1970 (8) TMI 2 - SC - Income Tax

Best Judgment Assessment - Deemed Profit - question whether an allowance had been granted or a deduction made in respect of a trading liability had to be decided by referring to the order relating to the assessment year and it could not be determined by drawing inferences from what was done in respect of the assessment of an earlier year - assessee s appeal is allowed

Summary

Issues:
1. Interpretation of section 10(2A) of the Indian Income-tax Act, 1922.
2. Assessment of income for a private limited company running a fleet of buses.
3. Treatment of unpaid bonus in the assessment year 1950-51.
4. Discrepancy in assessing the income by the Income-tax Officer and the Appellate Assistant Commissioner.
5. Disagreement between the Tribunal and the High Court regarding the application of section 10(2A).

Analysis:
The Supreme Court addressed an appeal involving the interpretation of section 10(2A) of the Indian Income-tax Act, 1922. The case revolved around a private limited company operating a fleet of buses. In the assessment year 1950-51, the company claimed establishment charges, including an unpaid bonus of Rs. 71,949, which was not paid due to financial difficulties. Subsequently, in the assessment year 1957-58, a partial amount of the bonus was paid, and the remaining balance was credited to the profit and loss account. The Income-tax Officer treated the credited amount as income for the year. The Tribunal observed discrepancies in the assessment process, noting that the Income-tax Officer did not consider the bonus claim while estimating the income. The Tribunal held that unless a specific expense was identified as already allowed in a previous assessment, section 10(2A) could not be applied for recoupment.

The High Court disagreed with the Tribunal's view but acknowledged that there was no evidence of the Income-tax Officer allowing the bonus claim in the assessment for 1950-51. The Court emphasized that section 10(2A) applies when an allowance or deduction has been made for a trading liability, and the assessee receives an amount related to that liability in a subsequent year. The Court concluded that the conditions of section 10(2A) were not met based on the Tribunal's findings. The Court highlighted the importance of referring to the specific assessment order to determine the allowance or deduction of a trading liability, rather than inferring from previous assessments.

The Supreme Court overturned the High Court's decision, stating that the Tribunal's factual findings did not support the High Court's conclusion. The Court ruled in favor of the assessee, stating that the addition made by the Income-tax Officer in the assessment for 1957-58 was unjustified. The Court emphasized the need to establish whether an allowance or deduction had been granted for a trading liability by referring to the relevant assessment order. Therefore, the appeal was allowed in favor of the assessee, with costs.