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TMI Blog1985 (8) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership. Shri Nookaiah Chetty had stated before the ITO that there were certain fictitious transactions recorded in the books. Certain letters were written to the ITO by Shri V. Venkata Nageswara Rao who was one of the minors admitted to the benefits of partnership giving specific instances of fictitious transactions. These transactions were said to be purchase and sale effected with Shri Nookaiah Chetty, i.e., the minors' father himself. The letters stated that these were really an untrue state of affairs and by this device substantial income was reduced in their accounts. It was also stated that the income reduced was Rs. 23,526. 4. We may mention that owing to difference of opinion among the partners, the partnership was dissolved on 16-12-1975, that is long before the date on which information was given by Shri Nookaiah Chetty and his son regarding the fictitious entries. In fact, certain litigations were pending between the erstwhile partners at that time. 5. The ITO examined the books of account with reference to the information given by Shri Nookaiah Chetty and his son. He found that the transactions referred to in their letter were not reflected in the books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. Though the total of sales and that of purchase of lumps might be identical, the quantity in terms of kilos differed in respect of purchases and sales. He agreed that there was scope for some adverse conjecture being drawn from the position that the value of the total of sales was less than the value of the total purchases from the same party, but this by itself according to him, would not prove concealment. He further pointed out that no sworn statement was recorded from Shri Nookaiah Chetty regarding the impugned transactions. Further, none of the partners of the assessee-firm were also examined by the ITO. In any event, the evidence establishing the alleged bogus nature of the impugned sales and purchases were not furnished to the assessee for necessary rebuttal. He, therefore, cancelled the penalty. 8. Shri Santhanam, appearing for the department, submitted that on the facts of the case, the onus on the department had been discharged even applying the principles laid down in Burugupalli China Krishnamurthy's case. Shri Swamy, for the assessee, on the other hand, submitted that there is no material other than what was in the assessment for making out a case of concealment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's hands and there was only loss on paper without any real loss. The second is collusive. In a collusive case, there would be an outgo of goods and money but it will go to a party who is allaying himself with the assessee for the purpose of giving a veneer of genuineness to the fictitious entries. In such cases also, if there is evidence for collusion, there would be concealment. The third alternative is where the goods and monies had gone out of the assessee to a third party and there was no intention that the third party should give back the amounts so taken out of the books of the firm in some other manner. In such cases, although the loss claimed may not be allowable, it would not amount to concealment. 12. We have now to see which of the three alternatives will fit in with the facts of the case. It is in this connection that the entries in the books of Shri Nookaiah Chetty are relevant. It is not the case that the books of Shri Nookaiah Chetty do not record these transactions. Therefore, the purchases effected by the assessee would be shown as the sales made by Shri Nookaiah Chetty and also the sales effected by the assessee shown as purchases there. That means the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is appears to be in connection with certain other collateral proceedings. In those proceedings, he had stated that he assisted the firm in attending to the market purchases and sales. He also stated that the entries regarding the fictitious transactions were made by the clerks and the managing partner Shri Madhava Rao. Thus, there is certain amount of contradictions. We may also refer to the statement given by one of the partners Shri Madhava Rao himself. He was examined on 6-12-1984. In this statement, he stated that Shri Nookaiah Chetty was his brother-in-law and had wide experience in export business. Shri Madhava Rao's family though a trading family had no experience in export business. This firm was started with a view to help his brother-in-law as he was having some trouble with his father. That is why he stated, majority of shares were given to his two minor sons. He further stated that although Shri Madhava Rao was styled as the managing partner, he was only a figure-head and all the correspondence, etc., and other relevant records were handled by Shri Nookaiah Chetty. 16. After an appraisal of the above statements, it will be clear that although Shri Nookaiah Chetty had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut in the case of CIT v. Calcutta Discount Co. Ltd. [1973] 91 ITR 8 as under: "Where a trader transfers his goods to another trader at a price less than the market price, and the transaction is a bona fide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched, to ascertain the profits from the transaction." They had quoted their earlier decision in the case of CIT v. A. Raman Co. [1968] 67 ITR 11 (SC) wherein they had reiterated that the law does not oblige a trader to make maximum profit that he can make out of the trade transactions. Thus, merely because a transaction results in a loss would not by itself show concealment. However, it is well established that in the assessments such losses cannot be allowed as an admissible deduction because such loss was not incurred in the ordinary course of business--please see the Commentary of Kanga and Palkhivala on Law Practice of Income-Tax, Seventh edn. at p. 881. We are not concerned with a claim for loss, but the case of penalty. 19. We must also refer to the part played by Shri Nookaiah Chetty. We have stated earlier that he is the brother-in-law of the adult part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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