TMI Blog1992 (8) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... terials and/or by ignoring relevant materials ? 3. Whether the order of the Tribunal upholding the addition of Rs. 11,20,000 as the assessee's income from undisclosed sources is vitiated on account of non-consideration of the various contentions advanced on behalf of the assessee and is perverse ? 4. Whether, on the facts and in the circumstances of the case, the sum of Rs. 11,20,000 could be treated as the assessee's income from the undisclosed sources ?" Shortly stated, the facts are that the assessee is a partnership firm. The firm was constituted under an instrument of partnership deed executed on April 20, 1975, with eleven partners. The accounts of the assessee showed that it borrowed Rs. 11,20,000 from Messrs. Gazanund Bissesswarlall and Co., a proprietary concern of Shri J. M. Jatia, one of the partners. The money was invested in purchase of shares. The Income-tax Officer examined the cash book and ledger of Messrs. Gazanund Bissesswarlal on April 23, 1975. By examination of these books of account, the Income-tax Officer came to the conclusion that Guzanund Bissesswarlall had no cash balance to advance Rs. 11,20,000 to the assessee. The observations of the Income ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndebtedness the same as before. We do not also see how rule 58A of the Indian Companies Act comes into the picture. Also, if those entries were merely adjustment entries we do not understand why journal entries were not passed making havalas which should have brought the same result. The very fact that cash entries are made for the purchase of shares by the assessee would show that the assessee had paid cash for the purchase of shares. Obviously, the assessee is not able to show how the cash was provided. The concerns from whom cash allegedly passed did not have enough cash balance to lend money to the assessee. In these circumstances, the Income-tax Officer was fully justified in drawing the conclusion that the assessee brought cash into the books of account for the purchase of shares but the source thereof was unexplained. The learned Commissioner of Income-tax (Appeals) was fully justified in endorsing the findings of the Income-tax Officer. We, therefore, do not see any reason to interfere with the orders of the authorities below. The appeal accordingly fails and is dismissed. " A miscellaneous application was filed urging that some arguments advanced by the assessee were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re capital and free reserves to the ceiling limit of 25% (later reduced to 15%). Learned counsel submitted that for the requirement of conforming to this prescribed ceiling limit of the volume of loans, the said three companies were to liquidate the loans borrowed from the said proprietary concern of Shri J. M. Jatia. But the said companies had not the requisite liquidity to discharge the loans. Since the lending proprietary concern of Shri J. M. Jatia belonged to the same group, an arrangement was made for reduction of the volume of borrowing of the companies to the requisite limit. Therefore, a partnership firm, i.e., the assessee, was constituted on April 20, 1975, with the members of the Jatia family as its partners. Within three days from the date of constitution of the firm, the said three companies showed sale of shares which it had been holding in various companies of the Jatia group to the firm. In exchange, as consideration, the firm made a credit entry in the cash book of an aggregate sum of Rs. 11.20 lakhs in favour of the said three companies. The said three companies, in turn, showed the credit entries in the cash books as repayment of loan aggregating in all to Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, any passage of cash and the said companies in their turn passing on the said non-existent cash to GB and Co. Shri Bajoria emphasised that, in the course of assessment proceedings, the Income-tax Officer examined the transactions and found that these are only entries not involving at any stage any cash. He pointed out that the entire transactions were effected between the assessee-firm and the concerns belonging to the Jatia group only for the requirement of complying with the directions of the Reserve Bank of India that cast on the companies a statutory obligation to reduce their borrowing to maintain parity with the loan and capital ratio as prescribed. The assessee-company merely substituted the said three companies as debtors to GB and Co. and received the shares for undertaking the liability. Confronted with the question why the reduction of loan could not be achieved by straightaway transfer of the shares in question by the said three companies to GB and Co. in discharge of the loans, without creating a circuit, Shri Bajoria explained that such a course was not acceptable to all the members of the family as the lender, GB and Co., is the sole concern of Shri J. M. Jatia. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere carried into effect merely by way of adjustments of the said loans and the share transfers. Shri A. C. Moitra, the learned advocate for the Revenue, reiterated the grounds on which the Tribunal has affirmed the addition of the amount of Rs. 11.20 lakhs as unexplained cash credit. He particularly emphasised that the assessee's contention that the entries are only adjustment entries is not acceptable, because the adjustment entries are not made through the cash book. It is an accepted principle of accounting that book adjustments and the entries in effecting them are made by journal entries and not cash entries. He urged that the purported motive of the entries being the reduction of loans of the three limited companies does not explain the whole matter, because the entries are cash entries. The fact remains that, at every stage, the parties showed the payments and receipts of cash even when there was no cash available for such entries. This quite justifies the addition as sustained by the Tribunal. We have perused the assessment order carefully. We find that cash did not pass at any stage though entries were made in the cash book showing payments and receipts ; but since the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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