JUDGMENT

B. P. JEEVAN REDDY, J.:— These appeals are preferred against the judgment of the Karnataka High Court answering the question referred to it, at the instance of the revenue, in favour of the revenue and against the assessee. The question referred under Section 256 of the Income-tax Act, 1961, read as follows: "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 1,79,742/- could not be disallowed under Section 40(c) of the Income-tax Act, 1961." (The above question related to Assessment Year 1974-75. The question referred for A. Y. 1975-76 was identical except in the matter of amount). Since the facts in all the appeals are identical it would be sufficient to notice the facts in C.A. Nos. 6092 and 6092A/90 (Prakash Beedies (P) Ltd. v. Commr. of Income Tax, Karnataka, Bangalore).

2. Prior to 15-7-1972, a partnership firm called K. M. Anand Prabhu & Sons, Mangalore, consisting of three partners K. M. Vishnudas Prabhu, K. M. Ramdas Prabhu and K. M. Shankar Prabhu was engaged inter alia in the business of manufacturing and sale of beedies under the brand name Mangalore Prakash Beedies. On May 20, 1972 a private limited