1964 (1) TMI 44 - HC - Income Tax

Summary

Issues:
1. Disallowance of trading loss and imposition of penalty under section 28(1)(c) of the Income-tax Act.
2. Determination of dividend under section 23A of the Act based on true income of the assessee.

Disallowed Trading Loss and Penalty Imposition:
The case involved the disallowance of a claimed trading loss of &8377; 2,12,691 by the assessee, which was deemed not genuine by the Income-tax Officer, Appellate Assistant Commissioner, and Tribunal. The High Court observed that the transactions leading to the alleged loss were found to be bogus, engineered to set off against profits for tax avoidance purposes. Consequently, the court upheld the disallowance of the claimed loss. The Income-tax Officer imposed a penalty of &8377; 40,000 under section 28(1)(c) of the Act for deliberately understating income, which was confirmed by the Appellate Tribunal. The court held that the deliberate furnishing of inaccurate particulars of income warranted the penalty under the said section.

Determination of Dividend under Section 23A:
The Income-tax Officer applied section 23A to the case due to a lower declaration of dividend than required by the Act. It was found that a higher dividend should have been declared based on the true income of the assessee. The Appellate Tribunal referred a question to the High Court regarding the exclusion of the alleged trading loss from the assessee's profits for determining the reasonableness of the dividend declared. The court emphasized that the true commercial profits must be considered, and the alleged loss, found to be sham, should be added back to arrive at the correct profits. The court cited a previous case to support the inclusion of suppressed profits in determining the final figure of profits for the application of section 23A. Consequently, the court upheld the application of section 23A in this case, rejecting the contention to exclude the alleged loss from dividend calculations.

In conclusion, the High Court affirmed the disallowance of the trading loss, upheld the penalty under section 28(1)(c) for furnishing inaccurate income particulars, and determined the dividend based on the true commercial profits, including the alleged loss. The court answered the questions against the assessee and directed the payment of costs to the department.