2007 (1) TMI 297 - AT - Income Tax

Summary

Issues:
1. Deletion of deemed dividend addition under section 2(22)(e) of the Income Tax Act, 1961.
2. Deletion of interest charged under sections 234A and 234B of the Income Tax Act, 1961.

Issue 1: Deletion of deemed dividend addition under section 2(22)(e) of the Income Tax Act, 1961:
The appeal was filed by the revenue against the order of the learned CIT(A)-XXI, New Delhi for the assessment year 1998-99. The revenue challenged the deletion of the addition of Rs. 5,01,251 made by the Assessing Officer as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The learned CIT(A) held that the term 'accumulated profits' should be computed in the commercial sense and not based on assessable income. He noted that the Assessing Officer did not inquire into the amount of accumulated profits of the company when the loans were given. The learned CIT(A) considered various liabilities like income tax, sales tax, and excise duty, which were not accounted for by the company but were payable by the assessee. After considering these liabilities, he concluded that there were no accumulated profits in the hands of the company and thus deleted the addition. The revenue appealed this decision.

Issue 2: Deletion of interest charged under sections 234A and 234B of the Income Tax Act, 1961:
The revenue also challenged the deletion of interest of Rs. 43,134 and Rs. 55,660 charged under sections 234A and 234B, respectively, by the learned CIT. The revenue argued that the assessment order clearly mentioned to charge interest as per law, and the interest was accordingly charged under sections 234A and 234B in ITNS 150, which was signed by the Assessing Officer and formed part of the assessment order. The learned DR submitted that the amount received by the assessee from the company, after reducing the amount receivable by the director, was only Rs. 3,77,251. The DR contended that the accumulated profits of the company should be considered as deemed dividend under section 2(22)(e) of the Act. The counsel for the assessee, however, justified the order of the learned CIT(A) and argued that the provision of accumulated profits should be considered from a commercial perspective. The Tribunal held that the loan amount received by the assessee should be treated as deemed dividend under section 2(22)(e) as the accumulated profits of the company were more than the loan amount. The Tribunal also upheld the charging of interest under sections 234A and 234B as per law.

In conclusion, the appeal was partly allowed, reversing the deletion of the deemed dividend addition and upholding the charging of interest under sections 234A and 234B of the Income Tax Act, 1961.