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TMI Blog1974 (8) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------------------------------------------------------------------------------- As determined As reduced in As ultimately by the Income- appeal by the determined by tax Officer A.A.C. the Tribunal ------------------------------------------------------------------------------------------------------------------------------------------------ Rs. Rs. Rs. Total income 2,88,536 2,41,151 2,29,229 Tax thereon 1,56,576 1,32,173 1,26,032 ------------------------------------------------------------------------------------------------------------------------------------------------- One of the items of expenses disallowed for assessment purposes and added back to the book profit, nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of excess claim for expenses relating to spare parts and maintenance should have been taken into account in determining the quantum of profits available for the purpose of section 23A of the Indian Income-tax Act, 1922. In effect the case of the revenue was that the disallowed expenditure of Rs. 56,350 was part of the commercial profits available with the assessee, that the balance thus available for distribution came to Rs. 57,239 (Rs. 1,621 plus Rs. 56,350) against the paid-up capital of Rs. 30,000 and that as no dividend was declared the provisions of section 23A(1) were rightly applied by the Income-tax Officer. In support of this contention, the revenue cited the decision of the Supreme Court in Gobald Motor Service (P.) Ltd. v. Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23-A(1) of the Income-tax Act. It is well-established that for the application of section 23A(1), neither the book profits nor the assessed profits can be taken to be conclusive, and that it is the true and real commercial profits that should be taken into account for considering the smallness of the profits or otherwise for the application of section 23A. In Commissioner of Income-tax v. Gangadhar Banerjee and Co. (Private) Ltd., the Supreme Court pointed out that "the words 'smallness of profit' in section 23A refer to actual accounting profits and not the assessable profits of the year, that in arriving at the assessable profits the Income-tax Officer may disallow many expenses actually incurred by the assessee and include many items on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to be taken into account. The question is whether on the facts of this case the addition of Rs. 56,350 being the amount disallowed out of the expenditure claimed for spare parts and maintenance could be added to the book profits. As already stated, the Appellate Assistant Commissioner proceeded on the basis that it is only the book profits that is to be taken into account for the application of section 23A(1). The Tribunal has proceeded on the basis that though an addition of the book profits can be justified in cases where the assessee is found to be guilty of deliberate omission or concealment of income or of deliberate inflation of the expenditure, the addition of Rs. 56,350 made in this case cannot be justified as there was no fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h other items for finding out the commercial or accounting profits for the purpose of application of section 23A. Before the Supreme Court it was contended that the addition in respect of the disallowed portion of the expenses of spare parts, tyres and tubes, etc., to the book profits was not justified because it represented only the notional income. Rejecting that contention, the Supreme Court expressed that the profits which have to be taken into consideration while considering the application of section 23A are the real commercial or accounting profits, that if an item is deliberately omitted from the accounts, it cannot be said that commercial principles prevent that amount being added to the profits in order to arrive at the real comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent the inflated value of the spare parts actually consumed by the assessee. In view of that position, the addition of Rs. 56,350 to the book profits for finding out the commercial profits with reference to section 23A(1) could be justified, in view of the decision of the Supreme Court in Gobald Motor Service (P.) Ltd. v. Commissioner of Income-tax which has been followed by this court. in T. C. No. l 71 of 1967 (Victory Motor Transport (Nilgiris 1956) Private Ltd. v. Commissioner of Income-tax). The result is, the question referred to us is answered in the negative and in favour of the revenue. In view of the fact that the respondent has not appeared either by himself or by counsel, we are not making any order as to costs. Question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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