Sabyasachi Mukharji, J.
1. We are concerned in this reference with the assessment year 1961-62. The assessee's profit and loss account showed the net income of Rs. 4,359 for the previous year relevant to the assessment year under reference. The assessment, however, was completed at first on a sum of Rs. 70,000 under Section 144 of the Income-tax Act, 1961. Later on, the same was reopened and a revised assessment under Section 143(3) read with Section 146 was made on a total income of Rs. 27,391, inclusive of a sum of Rs. 20,500 representing certain loans, which the assessee had failed to prove. The Income-tax Officer, thereafter, passed an order under Section 23A(1) of the Indian Income-tax Act, 1922. This however, was passed on the basis of figures of assessment as made under Section 144. The assessee preferred an appeal to the Appellate Assistant Commissioner against the order of the Income-tax Officer. In appeal, the Appellate Assistant Commissioner took the total income as assessed under Section 143(3), that is to say, Rs. 27,391. He was also of the opinion that for the purpose of determination of commercial profits, the addition of Rs. 20,500 to the income of the assessee from undisclosed sources should not be taken into account for the purpose of determination of applicability of Section 23A of the Indian Income-tax Act, 1922. The revenue preferred an appeal. It was submitted that the Appellate Assistant Commissioner had erred in holding that the sum of Rs. 20,500 treated as assessee's income from undisclosed sources in the assessment should not be taken into account while working out the commercial profits. According to the revenue, the revised income, after the Appellate Assistant Commissioner's order in the quantum appeal, came to Rs. 18,616. The tax payable was Rs. 8,377, leaving a distributable surplus of Rs. 10,239. The assessee had declared no dividend. According to the revenue it could not be said, on the facts and in the circumstances of the case, that there was. no distributable surplus to enable the assessee to declare any dividend. On the other hand it was urged on behalf of the assessee that in the quantum appeal the addition of Rs. 20,500 was reduced to Rs. 11,725. According to the assessee, the mere fact that a certain addition had been confirmed by the Appellate Assistant Commissioner, did not necessarily mean that the said amount formed part of the commercial profits of the assessee and that the same was available for distribution of dividend. The circumstances in which the aforesaid amount was offered for peak credits, as mentioned in the order of the Appellate Assistant Commissioner, was also reiterated. The Tribunal after considering the submissions of the parties came to the conclusion that besides the commercial profits, the only item which could be added back for the purpose of finding out commercial profits, was the sum of Rs. 411 on account of miscellaneous expenditure for preliminary expenses written off. This would make the total of Rs. 4,769. The tax payable on the income finally determined was Rs. 8,377. The Tribunal did not accept the revenue's contentions and, therefore, held that it could not be said that the assessee was, in any way, not justified in not declaring any dividend. On the aforesaid facts the following question has been referred to this court:
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that for the purpose of determination of commercial profits under the provisions of Section 23A(1) of the Indian Income-tax Act, 1922, the sum of Rs. 11,725 added back as the assessee's income from undisclosed sources, should be excluded from the same and, as such, in arriving at the conclusion that the provisions of Section 23A(1) were not attracted in the instant case ?'
2. In this case the Income-tax Officer had added back Rs. 20,500. In making this addition the Income-tax Officer had observed as follows:
'This was the first year of the assessee's business. Some loan accounts appeared in the books of accounts. But the assessee failed to prove the genuineness of the following :
(1)Sri Rajeswar Roy-- Peak 3,000(2)Sitala Kanta Dey 5,000(3)Smt. Lila Bati Saha 5,000(4)Sri Bhim Sarkar 2,500(5)Sri Gopal Chandra Saha 5,000
3. In the quantum appeal the Appellate Assistant Commissioner observed as follows:
'2. The ITO has given the names of several parties in whose accounts the amounts were shown as loans received by the appellant. The ITO states that the appellant could not produce evidence in support of the genuineness of these loans. The ITO, therefore, added the peak amounts in these individual names. Before me the counsel had first stated that these were genuine loans and that formal letters had been obtained in their cases. He, however, stated that due to the lapse of time some of the parties were not available while some had expired. In these circumstances, the appellant's counsel agreed to the addition of the amounts standing in various names on the basis of peak credits. For this purpose the appellant's counsel worked out a consolidated account from which I find that the peak credits in the two years are as under :
Assessment yearPeak Rs.
4. On this basis the amounts that fell to be assessed are Rs. 11,725 for assessment year 1961-62 and Rs. 20,375 for assessment year 1962-63. The appellant's counsel has agreed in writing to the additions of these amounts in the respective assessments. On this basis, the amounts will be assessed in the two years respectively. However, the ITO is directed to verify the working of the rotation statements as submitted by the appellant and on the basis of which the amounts assessable are as stated above. Subject to this verification, the ITO will substitute the figures of Rs. 11,725 and Rs. 20,375 for the two years in place of the figures taken by him.' In those circumstances the question is whether the provisions of Section 23A of the Indian Income-tax Act, 1922, were attracted to this case and the company should have declared a dividend. We have noticed that if the ultimate addition of a sum of Rs. 13,725 is not taken into consideration in considering the commercial profits, then there was no question of declaration of any dividend. The question is whether this sum of Rs. 11,725 should be taken into consideration in computing the commercial profits of the assessee for the year in question for the purpose of considering the distribution of dividend. Once the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividend by any company arc less than 60% of the assessable income of the previous year, as reduced by the amount of income-tax and super-tax payable by the company in respect thereof, and that it would not be unreasonable to distribute a larger dividend than that declared, he has no option but to pass an order that the undistributed portion of the assessable income of the assessee of the previous year, as computed for income-tax purposes and reduced by the amount of income-tax and super-tax payable by the company, shall be deemed to have been distributed as dividend amongst the shareholders. Commercial or accounting profits which have to be taken into consideration to see whether a larger amount than that declared by the company could be distributed in view of the smallness of the profits made, are the real commercial or accounting profits. In case, however, if an item of receipt is deliberately omitted from the accounts it cannot be said that the commercial principles prevent that amount being added to the profits in order to arrive at the real commercial or accounting profits, as was the case before the Supreme Court in the case of Gobald Motor Service (P.) Ltd. v. Commissioner of Income-tax : 60ITR447(Cal) . More or less similar principles were reiterated by this court in the case of Mehar Singh & Co. (P.) Ltd. v. Commissioner of Income-tax : 108ITR607(Cal) . In this case, certain items have been added back. Now, these items have been added back on the ground that the assessee had failed to prove the genuineness of the loans. There was no further ground. It is well settled that Section 23A is a penal provision. Therefore, unless there is evidence that the amounts which are added back were actually in the hands of the assessee to be available for distribution of dividend, in this case it would be difficult to sustain the view that the assessee should have distributed dividend at all. It may be that in a particular case when addition is made to the income disclosed by the assessee, there are facts and circumstances which justify the holding of the fact that the amounts added back are available for distribution. But in this case there is no other fact except that the assessee has failed to prove the genuineness of certain loan transactions. The failure of the 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. But mere failure, in the background of the provisions of Section 23A of the Indian Income-tax Act, 1922, would not, in our opinion, make the amounts added back, in the absence of any other evidence, available for the purpose of considering the distributable surplus. In that view of the matter, we are of the opinion that the Tribunal was justified in excluding the same and in arriving at the conclusion that the provisions of Section 23A(1) of the Indian Income-tax Act, 1922, were not attracted to the instant case.
5. The question is, therefore, answered in the affirmative and in favour of the assessee. There will be no order as to costs.
Sudhindra Mohan Guha ,J.
6. I agree.