Bogus trading loss and inaccurate income particulars justify penalty and must be added back for dividend-profit computation.

A bogus or sham trading loss recorded through unreal transactions constitutes furnishing inaccurate particulars of income, so penalty under section 28(1)(c) is attracted where the entries do not reflect genuine trading results. The same unreal loss cannot be treated as a genuine deduction when computing commercial profits for dividend purposes under section 23A; it must be added back in determining the profits available for distribution. On the facts described, both issues were decided against the assessee, and the penalty and dividend-distribution treatment were upheld.

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Issues: (i) whether penalty was leviable under section 28(1)(c) for deliberately furnishing inaccurate particulars of income by recording bogus transactions and a sham trading loss; (ii) whether the alleged bogus loss had to be excluded while determining the reasonableness of dividend under section 23A.

Issue (i): Whether penalty was leviable under section 28(1)(c) for deliberately furnishing inaccurate particulars of income by recording bogus transactions and a sham trading loss.

Analysis: The loss claimed by the assessee had already been found in earlier proceedings to be unreal and engineered through transactions with allied concerns. On those findings, the return of income at a lesser figure was based on entries that did not reflect genuine trading results. Section 28(1)(c) applies where the assessee deliberately furnishes inaccurate particulars of income and the assessing authority is satisfied about that conduct.

Conclusion: The penalty provision was rightly attracted and the question was answered against the assessee.

Issue (ii): Whether the alleged bogus loss had to be excluded while determining the reasonableness of dividend under section 23A.

Analysis: For section 23A, the relevant enquiry is into true commercial profits. A loss found to be wholly unreal cannot be treated as a genuine business deduction for computing the profits available for dividend. The disallowed amount was therefore required to be added back in arriving at the commercial profits, and the statutory dividend percentage was correctly worked out on that basis.

Conclusion: The bogus loss was not to be excluded, and the question was answered against the assessee.

Final Conclusion: Both referred questions were decided against the assessee, and the departmental action under the penalty provision and the dividend-distribution provision was upheld.

Ratio Decidendi: A loss found to be bogus or sham cannot be treated as a genuine trading loss either for penalty purposes or for determining commercial profits under the dividend-distribution provisions; deliberate use of unreal entries constitutes furnishing inaccurate particulars of income.

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