1979 (1) TMI 10

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....23A(1) of the Indian Income-tax Act, 1922, for the assessment years 1953-54 and 1955-56 were valid ? " The assessee-company which is a private limited company and was promoted by the parent company, M/s. Kilachand Devchand and Co. Ltd., which holds 100% shares of the assessee-company, took over some oil and ginning mills, factories and lands belonging to and used in its business by the parent company. The assets were taken over at a cost of Rs. 13,50,000 though the written down value of these assets as per the income-tax records of this company just before the transfer was only Rs. 2,21,142. The original cost of purchase to the parent company was Rs. 5,52,475. The ITO, in exercise of his powers under the first proviso to s. 10(5)(a), ....

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.... income-tax, it could not be said that the company was not justified in charging depreciation on the basis of the value taken in its books and that the company was entitled to take the stand that it had charged the correct depreciation in the books and the profits so arrived at after charging such depreciation had been certified to be true and fair by the auditors. The Tribunal also found that the depreciation charged in the books had not been considered to be excessive either by the board of directors or the auditors who certified the accounts. Having taken this view, the appeals filed by the assessee were allowed. The answer to the question which has now been referred to this court depends on whether the ITO was right in proceeding to ....

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....nted out that the reasonableness or unreasonableness of the amount distributed as dividend is judged by business considerations, such as the previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future and similar others. If these principles are borne in mind and the order of the ITO is scrutinised, it discloses that the decision to make the order under s. 23A(1) has been taken by the ITO solely on the basis of the assessed profits for the purposes of the I.T. Act which he was not entitled to do. As found by the Tribunal, the value of the assets of the company entered in the balance-sheet was Rs. 13,50,000 and the company was, therefore, entitled for the purposes of determining its ow....