Taxability of concessional sales to connected parties fails without proof of sham transactions or extra receipts.

A company's assessable income could not be increased by the difference between market price and concessional sale price where yarn was sold to connected parties, because the sales were not shown to be sham and there was no proof that the company had received more than the recorded consideration. The court held that, at most, the managing agents had made concessional sales in breach of duty, creating a loss to the company rather than taxable income. Only income actually accrued or realised by the assessee can be taxed, so the disputed addition was unjustified and the issue was decided for the assessee.

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Issues: Whether the sum of Rs. 1,46,000 representing the difference between market price and concessional sale price of yarn sold to connected parties could be added to the assessee company's assessable income.

Analysis: The finding was that the sales were not sham sales, nor was there material to show that more than the recorded consideration had been received by the company and subsequently misappropriated. The departmental finding, taken at its highest, was only that the managing agents had made concessional sales to related parties in breach of their duty to the company. On that footing, the company had accrued only the reduced sale proceeds actually realised, and the loss caused by the fraud or misconduct of its agents could not itself be treated as income of the company.

Conclusion: The addition of Rs. 1,46,000 to the assessable income was not justified and the question was answered in favour of the assessee.

Final Conclusion: The reference was answered by holding that a mere loss arising from undervalued sales to connected persons, without proof of sham transactions or larger realisations by the assessee, cannot be brought to tax as the company's income.

Ratio Decidendi: Only income that has accrued or been actually realised by the assessee can be taxed, and a loss caused by concessional or fraudulent sales by agents does not become taxable income absent proof of sham dealings or additional receipts.

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