2010 (8) TMI 1028 - AT - Income Tax

Summary

Issues involved: Applicability of sec.2(22)(e) of the Income-tax Act, 1961.

The judgment by the Appellate Tribunal ITAT CHENNAI addressed the issue of whether payments received by the assessee from two companies, ROCPL and RACPL, should be considered as loans or advances u/s 2(22)(e) of the Income-tax Act. The Assessing Officer invoked the provisions of sec.2(22)(e) due to the substantial amounts received by the assessee, leading to an addition of &8377; 2,20,81,476. The CIT(A) upheld this decision, rejecting the assessee's contention that the payments were part of a repayment arrangement involving another group company, RHPL. The Tribunal directed the Assessing Officer to reexamine the nature of the payments and quantify the deemed dividend in accordance with the law.

The Tribunal emphasized the principles related to sec.2(22)(e) of the Act, highlighting that it is a deeming provision requiring strict construction. The judgment referred to the Supreme Court case of Miss P. Sarada v. CIT to illustrate the importance of examining the source of payments and the timing of adjustments in determining deemed dividends. The Tribunal directed the Assessing Officer to investigate the source of loans and the calculation of deemed dividends based on accumulated profits on each payment date.

The Tribunal found errors in the Assessing Officer's quantification of the deemed dividend, noting discrepancies in considering the accumulated profits of only one company, RACPL, and the arbitrary decision to take one third of profits. The Tribunal cited precedents to support the requirement of calculating deemed dividends based on accumulated profits on each payment date. The Tribunal criticized the Assessing Officer's approach as arbitrary and directed a reassessment based on accurate calculations and adherence to legal provisions.

In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes, emphasizing the need for a thorough examination of the source of loans and accurate quantification of deemed dividends based on accumulated profits on each payment date. The judgment was pronounced on 6-8-2010.