JUDGMENT
Chandurkar, C.J.
1. These two tax cases arise out of assessment proceedings in respect of the assessee for the assessment years 1960-61 and 1961-62. The assessee was assessed to an income of Rs. 75,748 for the assessment year 1960-61 and to an income of Rs. 15,986 for the assessment year 1961-62. The assessee company is one of the assessees in what is known as “Sri Nagi Reddy Group”. As a result of some investigations in respect of bogus loans shown by the assessee, the assessments were reopened under section 147(a) of the Income-tax Act, 1961. There was a settlement in respect of the group of cases and in response to a notice under section 148 of the Income-tax Act, 1961 (hereinafter referred to as
“the Act”), the company filed revised returns showing a total income of Rs. 1,44,498 for the assessment year 1960-61 and Rs. 84,736 in respect of the assessment year 1961-62. The company was, however, assessed to incomes of Rs. 1,54,736 and Rs. 94,819, respectively, for the assessment years 1960-61 and 1961-62. In both the years, the additional income as admitted in the returns amounted to Rs. 68,750 in each year.
2. On the basis of these assessments, proceedings under section 23A of the 1922 Act were initiated and finding that the dividend declared was less than the statutory percentage on the footing that the distributable surplus for 1960-61 was Rs. 79,725 and there was a shortfall of Rs. 8,162 for the year 1960-61 and similarly for 1961-62 the distributable surplus amounted to Rs. 46,607 and having regard to the dividends declared, the shortfall was Rs. 17,054, the Income-tax Officer levied additional super-tax which amounted to Rs. 17,986 for the assessment year 1960-61 and Rs. 14,932 for 1961-62.
3. These assessments were challenged in appeal before the Appellate Assistant Commissioner who, however, dismissed the appeals.
4. The Tribunal also dismissed the appeals filed by the assessee and confirmed the levy of additional super-tax. The Tribunal rejected the contention that the proceedings under section 23A were invalid and that there having been a settlement between the group of companies in question and the Department, the revised assessment could not be taken into account for the purpose of proceedings under section 23A of the 1922 Act. The Tribunal found that there was no evidence to show that as a matter of settlement, no action would be taken under section 23A of the Indian Income-tax Act, 1922. The Tribunal also took the view that by virtue of section 297(2)(e) of the Income-tax Act, 1961, the Income-tax Officer who completed the reassessments was authorised to invoke section 23A of the 1922 Act and he was entitled to look into the reassessments made under the Income-tax Act, 1961. Arising out of this order, the following two questions have been referred to this court at the instance of the assessee :
“1. Whether, in view of the provisions of section 297(2)(e) of the Income-tax Act, 1961, the orders passed on September 15, 1973, under section 23A of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 196]-62 based on the incomes as assessed in the proceedings under section 147 of the Income-tax Act, 1961, for the aforesaid years are valid in law ?
2. “Whether, on the facts and circumstances of this case, the company should have declared a larger dividend than what had been declared for the assessment years 1960-61 and 1961-62 ?”
5. Mr. Utham Reddy, appearing on behalf of the assessee, referred us to the provisions of section 297(2)(e) and particularly to the concluding words in that section, namely, “as if this Act had not been passed”. Referring to this provision, it was contended that the Income-tax Officer while giving effect to the provisions of section 23A of the 1922 Act in the instant case had to do so as if the 1961 Act had not been passed which meant that he could not also rely on the reassessments made under section 147 of the Act. It is not possible for us to accept this contention. Section 297(2)(e) reads as follows :
“(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the repealed Act), -……
(e) subject to the provisions of clause (g) and clause (j) of this subsection, section 23A of the repealed Act shall continue to have effect in relation to the assessment of any company or its shareholders for the assessment year ending on the 31st day of March, 1962, or any earlier year, and the provisions of the repealed Act shall apply to all matters arising out of such assessment as fully and effectually as if this Act had not been passed.”
