1993 (6) TMI 115

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....-1985the assessee had declared dividend of Rs. 1.00,000. The Assessing Officer found that the amount of distributable income was Rs. 1,53,782 and the statutory percentage for the compulsory distribution of the dividend being 90 per cent, the company should have declared dividend of a sum of Rs. 1,38,403. He, therefore, worked out shortfall of Rs. 38,403 and accordingly levied additional tax at 50 per cent of the shortfall of Rs. 19,202. 3. It was explained to the Assessing Officer by the company, consequent to the show-cause notice proposing to levy additional tax, that (i) the assessment for assessment year 1983-84 was completed after the end of previous year i.e., 31-5-1985 and a demand of Rs. 19,000 plus was raised and the same was pa....

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.... deposit funds with IDBI in December 1985 to the extent of Rs. 6,600 plus but this explanation was ignored by both the tax authorities. The Commissioner (Appeals) was of the view that there was a surplus in the profit & loss account of Rs. 12,964 and balances in various current accounts in banks of Rs. 69,000 plus and even after giving benefit of transfer to general reserve of Rs. 17,000 plus, the company was still left with an amount of Rs. 36,000 plus, and, therefore, company should have distributed higher dividend and there was no case for smallness of profit. 4.The representatives of both the sides were heard. In our opinion, the imposition of additional tax is unjustified. The reasons are as follows : Section 104, as was relevant....

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....tem of accounting is mercantile and, therefore, certain income would always remain unrealised. Besides, in this case there is large amount of tax deducted at source, as is reflected in the balance-sheet and these factors had an effect on liquid funds on hand, as explained before the tax authorities. None of the tax authorities has considered this very important aspect regarding paucity of funds. A reference to the Director's report shows following mention :--- Keeping the overall financial position in view, the paucity of funds, repayment of loan and the income-tax demands, your Directors recommend a dividend of 40% on the equity shares for the year ended31-5-1985subject to statutory deduction of tax at source." This mention in the Di....