TMI Blog1981 (4) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 50,044 was a notional receipt and hence was not liable to be assessed in the hands of the assessee during the assessment year 1970-71 ? The brief facts giving rise to these questions are these. The assessee-firm known as M/s. N. D. Radha Kishan Co., Pathankot, runs a fleet of passenger buses. This firm was formerly constituted by two groups, namely, Kapoor group and Sethi group. A civil suit was filed by the Kapoor group in the High Court of Jammu and Kashmir against the Sethi group in the year 1968 for the rendition of accounts and dissolution of the firm. The High Court passed a preliminary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners had acknowledged the liability pertaining to the Sethi group, the claim for interest should be fully allowed in the assessment of the firm. It was also pointed out that the amount of interest paid to the outgoing partners was debited to the individual partner's account in view of the fact that all the new partners had duly acknowledged the liability of Rs. 9,47,500 and interest thereon, which was payable to the Kapoor group. The AAC accepted the claim of the assessee and deleted the addition of Rs. 83,691 made by the ITO. Aggrieved against the order of the AAC, the Revenue filed an appeal before the Tribunal. The order of the AAC was upheld by the Tribunal and it was held: " After hearing the learned representatives of the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came into being with effect from April 1, 1969, the assets of the old firm were never transferred to the newly constituted firm, that is, the assessee. According to him, there is no stipulation in the said partnership deed for taking over the obligations of the Sethi group under the compromise decree and the new partners were there for the running of the business only and they were not partners in the assets of the firm. We are unable to agree with this contention of the learned counsel. It has been categorically found by the Tribunal that all the present partners of the newly constituted firm had accepted the liability in respect of the old firm and thus the liability in respect of the amount of Rs. 9,47,500 and interest thereon payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1971 the entries to the debit of the Sethi group were reversed by passing two entries at pp. 43 and 44 of the journal. The effect of the reversed entry was that the accounts of the Sethi group were credited with a sum of Rs. 5,43,179 and the corresponding debit to the extent of Rs. 2,94,981 was made to the fixed assets account and the balance sum of Rs. 2,48,199 was debited to M/s. N. D. Radha Kishan Co.'s suspense account. As a result of the reversal of the said entries, the interest charged from the Sethi group earlier amounting to Rs. 50,044 was withdrawn and in the revised return, the assessee reduced its income from interest by a sum of Rs. 50,044. The ITO, however, added back the sum of Rs. 50,044 towards the total income of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer towards the total income of the assessee. The Department fails." The learned counsel for the Revenue contended that the method of accounting was mercantile and, therefore, if once the income from interest wag shown it could not be reversed after the close of the year, and thus it would not entitle the assessee to claim the deduction. In support of this contention, he relied upon Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC) and CIT v. P. Nataraja Sastri [1976] 104 ITR 245 (Mad). On the other hand, the learned counsel for the assessee submitted that since there was no agreement between the partners of the newly constituted firm in the beginning with respect to the written down value and, therefore, there was some misunders ..... X X X X Extracts X X X X X X X X Extracts X X X X
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