9911796707
TMI Blog1984 (9) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... ated below. 4. The ITO noted in the assessment order for the assessment year 1969-70 that the order was being passed under section 6(2) of the Surtax Act. The assessee is a company and the method of accounting was mercantile. He noted that in pursuance of the settlement of the assessee's income-tax matters under section 245A of the Income-tax Act, 1961 (' the 1961 Act '), notice under section 8(a) of the Surtax Act was issued to the assessee. Hearing was fixed by him from time to time. After being given sufficient time, the assessee submitted a revised balance sheet for the purpose of computation of chargeable profit under the Surtax Act. The ITO referred to para 18 of the Settlement Commission's order dated 14-1-1977 under which the assessee claimed that the extra profit declared before the Commission should be treated as a reserve for the purpose of computation of capital. He noted the facts of the case that the assessee made a settlement before the Commission as a result of which extra profit offered by the assessee was assessed to tax in the assessment years 1968-69 to 1976-77. The assessments for the assessment years 1968-69 to 1973-74 had been completed earlier and were re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the credit balance in the profit and loss account can be treated as a reserve as it was a mass of undistributed profit which was not a reserve at all. He pointed out that it was necessary for the directors to recommend how this balance profit should be apportioned and in this case, it would not be permissible in view of the fact that the balance sheets of the company for the years have been finalized and assessed. He, therefore, held that in view of the additional income offered for taxation before the Commission, after the finalization of the balance sheet for the year, the same cannot be treated as a reserve for the purpose of computation of capital base of the company. He proceeded on to compute the capital of the company under the provision of the Surtax Act, in the assessment order. 6. For the other years under appeal also, the ITO concluded the surtax assessment in the same manner as indicated in the preceding paragraph. 7. The assessee took up the matter before the Commissioner (Appeals) raising various contentions and certain facts were noted. It was pointed out that the assessee was running a jute mill at Calcutta and its premises were searched under section 132 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mandatory or binding on the ITO, referring to the decision of the Hon'ble Supreme Court in the case of CIT v. B.N. Bhattacharjee [1979] 118 ITR 461. He also observed that the surtax assessments and the computation of capital were not matters covered by the assessee's application to the Commission and were not matters relating to the case, i.e., income-tax proceedings. He also pointed out that the application of the assessee also did not include any reference to surtax assessments. 10. The Commissioner (Appeals) was also of the view that the ITO was right in disregarding the recast balance sheet filed by the assessee along with the surtax returns. He took into account the observations and the points made out by the ITO in the assessment order regarding the acceptance of the balance sheet conforming to the relevant sections of the Companies Act. He pointed out that in the present case, the assessee wanted that such audited balance sheet should be superseded by the recast balance sheet (which were not audited nor reported on by the directors and not passed in the annual general meeting of the shareholders). The Commissioner (Appeals) referred to the case law relied on by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejecting the claim of the assessee in respect of the points discussed by us briefly above. It is stressed before us that the Commission accepted the prayer of the assessee to spread over the amount for the purpose of income-tax, which is directly linked with the computation of capital for the purpose of Surtax Act, which the lower authorities rejected without any sanction of law. He also refers to Sundaram on Law of Income-tax in India, Vol. 3, 12th edn. at p. 3085, in which Circular No. 204 dated 24-7-1976 was dealt with. He also refers to the case as reported in CIT v. Rao Thakur Narayan Singh [1965] 56 ITR 234 (SC). In this connection, it is pointed out that the assessee after the Settlement Commission gave the order, approached the CBDT to give necessary direction to the ITO to give effect to the Settlement Commission's order, while completing the surtax assessments of the assessee for the years under appeal also. It was pointed out that the CBDT have not acceded to the claim of the assessee by its laconic order. At the time of hearing, the assessee's learned counsel refers to the decision in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) with empha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dways Ltd. v. CIT [1981] 130 ITR 545 (Mad.) (FB). In course of his arguments, the learned departmental representative refers to the decision of the Hon'ble Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559, in order to stress the point made out in the orders of the authorities below. According to him, the resolution of the company related to the year under consideration only and it cannot go back to the earlier years as claimed on behalf of the assessee. It is argued that, in fact, it was admitted that there was no record of the concealed income and secret stock of the assessee for all those years. It is emphasized that the recast balance sheet has no authenticity and no action can be taken on such balance sheet, while referring to the case as reported in CIT v. Ajax Products Ltd. [1965] 55 ITR 741 (SC) with emphasis on page 747. According to the revenue, the order of the Commissioner (Appeals) suffers from no infirmity either on facts or in law and, therefore, his order requires to be sustained. 14. We have gone through the orders of the authorities below along with the other papers placed before us for our consideration. We have also gone thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means to know at any particular point of time what was the position of such stock. 