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Assessment of additional super-tax under section 104 of the Income Tax Act, 1961 based on distributable surplus and rejection of explanation for hundi loans. Analysis: For the assessment year 1962-63, the assessee initially reported an income of Rs. 10,790, but the assessment was completed on a total income of Rs. 1,90,293. Subsequently, the Income Tax Officer (ITO) raised a demand of additional super-tax of Rs. 34,342 under section 104 of the Income Tax Act, 1961, based on a distributable surplus of Rs. 92,545. The Appellate Assistant Commissioner (AAC) upheld the ITO's order, leading the assessee to appeal to the Tribunal. The Tribunal, considering the penalty appeal and rejection of the explanation for hundi loans, held that the provisions of section 104 were not applicable. The Tribunal emphasized that the Department could not prove the charge of concealment regarding the hundi loans, leading to the dismissal of the penalty order, and consequently, the application of section 104 was also deemed inappropriate. The Tribunal further noted that the addition of hundi loans as income was based on the rejection of the assessee's explanation, which did not establish that the loans represented actual income earned by the assessee. The Tribunal, citing relevant case law, concluded that the addition under section 68 of the Income Tax Act, 1961, was artificial or notional income and thus not subject to section 104. Additionally, the Tribunal referred to a decision regarding the failure to prove the genuineness of loan transactions, emphasizing that such failure does not automatically imply availability for distribution as dividend, thus not attracting section 104. The High Court, in its judgment, agreed with the Tribunal's findings, emphasizing that the addition of income based on rejection of the explanation for hundi loans was not genuine commercial profit and therefore did not fall under the purview of section 104. The Court also referred to relevant case law to support its decision, highlighting that failure to prove the genuineness of loan transactions does not automatically render the amounts available for computing distributable surplus under section 104. The Court reserved its opinion on whether section 104 is a penal provision akin to section 271(1)(c) and ultimately ruled in favor of the assessee, holding that the provisions of section 104 were not applicable in the present case. In conclusion, the High Court's judgment upheld the Tribunal's decision, emphasizing that the addition of notional income and failure to prove the genuineness of loan transactions did not warrant the application of section 104 of the Income Tax Act, 1961. The Court ruled in favor of the assessee, highlighting that the provisions of section 104 were not applicable based on the circumstances of the case.
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