1980 (4) TMI 29

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....ference arises out of the assessment proceedings for the assessment year 1957-58, the relevant previous year being 1956-57, in the case of the firm, M/s. Phool Chand Jiwan Ram. The firm carries on, inter alia, business in the purchase and sale of cotton piece-goods. In the books of the firm there was an account in the name of M/s. Janki Dass Banarsi Das, Delhi. According to the entries in this account, the assessee-firm owed M/s. Janki Dass Banarsi Dass a sum of Rs. 1,13,828. On April 1, 1956, the above account was squared up. The balance of Rs. 1,13,828 was transferred to the accounts of the two partners of the assessee-firm and each of the partners was credited with a sum of Rs. 56,914. The ITO was of opinion that as a result of the ab....

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.... years and that the remission to that extent could be treated as income. The Tribunal also found that the account of the party had been credited with a sum of Rs. 7,389 representing interest which had also been allowed as a liability in the earlier assessment. The Tribunal, therefore, modified the order of the AAC and sustained the addition to the extent of Rs. 36,647 and deleted the addition to the extent of Rs. 77,181. Hence, this reference at the instance of the Commissioner of Income-tax. It is not in dispute that the trading transactions in the account of M/s. Janki Dass Banarsi Dass in respect of which deductions had been allowed in earlier accounting years were those in relation to the purchase of goods and interest as referred to....

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....is far-fetched. The purchase of cloth between November 12, 1947, and, October 30, 1948, was effected by the assessee from the Bombay firm. The debt owed by the assessee to the Bombay firm was a trading debt and that was no doubt allowed for the purpose of income-tax. However, so far as the account of M/s. Janki Dass Banarsi Dass is concerned, the liability of the assessee to this party arose because the above party had paid a sum of Rs. 1,80,000 to the Bombay firm on the assessee's account. In other words, vis-a-vis the assessee and M/s. Janki Dass Banarsi Dass, this was not a payment made for the purchase of stock-in-trade ; it was a credit in respect of an amount borrowed by the assessee from M/s. Janki Dass Banarsi Dass in order to disch....