16. The Commission at para 13 was satisfied that on the facts of the case, there should be no liability to penalty for non-payment of advance tax on the basis of escaped income disclosed before the Commission. Similarly, the Commission at para 16 considered the issue of penalty under the 1961 Act. It was of the opinion that the case did not justify the levy of any penalty under the 1961 Act. At para 18, it was clearly stated that as for the penalty under section 9 or 20 of the Surtax Act, its reduction or waiver was beyond the purview of section 245H of the 1961 Act. It, however, observed that in view of the co-operation extended by the assessee, the Commission would recommend sympathetic consideration of the assessee's plea, when the relevant surtax assessments are finalized, as the surtax liability was practically tied up with the computation of income in respect of the unaccounted income of Rs. 2,61,41,229. It was also pointed out that any penalty under the Surtax Act would not obviously be in consonance with the spirit of the settlement. The Commission also noted that in respect of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years for which no accounts or details were available. In such a situation, and in such a different set of facts, the ratio in the case of Mysore Electrical Industries Ltd. would not be applicable. We are in agreement with the opinion of the Commissioner (Appeals) on this point also. In fact, in his written argument placed before us, it is stated that the disclosure was accepted by the Settlement Commission on 14-1-1977 and, therefore, the relevant profit was borne on 14-1-1977. In the written submissions also similar contentions were raised on behalf of the assessee. 19. Having regard to the entirety of the facts and circumstances of the case, as discussed by us in the preceding paragraph, we are of the clear opinion that this point of appeal by the assessee cannot be accepted at all. This disposes of ground No. 1 of appeals by the assessee for the years under appeal. 20. We shall now come to the next point of appeal relating to the excess tax provision, which should be considered as capital base. This point is also common to all the years under appeal. Different amounts are involved for the different relevant assessment years. 21. From the impugned order of the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and existing liability that would be reasonably necessary for the purpose, the excess shall have to be treated as a reserve. It is urged that the Commissioner (Appeals) wrongly declined to accept the point of the assessee, although the Commissioner (Appeals) relied on the decision of the Hon'ble Calcutta High Court in the case of A.P.V. Engg. Co. Ltd. It is urged that the facts of the case of the assessee are similar to those of Braithwaite, Burn Jessop Construction Co. Ltd.'s case. It is also urged that the Hon'ble Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. has also decided similar issue in favour of the assessee. It is urged, therefore, by the assessee's learned counsel that the lower authorities have not seriously examined this vital point in the present case. We have heard both the sides and have perused the orders of the authorities below for our consideration, vis-a-vis, the claim of the assessee in the light of the decisions cited earlier. The Commissioner (Appeals) has noted the facts in the case of Braithwaite, Burn Jessop Construction Co. Ltd. are different from those of the assessee before us, and, hence, he was of the view that the ratio of the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s excess amount written back by the assessee to the profit and loss account was left unappropriated which being set apart for any purpose and cannot be treated as ' reserve '. As such the conclusion of the Commissioner (Appeals) on the point is justified. Of course, the assessee has relied on the decision of the Hon'ble Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd., but the facts of the case before us are distinguishable. From the facts available and the materials on record, it is seen that the excess of tax provision was written back to the profit and loss account for the year ended 31-3-1972 as reproduced in the Commissioner's order and was left unappropriated. It may be pointed out also that it was held in the case of Vazir Sultan Tobacco Co. Ltd. that an amount set apart by the board of directors of a company for liability to taxation in respect of the profits which it has earned during the year will have to be regarded as a provision for a known and existing liability, the quantification whereof has to be done later. It is, therefore, a ' provision ' and cannot be regarded as a ' reserve '. The excess provision written back by the assessee in the present case was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In that view of the matter, the huge concealed profits of the assessee for the different years as per the settlement made was saddled with the tax liability at the close of those relevant years, although the quantification of the same was made at a much later date. Therefore, on the facts of the case before us, we are of the opinion that the claim of the assessee in respect of the excess tax provision for the purpose of surtax as discussed briefly above, cannot be conceded to. There is another ground of appeal relating only to the assessment years 1973-74, 1974-75 and 1975-76, relating to the claim of the assessee that without prejudice to the claim of the assessee regarding excess tax provision as discussed in preceding paragraphs, different amounts as mentioned in the grounds of appeal, should be deducted from the cost of investment in terms of rule 2(ii) of the Second Schedule to the Companies (Profits) Surtax Act. Such amount of investment was shown at Rs. 11,90,411, Rs. 18,95,403 and Rs. 15,47,972 for the above three years, respectively. The claim before the Commissioner (Appeals) was for the deduction of the cost of investment in computing the capital under the above Schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and facts, it would not be possible for us to decide the issue either way. Accordingly, this direction of the Commissioner (Appeals) is sustained. In the result, all the grounds of appeals by the assessee for all the years before us are dismissed. ANNEXURE DETAILS REGARDING TAXATION PROVISION --------------------------------------------------------------------------------------------------------------------------------------------------- Assessment Book profit Returned Extra income Revised Taxation provision year income determined by income as per balance Settlement (3+4) sheet Commission --------------------------------------------------------------------------------------------------------------------------------------------------- 1 2 3 4 5 6 --------------------------------------------------------------------------------------------------------------------------------------------------- (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) 1968-69 9,26,551 7,30,246 32,67,653 39,97,899 3,97,000 1969-70 14,40,956 10,19,391 32,67,653 42,86,954 7,90,000 1970-71 19,06,772 14,68,239 32,67,653 47,35,892 10,94,000 ---------------- ----------------- ---------------- --------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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