6. We are not concerned with clauses (g) and (j) of section 297(2). Clause (e) of section 297(2) of the 1961 Act expressly provides that section 23A of the 1922 Act shall continue to have effect in relation to the assessment of any company or its shareholders for the assessment year ending on the 31st day of March, 1962, or any earlier year. It further provides that the provisions of the repealed Act shall apply to all matters arising out of such assessment as fully and effectually as if this Act had not been passed. Clause(e), therefore, enables the Income-tax Officer to give effect to the provisions of section 23A in respect of the assessment year ending on 31st arch, 1962, or any earlier year.
7. Now the argument is that when section 297(2)(e) refers to “the assessment of any company or its shareholders”, that assessment must be only under the 1922 Act. The word “assessment” is defined in section 2(8) of the 1961 Act and it includes reassessment. The object of making a provision like clause (e) in section 297(2) is obvious. Under the provisions of section 297(2)(d), even in respect of a period prior to 1st April, 1962, if proceedings for reassessment are not taken under section 34 of the 1922 Act, proceedings for reassessment can be taken under the provisions of section 147 read with section 148. In the case of a company, on a reassessment made under section 279(2)(d), it is quite possible that the assessed profits of the company are likely to be more than the profits which were assessed earlier. In such a case, commercial profits are likely to be more than what they were at the time of the original assessment when the applicability of section 23A was
considered. It cannot be contemplated that while even in the case of a company, the proceedings for reassessment were permissible in respect of a period prior to April 1, 1962, the Legislature wanted the provisions of section 23A to be expressly excluded even though the provisions under section 23A would have been attracted if the commercial profits which are found on reassessment would have otherwise attracted the provisions of section 23A of the 1922 Act. It appears to us, therefore, that on the basis of the reassessed profits, the Income-tax Officer was clearly entitled to exercise his powers under section 23A of the 1922 Act.
8. The argument that the hundi loans which were shown as income in the returns submitted in pursuance of the notices under section 148 could not be taken into account for the purpose of determination of commercial profits must also be rejected. The Tribunal has found as a fact that there was no agreement between the Department and the assessee that in case he disclosed the correct income, proceedings under section 23A would not be taken. The Income-tax Officer was, therefore, clearly entitled to give effect to the provisions of section 23A on finding that there was distributable surplus and that the amount of surplus distributed as dividend was less than the prescribed percentage.
9. The matter, in our view, stands really covered by the decision of the Supreme Court in Gobald Motor Service (P.) Ltd. v. CIT [1966] 60 ITR 417. In that decision, the Supreme Court has clearly held that if an item of receipt is deliberately omitted from the accounts, it could not be said that commercial principles prevent the amount being added to the profits in order to arrive at the real commercial or accounting profits.
10. The proceedings under section 23A are undoubtedly in the nature of penal proceedings as held by the Supreme Court in CIT v. Gangadhar Banerje [1965] 57 ITR 176, on which reliance was placed on behalf of the assessee. That decision also undoubtedly lays down that the Revenue has strictly to comply with the conditions laid down under section 23A. It has not been shown to us as tax which are the conditions that are not complied with by the Income-tax officer. The requirements of section 23A(1) have clearly been satisfied. It is not the assessee’s case that the assessee had incurred any losses in the earlier years or that the profits were so small that commercially it would be inexpedient to declare any higher dividend. No circumstances as contemplated by any of the clauses, namely, clauses (1) and (2) in section 23A have been shown on record. In our view, therefore, the Tribunal was clearly right in holding that the Income-tax Officer was entitled to invoke the provisions of section 23A. As already pointed out, there is no material on record to show that a larger dividend could not have been declared by the assessee.
11. Accordingly, question No. I is answered ill the affirmative and against the assessee. Question No. 2 is also answered in the affirmative and against the assessee. The questions are answered accordingly. Assessee to pay the costs of this reference Rs. 500.