COMMISSIONER OF INCOME-TAX Vs. KRISHNONIC PVT LTD

JUDGEMENT

(1.) THE question referred to this Court reads as under : "whether,the Appellate Tribunal is right in law and on facts in confirming the order passed by the Commissioner of Income-tax (Appeals) directing the Assessing Officer to compute the capital employed by treating the sum brought forward from profit and loss appropriation account as reserve?" in order to examine the question, the relevant facts are as under:

(2.) THE Assessee is a Private Limited Company registered under the Companies Act and the provisions of the Companies (Profits)Surtax Act, 1964 (here-in-after referred to as "the Surtax Act" for convenience) are applicable. It appears that for the assessment year of 1986-1987, the Assessing Officer vide order dated 31. 7. 1989 did not allow the inclusion of the amount shown as Reserve to be treated as part of the capital to the Assessing Company on the basis that such amount represented the balance brought forward in the Profit and Loss Appropriation Account from the earlier year. The Assessing Officer extracted certain observations from the Director's report dated 14. 6. 1985 to the shareholders and considered that as in the subsequent year, a part of the amount is utilised for declaring dividend, the same can be termed as Reserve towards the provisions made for distribution of the dividend. The Assessing Officer after extracting the Director's report observed that the balance has been transferred to the balance-sheet but same has not been earmarked for specific purpose for a specific occasion other than distribution of dividend and therefore, ultimately order of disallowing came to be passed.

(3.) IN appeal before the Commissioner of Income-tax (Appeals), the factual findings recorded at para. 2. 2 reads as under : "the unappropriated balance in the Profit and Loss Account which does not represent any liability or provision for any contingency has to be teated as reserve for the purpose of Sur-tax Act. "