Law:

Section:

Section 104 of the Income-tax Act, 1961 - Additional income-tax on undistributed profits of certain companies - Assessment year 1963-64 - Reassessment proceedings under section 147 were initiated on ground that there were some fictitious loans and unexplained share capital - Assessee filed its revised return - However, it moved an application before IAC offering to be assessed on certain hundi loans and unexplained capital - Assessment was completed and distributable profit was also determined on basis of which assessee ought to have distributed dividend to extent of Rs. 40,640 as against Rs. 3,666 declared by it - Whether assessment of hundi loans and unexplained capital could be treated as concealed income of assessee and, thus, provisions of section 104 were attracted - Held, yes FACTS For the assessment year 1963-64, the assessment of the assessee-company was reopened under section 147 on the ground that there were some fictitious loans and unexplained share capital appearing in the balance sheet. The assessee filed its return. However, it moved an application before the IAC offering to be assessed on certain hundi loans and unexplained capital. The assessment was completed. The distributable income was worked out to Rs. 90,310 on which the assessee ought to have distributed dividend to the extent of Rs. 40,640 as against Rs. 3,666 declared by the assessee. As such proceedings under section 104 were initiated. On appeal, the AAC set aside the order under section 104. On appeal by the revenue, the Tribunal held that for the purposes of section 104 book profits alone were to be taken into consideration and not the assessed income. It, however, held that if the assessee concealed its income or inflated its expenses such income could be included in determining the commercial profits of the assessee. It was also held that since the proceedings under section 104 were penal in nature, requirements of the section had to be strictly complied with. It further held that the hundi loans and unexplained capital were included in the assessment under the head 'Income from other sources' and not under the head 'Business income' and, therefore, could not have been taken…

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