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Application of section 23A(1) of the Indian Income-tax Act, 1922 for the assessment year 1959-60 based on distributable profits and disallowed expenses for a road transport company. Analysis: The case involved a road transport company's assessment for the year 1959-60, where the Income-tax Officer disallowed an expense of Rs. 56,350 related to spare parts and maintenance, applying section 23A(1) of the Income-tax Act, 1922. The Appellate Assistant Commissioner considered only book profits for assessing distributable profits and found the profit too small for dividend distribution. The revenue appealed to the Tribunal, arguing that real commercial profits should be considered, including the disallowed expense, for section 23A(1) application. The Tribunal held that the disallowed expense did not constitute commercial profits available for distribution as dividend, thus deleting the amount and dismissing the appeal. The High Court analyzed the legal principles regarding section 23A(1) application. Referring to previous judgments, the court emphasized that actual commercial profits, not just book or assessed profits, should be considered. The court cited the Supreme Court's stance that deliberate omissions or concealment of income could justify additions to book profits. In this case, the disallowed expense was found to be inflated and not representing actual expenditure, leading to its inclusion in assessable profits. The court held that the addition of Rs. 56,350 to book profits for section 23A(1) application was justified based on commercial principles and upheld the revenue's appeal. The court rejected the Tribunal's view that the disallowed expense should not be added to book profits, citing a similar Supreme Court case where deliberate omissions warranted such additions. The court highlighted the assessing officer's findings on the inflated claim for spare parts expenditure, confirming its inclusion in assessable profits. Ultimately, the court answered the referred question in the negative, favoring the revenue's position due to the justifiability of including the disallowed expense in commercial profits for section 23A(1) application. In conclusion, the court's decision emphasized the importance of considering actual commercial profits for section 23A(1) application, allowing justifiable additions to book profits in cases of deliberate omissions or inflated expenses. The judgment favored the revenue's appeal based on the inflated nature of the disallowed expense, supporting its inclusion in assessable profits for determining distributable profits under section 23A(1) of the Income-tax Act, 1922.
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