal Ahuja & Co., Bhatinda, where the name of the purchasing party was later changed from the assessee to the sister concern. The ITO also noted that Shri Nand Lal acted on behalf of both firms without proper authorization from the partners of M/s. Niranjan Trading Co.

The assessee argued that the transactions were genuine and carried out in the ordinary course of business. The books of accounts of both firms were accepted by the ITO, and there was no evidence that the transactions were at rates different from prevailing market rates. The assessee contended that the addition was made based on conjectures and surmises without any concrete evidence. The assessee also pointed out that taxing the same income twice is prohibited by law, as the profit of Rs. 40,728 was already assessed in the case of M/s. Niranjan Trading Co. for the assessment year 1972-73.

The Tribunal found that the ITO did not examine the broker, Shri Chhagan Lal, who facilitated the transactions. The statements recorded by the ITO did not provide any evidence to support the addition. The Tribunal held that suspicion, however strong, cannot replace evidence. The transactions were accepted as genuine in previous years, and there was no evidence that the sales were at lower rates or that the sister concern sold at higher rates than the market rates. The Tribunal concluded that the addition was based on mere suspicion and conjectures and deleted the amount of Rs. 40,728 from the total income of the assessee. The Tribunal also noted that double taxation of the same income is not permitted unless specifically provided by law.

2. Treatment of Rs. 8,753 as Speculative Loss:

The ITO treated a loss of Rs. 8,753 in the cotton account as speculative loss. The Commissioner of Income-tax (Appeals) confirmed this treatment. The assessee argued that the loss arose from a single transaction and should be treated as a loss in the ordinary course of business.

The Tribunal referred to its earlier decision in the case of M/s. Kewal Krishan Sat Pal, Moga, where it was held that a loss arising from a single transaction cannot constitute speculative business. The Tribunal adopted the same reasoning and directed that the loss of Rs. 8,753 be treated as a loss in the ordinary course of business, thereby allowing this ground of appeal for the assessee.

Conclusion:

The Tribunal allowed the appeal of the assessee in full. The addition of Rs. 40,728 to the total income of the assessee was deleted, and the loss of Rs. 8,753 was treated as a loss in the ordinary course of business.