TMI Blog2000 (2) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the addition of Rs. 22,26,538? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and on facts to hold that the assessee had utilised the secret profits of the firm for his proprietary business?" The factual position, as stated in the statement of case, is as follows : The assessee is a partner in the firm, K. N. Sathyapalan and Co., which was carrying on contract business. He was also doing independent contract work on a proprietary basis. During the accounting year ending on March 31, 1989, relevant to the assessment year 1989-90, the assessee had undertaken a contract work in respect of Chimini Dam and Kanjirapuzha Dam. In respect of these works, he had disclosed gross receipts of Rs. 99, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Tribunal lost sight of the actual background of the facts and proceeded to base its conclusions on surmises and conjectures. A reference was made to the balance-sheets which were available before the Settlement Commission. After disclosure, it was noticed that the credit balances of all the partners excepting K. N. Sathyapalan and K. N. Mohanan were in the liability side along with the creditors for materials. The position was completely transformed after the disclosure made to the Settlement Commission. By the end of March 31, 1987, the credit balance of all the partners excepting Shri Sathyapalan had correspondingly increased. Two items of creditors for materials and wages payable were deleted as was noticed by the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm. Bogus entries in relation to expenses were made thereby reducing the profits. Correspondingly, bogus entries were made in respect of alleged creditors. After the settlement, what was done was to reverse the entries relating to alleged creditors vis-a-vis corresponding bogus entries in respect of the expenses. The net effect of such reversal of the entries was deletion of entries from the balance-sheet, profit and loss account, and corresponding increase in the capital account of the partners of the firm. This did not lead to generation of cash inflow into the firm. Consequently, there was no question of any outgoing from the corpus of the firm to the hands of the assessee. Additionally, the Tribunal seems to have lost sight of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses and showing bogus credits, actually no cash is involved in the transaction. By reversal of the entries, the effect of credits and debits was neutralised. There was no question of generation of any cash as contended by the assessee and accepted by the Tribunal. The position would not have also been different had actually expenses been made from undisclosed sources, against which bogus entries of creditors had been made. In such a case also, cash would have also been spent and no longer available. The case at hand, as noted above, is one of inflation of expenses when in fact no expenses were made. To explain the expenses, the entries in respect of bogus creditors were made. Had it been a case of bogus expenditure without actual payment, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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