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Issues: Determination of commercial income for tax purposes, applicability of additional super-tax under section 104 of the Income-tax Act, 1961, burden of proof on Revenue, treatment of undisclosed sources as commercial profits, relevance of loan transactions in distributable surplus calculation.
Analysis: The judgment by the High Court of Calcutta involved a case concerning the determination of commercial income for tax purposes and the applicability of additional super-tax under section 104 of the Income-tax Act, 1961. The case revolved around an assessment year where the assessee had shown a loss in the return, but the Income-tax Officer made an addition to the income based on certain deposits claimed as loans from managing directors. The Income-tax Officer treated these deposits as income from undisclosed sources, leading to the imposition of additional super-tax under section 104. The Appellate Assistant Commissioner upheld this addition, prompting the assessee to appeal to the Income-tax Appellate Tribunal. The Tribunal ruled in favor of the assessee, emphasizing the lack of evidence from the Revenue to prove the deposits as commercial income. The Tribunal also highlighted the penal nature of section 104, placing the burden of proof on the Revenue to establish the nature of the addition. The High Court referred to previous decisions, including CIT v. Universal Fertiliser Co. (P.) Ltd., CIT v. National Razors and Blades (P.) Ltd., and CIT v. Industry Side (P.) Ltd., which emphasized that the failure to prove the genuineness of loan transactions does not automatically render the amounts as available for distribution as dividend. The Court also considered the Supreme Court's ruling in CIT v. Gangadhar Banerjee & Co. (P.) Ltd., which stressed the strict compliance required from the Revenue in cases involving penal provisions. The amicus curiae highlighted the disclosure made by the managing director under section 271(4A) of the Act, indicating ongoing proceedings related to the disclosed amount. The Revenue argued that the amounts added back to the income of the assessee could be considered in determining the distributable surplus and should be treated as commercial profits. Citing cases like Gobald Motor Service (P.) Ltd. v. CIT and CIT v. Sahibganj Electric Cables (P.) Ltd., the Revenue sought to establish the commercial nature of the additions. However, the High Court concurred with the Tribunal's decision, noting the lack of additional material to support the Revenue's stance. The Court upheld the Tribunal's decision in line with the previous judgments of the Calcutta High Court, ruling in favor of the assessee and emphasizing the correct application of the law in the case. In conclusion, the High Court answered the question referred in the affirmative and in favor of the assessee, directing the Revenue to pay the costs of the reference due to the negligent preparation of the case documents. Judge Monjula Bose concurred with the judgment delivered by Judge Dipak Kumar Sen, emphasizing the adherence to legal principles and precedents in determining the tax treatment of the disputed amounts.
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