Continental Construction Ltd vs Commissioner Of Income-Tax, Central-1 on 15 January, 1992
8. The nature of the transaction between the assessee-company and the firm had been considered in detail by this court in Padinjarekara
Agencies (P.) Ltd. v. CIT [1988] 173 ITR 637. It was found that the firm was constituted in the year 1959, it owned immovable properties and it was carrying on business. From the year 1964-65 it began to buy goods from the assessee-company. The firm had its own capital and its profits were assessed in its hands and it was granted registration by the Department. While making the assessment for the year 1971-72 in respect of the firm, the Income-tax Officer had allowed salary and allowances to the personnel of the firm as also provident fund contributions of its employees. There was also a finding that there was no regular market price for skim crepe. Even though the question considered in the above decision was whether the firm was genuine and not sham, the observations made by this court regarding the nature of the transaction between the company and the firm are relevant for deciding the question whether the sale by the company to the firm was for adequate consideration. The reasons given by the first appellate authority in its detailed order are justified in the facts and circumstances of this case. Apart from stating that the firm had sold the skim crepe at a higher rate than the purchase price paid to the company, the Revenue had not adduced any material to show that the transfer by the assessee in favour of the firm was for inadequate consideration.