2010 (9) TMI 1166 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of Rs. 75,00,000 towards provident fund contribution.
2. Applicability of section 2(22)(e) regarding deemed dividend for a loan of Rs. 11,87,00,000.

Summary:

Issue 1: Deduction of Rs. 75,00,000 towards provident fund contribution

The assessee contended that the payment of Rs. 75,00,000 towards provident fund was made in monthly installments as per the orders of the Hon'ble Calcutta High Court and was allowable u/s 43B of the Income Tax Act. The learned CIT, however, argued that the payment was not reflected in the cash flow statement and was made from undisclosed sources. The CIT also stated that the provisions of section 43B do not extend to employees' contributions to the provident fund, making the AO's allowance of the payment erroneous and prejudicial to the interest of the revenue.

The Tribunal observed that the AO had allowed a similar claim in the preceding assessment year based on the High Court's order. The Tribunal agreed with the assessee that the AO had taken a consistent and possible view in allowing the claim, and thus, the CIT was not justified in invoking jurisdiction u/s 263 of the Act. The Tribunal cited various judgments, including CIT vs Gabriel India Ltd., to support that the CIT cannot revise an assessment order merely because he disagrees with the AO's conclusions.

Issue 2: Applicability of section 2(22)(e) regarding deemed dividend for a loan of Rs. 11,87,00,000

The assessee argued that it held only 9.36% of the equity shares in MRL, supported by a certificate from MRL. The CIT, however, stated that the assessee held 13,99,100 shares, constituting more than 10% of the total paid-up shares, and thus, the loan should be considered as deemed dividend u/s 2(22)(e) of the Act. The Tribunal noted that the certificate provided by the assessee did not specify the date of holding or the total paid-up shares.

The Tribunal held that the AO failed to make a proper inquiry regarding the shareholding percentage of the assessee in MRL. The Tribunal confirmed the CIT's action in assuming jurisdiction u/s 263 on this issue and directed the AO to redo the assessment, considering the applicability of section 2(22)(e) of the Act. The AO was instructed to verify the shareholding details and provide the assessee with a due opportunity of hearing.

Conclusion:

The Tribunal partly allowed the assessee's appeal, setting aside the CIT's order on the provident fund contribution issue but upholding the CIT's direction to reassess the deemed dividend issue. The order was pronounced in open court on 24.09.2010.