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TMI Blog1987 (10) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... um of Rs. 2,95,360 for the purpose of working out the accumulated profits. However, the assessee is entitled for deduction in respect of depreciation on the sum of Rs. 2,95,000. Thus, he confirmed the computation of the accumulated profits at Rs. 1,55,985. 3. The learned counsel for the assessee did not contest the item of Rs. 82,000 relating to the building in research development division. But, he strongly urged that the plant and machinery of the value of Rs. 2,12,360 installed in the research development division was absolutely necessary in order to keep with the latest technology and the said amount has been allowed as deduction under section 35. This cannot be included while working out the accumulated profits. He urged that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hands of the shareholder. He only does what the directors should have done. He puts himself in the place of the directors. Though the object of the section is to prevent evasion of tax, the provision must be worked not from the standpoint of the tax collector but from that of a businessman. The yardstick is that of a prudent businessman. The reasonableness or the unreasonableness of the amount distributed as dividends is judged by business considerations, such as the previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future and similar others. He must take an overall picture of the financial position of the business. It is neither possible nor advisable to lay down and decisive t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prevent disbursements to shareholders of the profits made by a company by way of loans and not by way of dividends. It is difficult to hold that the phrase 'accumulated profits' in this section refers to the aggregate of the assessed income arrived at by disallowing disbursements and expenditures in fact incurred. There was no justification for the tax authorities and the Appellate Tribunal to proceed to arrive at the accumulated profits of the assessee-company by merely totalling up the income of the assessee-company as assessed by previous assessment orders. That the profits and/or income mentioned in these orders will not reflect the profits accumulated and in fact in the hands of the assessee-company is patent. This can be illustrated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n into account and the Income-tax Officer will have to put himself in the position of a prudent businessman or director and consider the matter with an objective approach. In the instant case, the installation of the plant and machinery in the research division is very essential to keep up with the latest technology and survive in the business in competition with others. Thus, the going to the extent of Rs. 2,12,360 for the plant and machinery cannot be included in the accumulated profits. It is the profits possessed excluding the outgoings which could be considered in determining the accumulated profits. 5. The learned departmental representative relied on the decision of the Supreme Court in the case of P. K. Badiani. There the issue wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm of promissory notes are not hundies. The assessee contended that the borrowals and repayments were genuine and some of the loans were mere renewals. Hence, no disallowance should be made under section 69D. The Income-tax Officer did not accept this submission. The Income-tax Officer made an addition of Rs. 4,13,813. 7. On appeal, the CIT (Appeals) held that the Legislature has specifically intended that hundi borrowals should only be by crossed account payee cheques. All the borrowals which are effected through the medium of hundi irrespective of character of document (whether it is a promissory note or Bills of Exchange), are covered by section 69D. He rejected the contention that the promissory notes are not covered by section 69D ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals). He submitted that once receipt or repayment of hundi amount is in cash section 69D applies. Even if the hundi is in English it is only a hundi. He justified the disallowance. 9. We have considered the rival submissions. The assessee has filed confirmatory letters with the IT file numbers of the parties in respect of the hundi transactions. Their identity and genuineness is not doubted. The documents are in English and they are similar to the other documents which the Tribunal has considered in some cases. The Tribunal in its order in Instruments Techniques (P.) Ltd. [IT Appeal No. 246 (Hyd.) of 1984, dated 20-9-1984] and another order dated 6-8-1986 in IT Appeal Nos. 146 147/Hyd/86 held that once their identity and genuineness is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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