9911796707
TMI Blog1992 (7) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1976-77, the assessee-firm claimed registration under section 185 of the Act for which Form No. 11 was filed in time. The Assessing Officer declined to allow the registration, as he came to the conclusion that there was no business carried on by the firm this year. He passed the order after obtaining the necessary direction under section 144B from the Inspecting Assistant Commissioner who observed as follows : "The firm does not appear to be registered with the Registrar of Firms, there does not appear to be any bank account opened in the name of the firm, there is no trade licence to do any business." The firm had not incurred any expenses like rent, electricity, etc., which can ordinarily be called business expenses. The only transaction during the year appears to be purchases from three companies of shares worth Rs. 11,19,875 of certain companies controlled by the partners of the assessee-firm. Most of the partners of the assessee-firm have substantial interest in the companies which sold the shares. It is very strange that all the seven transactions of purchase had taken place on the same date, i.e., April 23, 1975, and involved companies belonging to the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduct Co. Ltd. -do- Eastern Paper Ind. Ltd. -do- 38,000 2,79,125 -do- Speciality Papers Ltd. -do- 20,000 1,10,000 -------------------------------------------------------------------------------------------------------------------------------------------------- After examination and verification of the relevant books of account and records, the income-tax authorities came to the conclusion that Messrs. Gazanund Bisweswarlal and Co. did not have sufficient cash on that date to make available to the assessee-firm an amount of Rs. 11,20,000. Messrs. Gazanund Bisweswarlal and Co. is alleged to have advanced the sum to the assessee out of the amounts received by it from its debtors. But the income-tax authorities found that the alleged receipt, being the repayment of loans taken by Messrs. Jatia Investment Pvt. Ltd., Praise Co. Pvt. Ltd. and Onkar Industries Pvt. Ltd., could not be proved. The creditworthiness of these companies from whom supposedly the money was received by Gazanund Bisweswarlal and Co. could not also be established. The Assessing Officer, therefore, held that the amount in question constituted income from undisclosed sources of the assessee-firm and he also d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of trade. The Andhra Pradesh High Court in the case of P. J. Udani v. CIT [1967] 63 ITR 766, held that although it is well-settled that an event of single transaction of purchase and sale may constitute an adventure in the nature of trade provided that the transactions bear the essential elements of trade, the onus is on the Department to prove the intention of the assessee to make profit and on facts and there was no material to show that the transaction was an adventure in the nature of trade. Accordingly, the attempt to tax the gain as taxable income was negatived by the court. The Madras High Court in the case of Ajax Products Ltd. v. CIT [1961] 43 ITR 297, has dealt with a similar question. The court held that the existence of an intention to sell at a profit even at the time of the purchase may be a relevant factor in deciding whether the transaction of purchase and sale constituted an adventure in the nature of trade, but it is neither conclusive nor decisive in proving that the purchase and the subsequent sale together constituted an adventure in the nature of trade. The proved absence of an intention to sell when a given property was purchased and was subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pting deposits or borrowing money from others is the third object as contained in the deed of partnership, while to lend money to other persons, firms, etc., has been enumerated as the second object of the firm. As indicated earlier, the income-tax authorities did not find any transaction whatsoever of money having been lent this year. The alleged borrowing of Rs. 11,20,000 from Gazanund Bisweswarlal and Co. was found to be a fake transaction, as the flow of cash could not be proved having regard to the sources of the lending concern. The ultimate source is alleged to be the three different companies, whose creditworthiness as well as availability of necessary funds could not be established. The Tribunal has upheld the treatment of this amount of Rs. 11,20,000 as the lower authorities had done. At this stage, it would be appropriate to make it clear that, as the question of assessability of Rs. 11,20,000 as income from other sources is not before us in the present reference, we refrain from expressing our view on this issue. The facts, as found by the Tribunal, on this question have been discussed as the same have a bearing on the questions before us. Reverting to our main issu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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