1984 (9) TMI 99 - AT - Income Tax

Assessment Proceedings, Assessment Year, Computation Of Capital, Settlement Commission, Surtax Assessment, Tax Liability

Issues Involved:
1. Claims under the Companies (Profits) Surtax Act, 1964.
2. Consideration of unaudited and unauthenticated balance sheets.
3. Treatment of unaccounted income as a reserve.
4. Finality of Settlement Commission's order under section 245D of the Income-tax Act, 1961.
5. Excess tax provision as capital base.
6. Deduction of cost of investment in computing capital.

Issue-Wise Detailed Analysis:

1. Claims under the Companies (Profits) Surtax Act, 1964:
The appeals were directed against the consolidated order of the Commissioner (Appeals) concerning claims under the Surtax Act. The main contention was whether the unaccounted income declared before the Settlement Commission should be treated as a reserve for computing the capital base for surtax purposes.

2. Consideration of Unaudited and Unauthenticated Balance Sheets:
The Income Tax Officer (ITO) rejected the unaudited and unauthenticated balance sheets submitted by the assessee, stating they did not conform to the provisions of section 215 of the Companies Act, 1956. The ITO emphasized that under no law could the additional profit lying with the credit balance in the profit and loss account be treated as a reserve, as it was a mass of undistributed profit.

3. Treatment of Unaccounted Income as a Reserve:
The ITO and the Commissioner (Appeals) both concluded that the unaccounted income could not be treated as a reserve for surtax purposes. The Commissioner (Appeals) cited the Supreme Court decision in Century Spg. & Mfg. Co. Ltd. and the Calcutta High Court decision in A. P. V. Engg. Co. Ltd., which held that undisclosed income not brought into accounts cannot be treated as a reserve.

4. Finality of Settlement Commission's Order under Section 245D of the Income-tax Act, 1961:
The assessee argued that the Settlement Commission's order was conclusive and binding under section 245-I of the Income-tax Act. However, the Commissioner (Appeals) and the Tribunal noted that the Settlement Commission's recommendations regarding surtax were not binding on the ITO, as the Commission's jurisdiction was limited to income-tax proceedings. The Tribunal agreed with the Commissioner (Appeals) that the Settlement Commission's recommendations were not mandatory directives.

5. Excess Tax Provision as Capital Base:
The Commissioner (Appeals) rejected the assessee's claim that excess tax provision should be considered in computing the capital base. The Commissioner (Appeals) distinguished the facts of the assessee's case from those in Braithwaite, Burn & Jessop Construction Co. Ltd., and relied on the Calcutta High Court decision in A. P. V. Engg. Co. Ltd., which held that excess tax provision written back to the profit and loss account could not be treated as a reserve.

6. Deduction of Cost of Investment in Computing Capital:
The Commissioner (Appeals) directed the ITO to recalculate the deduction of the cost of investment after considering the outstanding loans, as required under rule 2 of the Second Schedule to the Surtax Act. The Tribunal upheld this direction, noting the necessity of recalculating the deduction correctly and giving the assessee an opportunity to be heard.

Conclusion:
The Tribunal dismissed all the grounds of appeal raised by the assessee for the years under appeal, affirming the Commissioner (Appeals)'s findings and directions. The Tribunal held that the unaccounted income could not be treated as a reserve, the Settlement Commission's recommendations were not binding on the ITO for surtax purposes, and the excess tax provision could not be considered as part of the capital base. The recalculation of the cost of investment deduction was to be done correctly, considering outstanding loans.

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