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TMI Blog1987 (5) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... a Sales-tax raid on the business premises of the assessee and it was detected that the assessee was conducting business transactions outside the books of account. The ITO estimated the sales outside the books at Rs. 2,20,000 and estimating the net profit at the rate of 10 per cent he made an addition of Rs. 20,000 (should have been Rs. 22,000) to the assessee s income. The CIT initiated proceedings under s. 263 on the assumption that the aforesaid extra profit earned on transaction outside the books of account had not been distributed amongst the partners in accordance with the profit sharing ratio. In its reply filed before the ITO the assessee denied that any profit earned by the assessee was not distributed amongst the partners and asser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partners in the same way as the disclosed income had been divided and not ruling to the contrary has been cited by the learned Departmental Representative and, therefore, the learned CIT was not authorised to assume that the profits which were not accounted for in the books had not been distributed amongst the partners in connection with the profit sharing ratio. 4. The learned Commissioner had relied upon a judgment of the Supreme Court in the case of Khanjan Lal Sewak Ram vs. CIT (1972) 83 ITR 175 (SC). In that case the Tribunal had found that the firm had earned profits in the black market and thought it had distributed its book profits among the partners according to the instrument of partnership it had not distributed the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions prescribed in paragraph 3 of r. 6. Hence the ITO was justified to refuse to renew the registration". 5. Now the registered firms are also liable to tax and the profits allocated in the IT assessments return are assessed to tax in the hands of the partners as well and, therefore, the distribution of profits in a manner not in accordance with the profit sharing ratio is not likely to affect the Revenue adversely. In any case, as is evident from the judgment of the Hon'ble Supreme Court in that case the Tribunal had found as a fact that the profits had not been distributed in accordance with the profit sharing ratio. There is no such finding in the case before us. As a matter of fact, the learned CIT appears to have got confused at one ..... X X X X Extracts X X X X X X X X Extracts X X X X
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