1997 (12) TMI 157 - AT - Income Tax

Summary

Issues Involved:
1. Justification for the levy of additional tax under section 104.
2. Impact of the Settlement Commission's order on the Tribunal's jurisdiction.
3. Determination of real commercial profits and their relation to the non-declaration of dividends.
4. Applicability of precedents cited by both parties.

Issue-wise Detailed Analysis:

1. Justification for the Levy of Additional Tax Under Section 104:
The Revenue argued that the CIT (Appeals) erred in holding that the levy of additional tax under section 104 for the assessment years 1986-87 and 1987-88 was not justified. The CIT (Appeals) had cancelled the additional tax, reasoning that the enhanced income shown in the revised returns was to avoid prolonged litigation and purchase peace, and did not reflect real commercial profits sufficient to declare dividends. The Revenue contended that the assessee had inflated expenditure and filed revised returns showing higher income, which should be considered the real commercial profits. The Tribunal agreed with the Revenue, concluding that the assessee's inflation of expenses and subsequent filing of revised returns indicated sufficient commercial profits to warrant the levy of additional tax under section 104.

2. Impact of the Settlement Commission's Order on the Tribunal's Jurisdiction:
The assessee argued that the Settlement Commission's order under section 245D(4) should be conclusive, and the Tribunal should not have jurisdiction over the matter of additional tax under section 104. The Tribunal, however, clarified that the Settlement Commission's order did not cover the issue of additional tax under section 104, and thus, the Tribunal retained jurisdiction. The Tribunal emphasized that the Settlement Commission's jurisdiction is limited to matters explicitly covered in its order, and since the issue of additional tax was not addressed by the Settlement Commission, the Tribunal could still decide on it.

3. Determination of Real Commercial Profits and Their Relation to the Non-Declaration of Dividends:
The assessee claimed that non-declaration of dividends was due to the need to maintain liquidity for its chit fund business, which required substantial funds. The Tribunal, however, noted that the assessee had inflated expenses to suppress real commercial profits. Citing the Supreme Court's decision in Gobald Motor Service (P.) Ltd. v. CIT, the Tribunal held that the real commercial profits should include the concealed income resulting from inflated expenses. Therefore, the non-declaration of dividends was unjustified, and the levy of additional tax under section 104 was warranted.

4. Applicability of Precedents Cited by Both Parties:
The CIT (Appeals) had relied on decisions from the Calcutta High Court in CIT v. Chemical Agents (P.) Ltd. and CIT v. Industry Side (P.) Ltd. to support the assessee's case. The Tribunal found these precedents inapplicable, as they involved issues of undisclosed investments and loans, which were not relevant to the assessee's case of inflated expenses. Instead, the Tribunal applied the Supreme Court's ruling in Gobald Motor Service (P.) Ltd., which dealt with the addition of suppressed income to determine real commercial profits. The Tribunal concluded that the CIT (Appeals) had misapplied the Calcutta High Court decisions, and the correct precedent was the Supreme Court's decision in Gobald Motor Service (P.) Ltd.

Conclusion:
The Tribunal reversed the CIT (Appeals)'s order, upheld the Assessing Officer's decision to levy additional tax under section 104, and dismissed the assessee's cross-objections. The Tribunal emphasized the importance of considering real commercial profits, including any concealed income, in determining the justification for the levy of additional tax and the non-declaration of dividends.