TMI Blog1970 (1) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... s no day-to-day record had been kept by the assessee for the consumption of raw materials and stores. In his order, dated February 9, 1959, relating to the 1956-57 assessment year, the Income-tax Officer did not, therefore, accept the figures of profit furnished by the assessee and after invoking the proviso to section 13, computed the profits of the assessee at certain flat fates with the agreement of the assessee, and worked out the gross profits on that basis. The result was that the gross profit computed by the Income-tax Officer was Rs. 36,603 more than that shown by the assessee in his return. The other add-backs ordered by the Income-tax Officer due to inadmissible expenditure, etc., are not relevant for our purposes. Similarly, in his order of the same date relating to the assessment year 1957-58, a sum of Rs. 10,488 was added to the gross profits of the assessee on the basis of the same flat rates (as agreed to by the assessee for the year 1956-57) by invoking the proviso to section 13 of the Act. Two separate orders (annexures "B" and "B-1" to the statement of case) were then passed by the Income-tax Officer on February 11, 1960, under section 23A of the Act, on the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits of an assessee should be taken into consideration (iii) the bulk of the surplus in the hands of the assessee was due to the fact that the books of account of the assessee had not been accepted, and the income of the assessee was computed on estimate basis. In determining the commercial profits, the assessing authorities cannot take into consideration the income estimated by the Income-tax Officer. The estimated additions (Rs. 36,603 in one year and Rs. 10,488 in the other year) were, therefore, liable to be excluded in determining the figure of profit left for distribution ; and (iv) the Tribunal was satisfied that the avoidance of super-tax was not a motive behind the non-declaration of dividends and it was the loss (in the earlier years) and the smallness of profits which was responsible for the non-declaration of dividends. On the basis of the above-mentioned findings, the Tribunal held that the approach of the revenue, both on the facts of the case and in law, was erroneous, and while allowing the appeals of the assessee, directed that both the orders under section 23A be set aside. The application of the Commissioner of Income-tax under section 66(1) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany of that previous year. . . . . the Income-tax Officer shall, unless he is satisfied that, having regard to losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend..... would be unreasonable, make an order in writing that the company shall....... be liable to pay super-tax at the rate of four annas in the rupee on the undistributed balance of the total income of the previous year, that is to say......" A lucid analysis of the above quoted provision has been made by their Lordships of the Supreme Court in Commissioner of Income-tax v. Gangadhar Banerjee and Co. (Private) Ltd. According to that analysis, the first part of the section defines the scope of the jurisdiction of the Income-tax Officer to act under that provision. Once again it is the common case of both the parties that the assessee, which is a company, not having declared any dividend in respect of the years in question, the Income-tax Officer had the jurisdiction to act under section 23A of the Act. The second part of sub-section (1) of section 23A provides for the exercise of that jurisdiction. The third part relates to the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial profits. We are inclined to agree with the submission of Mr. B. S. Gupta that the Tribunal was in error in observing in its appellate order that in determining the commercial profits, the assessing authority cannot take into consideration the income estimated by the Income-tax Officer under the proviso to section 13. Estimated additions to commercial income of an assessee, in our opinion, partake of the same character as the income returned by an assessee himself on the basis of inaccurate or incomplete accounts. The mere fact that the income is not computed from the books of the assessee, but on the basis of an estimate does not, in our opinion, clothe the estimated addition with any character other than that of commercial income. While determining the question of smallness of profits in the relevant previous year, the Tribunal appears to have excluded from consideration the additional income computed by the Income-tax Officer under the proviso to section 13 of the Act. We are unable to justify that part of the Tribunal's order on any possible interpretation of any portion of section 23A of the Act. The question whether profit of the company available for distribution was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax v. Jubilee Mills Ltd. In that case it was held that even if the applicability of section 23A is attracted on account of the case falling within its first portion, the Income-tax Officer has to consider whether having regard to the losses incurred by the company in earlier years (or having regard to the smallness of its profits), it would have been unreasonable for the company to declare a dividend larger than which it had actually declared. In that connection it was observed further as below: " The argument was stressed that where the company adjusts losses against the paid-up capital and reconstructs its capital, the financial position of the company and its dividend distributing capacity in subsequent years have to be judged only by the result of its trading after reconstruction and not with reference to earlier losses which have disappeared by adjustment. In our opinion, there is no warrant for the argument put forward on behalf of the appellant. There is nothing in the language or context of section 23A(1) of the Act to suggest that the expression 'losses incurred in the earlier years' should be construed so as to exclude losses incurred prior to the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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