Law:

Section:

Section 104 of the Income-tax Act, 1961 (Corresponding to section 23A of Indian Income tax Act, 1922) - Additional tax on undistributed profits of certain companies - Assessment years 1960-61 and 1961-62 - Whether when assessee's book results showing losses in earlier two years had not been accepted by Income-tax Officer, he was not bound to accept said book results in proceedings under section 23A for finding out available surplus in subsequent years - Held, yes FACTS For the assessment years 1958-59 and 1959-60, the assessee filed returns showing loss. The ITO however, did not accept the loss declared and ultimately, the assessment was completed as 'no income no loss'. For the assessment years 1960-61 and 1961-62, the assessee was assessed at positive figure. The net income after deducting the tax came to Rs. 17,822 and Rs. 24,839 in the assessment years 1960-61 and 1961-62, respectively. But the assessee had not declared any dividend in these two year. The ITO, therefore, issued notices under section 23A of the Indian Income-tax Act, 1922, to show cause why additional super-tax should not be levied. The assessee submitted that the losses of the earlier years 1958-59 and 1959-60 completely wiped out the profits earned in the assessment years 1960-61 and 1961-62, that any declaration of dividend would be contrary to the provisions of the Companies Act and that according to the books, there were no profits warranting the declaration of any dividend. The ITO rejected the assessee's contention observing that the losses claimed in the first two years had not been accepted by the department and that in both the years the loss had been taken to be 'nil'. He, therefore, held that the assessee was liable to super-tax under section 23A. The AAC and the Tribunal upheld the order of the ITO. HELD The fact that the book results had not been accepted by the ITO as correct in the earlier years could not be altogether overlooked. When the assessee's book results showing losses in the earlier two years had not been accepted by the ITO, it could not be said that the ITO was bound to accept the said book results in proceedings under section 23A for finding out the available…

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