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Issues:
1. Calculation of dividend by the assessee for the year ended March 31, 1972. 2. Consideration of commercial profits in determining the reasonableness of the declared dividend. 3. Adjustments made for provision of doubtful debts, amortization of goodwill, and interest paid under IT Act. 4. Directors' report and reasoning behind the dividend declaration. 5. Decision on the cancellation of the order u/s 104. Analysis: The appeal before the Appellate Tribunal ITAT BOMBAY-B concerned an order u/s 104 passed for the assessee for the assessment year 1972-73. The primary issue revolved around the dividend declared by the assessee for the year ended March 31, 1972, which totaled Rs. 4,82,000. The composition of the declared dividend included amounts for both preference shares and equity shares. The crux of the matter was the determination of whether the declared dividend was reasonable based on the commercial profits of the assessee. The assessee contended that its commercial profits were insufficient to support a larger dividend. The department, however, argued that adjustments made for doubtful debts and amortization of goodwill indicated higher commercial profits, justifying a larger dividend declaration. Regarding the provision for doubtful debts, the assessee's argument was supported by the Auditors' Notes and turnover figures, justifying the provision made. Additionally, the adjustment for amortization of goodwill was explained as a commercial practice in line with the advice of Auditors. The Tribunal referenced previous decisions supporting the consideration of such adjustments in determining commercial profits. Another adjustment highlighted was the interest paid under the IT Act, which, even if added back to the profits, did not significantly impact the commercial profits. The Tribunal emphasized the reasonableness of the declared dividend in light of the capital and profits of the assessee. The Directors' report provided insight into the rationale behind the dividend declaration, emphasizing the need to retain profits for business expansion due to uncertain credit facilities. The Tribunal acknowledged the Directors' prudent approach and reluctance to distribute larger dividends. Ultimately, the Tribunal concluded that the declared dividend was reasonable considering the small profits of the assessee. The cancellation of the order u/s 104 was directed based on the assessment of commercial profits and the circumstances surrounding the dividend declaration. In conclusion, the appeal was allowed, and the order u/s 104 was cancelled based on the Tribunal's analysis of the commercial profits and the reasonableness of the declared dividend in the context of the assessee's financial position and business considerations.
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