SOMASUNDARAM PRIVATE LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE are references under s. 256(2) of the I.T. Act, 1961 ("the Act"). The questions referred by the Income-tax Appellate Tribunal are :

(2.) THE assessee is a private limited company. It is a company to which the provisions of s. 104 of the Act are applicable. THE assessment years involved are 1965-66 and 1966-67, the relevant previous years being the years ending on April 18, 1965 and April 18, 1966, respectively. It appears, the assessee had earned large income on the sale of import entitlements which had not been accounted for in the books of account. In regard to this income, assessee entered into a settlement with the Commissioner under s. 271(4A) of the Act admitting the income as under : <FRM>JUDGEMENT_664_ITR152_1985Html1.htm</FRM>

(3.) IN the appeals preferred by the assessee against the said levy, it was urged before the AAC that for the assessment year 1956-66, the assesseecompany should have distributed dividends by April 18, 1966, but it could not declare any dividend since by that time the company had been saddled with the tax liability of Rs. 3,26,841 as a result of the assessment made by the ITO, although that sum was reduced on March 17, 1969, to Rs. 1,28,944. It was also urged before the AAC that there was an anticipated loss of Rs. 1,12,826 which was subsequently written off as bad debt. It was thus claimed that the directors of the company had acted reasonably in not declaring any dividend. But the AAC did not accept these contentions. Relying upon the decision of the Supreme Court in Gobald Motor Services (P.) Ltd. v. CIT , the AAC held that the action taken by the ITO was justified. He observed :