Satish Chandra, C.J.
1. For the assessment year 1962-63 (previous year being the financial year ending March 31, 1962), the assessee returned an income of Rs. 10,790. The assessment was, however, completed on a total income of Rs. 1,90,293 by an assessment order passed on March 20, 1967.
2. The ITO, on March 29, 1968, passed an order under Section 104 of the I.T. Act, 1961, raising a demand of additional super-tax of Rs. 34,342. He found that the assessee had a distributable surplus, of Rs. 92,545 which should have been distributed and hence an additional super-tax at 37 per cent. was payable under Section 104 of the I.T. Act, 1961.
3. The assessees went in appeal. The AAC upheld the order of the ITO.
4. The assessee then went up to the Tribunal. The Tribunal upheld the assessee's case and quashed the order, under Section 104 particularly on the ground that in the meanwhile the order imposing penalty for the same matter had been quashed.
5. At the instance of the Revenue, the Tribunal has referred the following question of law for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of Section 104 of the Income-tax Act, 1961, are not applicable?'
6. The Tribunal agreed with the submission of the assessee that for the purpose of Section 104 of the I.T. Act, only the commercial profits could be taken into account irrespective of the actual assessed income. It went on to hold that the addition of hundi loans was, in the present case, based upon the rejection of the explanation of the assessee in respect of its genuineness. It held:
'Merely because the assessee's explanation was rejected and the hundi loans were treated as the assessee's income, it could not be said that the said loans actually represented the income earned by the assessee out of which it could declare dividend. Insufficiency or inadequacy of evidence does not prove income in the hands of the assessee. The provisions of Section 104 are penal in nature and are similar to the penalty provisions of Section 271(1)(c). The Tribunal, in the penalty appeal, has held that the Department could not prove the charge of concealment in respect of hundi loans and, therefore, the penalty order could not stand. That being the position, the provisions of Section 104 also could not be applied in the instant case.'
7. The Tribunal ultimately held that the assessee was not in a position to prove to the satisfaction of the Department, the genuineness of the loans and, therefore, applying the provisions of Section 68 of the I.T. Act, 1961, treated the hundi loans as the assessee's income. There is no evidence on the record to suggest that the said hundi loans represented a part of the commercial profits of the assessee.
8. Mr. Bagchi, learned counsel for the Department, invited our attention to a decision of this court in the case of Mehar Singh & Co. (P.) Ltd. v. CIT : 108ITR607(Cal) . In that case, the court held that if it could be shown that any artificial or notional or fictional income was included in the calculation for any reason or failure on the part of the assessee, then there would have been some force in the contention of the assessee that the assessed income or the estimated profits could not be said to be the commercial or real profits of the business for the purpose of making an order under Section 23A of the old Act, According to this decision, Section 23A of the old Act would not normally be attracted if the addition to the income was based upon inclusion of any artificial, notional or fictional income as apart from commercially earned income. On the findings recorded by the Tribunal, it is evident that the addition to the returned income was based upon rejection of the explanation of the assessee for the cash credit entry appearing in its accounts. There was no deliberate inflation in the accounts of expenditure. The assessee could not prove to the satisfaction of the Department the nature and source of the hundi loans. In our opinion, this addition, having been made under Section 68 of the I.T. Act, was an artificial or notional or fictional income within the meaning of the phrase used by this court in the aforesaid decision of Mehar Singh & Co. (P.) Ltd.'s case : 108ITR607(Cal) . It was, hence, not liable to be subjected to an order under Section 104 of the I.T. Act, 1961.
9. Learned counsel for the Department also invited our attention to a decision of this court in the case of CIT v. Universal Fertiliser Co. (P.) Ltd. : 114ITR47(Cal) . This case does not support the Revenue. There, it was held that the failure of an assessee to prove the genuineness of certain loan transactions would give the Revenue a right to add back these amounts to the income of the assessee for the purpose of assessment. It may be that in a particular case, there are facts and circumstances which justify a finding that the amounts added back are available for distribution as dividend for the purpose of Section 23A of the Indian I.T. Act, 1922. But, where there is no other fact except that the assessee had failed to prove the genuineness of loan transactions, it would not make the amounts added back available for the purpose of considering the distributable surplus and the provisions of Section 23A would not be attracted. This case, in our opinion, is applicable on all fours. Here also the finding of the Tribunal is that the addition was made merely because the assessee failed to prove the genuineness of the loan transactions. They could not, hence, be considered to be profit available for computing the distributable surplus under the provisions of Section 104 of the I.T. Act, 1961.
10. The question whether Section 104 of the I.T. Act, 1961, is a penal provision of the same nature and character and will attract the same principles of interpretation as Section 271(1)(c) does not arise for a decision in this case. We reserve our opinion on this question.
11. In this view of the matter, we answer the question referred to us in the affirmative, in favour of the assessee and against the Revenue.
12. Since no one has represented the assessee, we are making no order as to costs.
Suhas Chandra Sen, J.