Revaluation of machinery and capital contribution to partnership did not constitute a sale or trading profit, so the addition failed.

Revaluation of machinery in the owner's books did not amount to a sale, because sale requires distinct buyer and seller, and contributing the machinery as capital to a partnership in which the owner was a partner was likewise not a sale to the firm. On those facts, there was no transaction capable of generating trading profit or income from an adventure in the nature of trade. The addition based on the revalued amount was therefore not assessable as taxable profit or business income, and the deletion of the addition was upheld in favour of the assessee.

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Issues: Whether the sum of Rs. 4,00,000 was taxable as profit on sale of machinery or as income arising from an adventure in the nature of trade when the machinery was revalued and then contributed as capital to a partnership firm.

Analysis: The machinery that fell to the assessee's share was never sold. Revaluation of goods in the assessee's books did not amount to a sale, because a sale requires distinct seller and purchaser. Likewise, handing over the machinery to a partnership of which the assessee was a partner, as his share of capital, did not constitute a sale to the firm. On these facts, there was no transaction giving rise to trading profit, nor any basis to treat the revaluation entry as business income.

Conclusion: The amount of Rs. 4,00,000 was not assessable as profit from sale or as income from an adventure in the nature of trade, and the deletion of the addition was upheld in favour of the assessee.

Ratio Decidendi: Revaluation of goods in the owner's books, or their contribution as capital to a partnership in which the owner is a partner, does not amount to a sale and cannot by itself generate taxable trading profit.

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