2008 (6) TMI 611 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of deemed dividend u/s 2(22)(e) of the IT Act, 1961.
2. Calculation of deemed dividend.
3. Eligibility for deduction u/s 80IB(4).

Summary:

1. Applicability of deemed dividend u/s 2(22)(e):
The assessee, a company engaged in assembling DG sets, received advances from Jakson Generators Pvt. Ltd. (JGPL). The Assessing Officer treated these advances as deemed dividend u/s 2(22)(e) of the IT Act, 1961, as the shareholders of both companies had substantial holdings. The assessee contended that it was not a registered shareholder of JGPL and that the advances were not for the individual benefit of the shareholder. The Tribunal held that the provisions of section 2(22)(e) applied to the advances/loans paid by JGPL to the assessee, as the shareholders held substantial interest in both companies. The Tribunal rejected the assessee's argument that the term "person" in section 2(22)(e) referred only to individuals, stating that the definition of "person" in section 2(31) of the Act applied.

2. Calculation of deemed dividend:
The assessee argued that the calculation of deemed dividend by the Assessing Officer was incorrect and provided an alternate calculation based on the principles laid down by the Hon'ble Bombay High Court in the case of P.K. Bidiani and approved by the Hon'ble Supreme Court in the case of Mukund Ray K. Shah. The Tribunal restored the issue of calculation back to the file of the Assessing Officer to recompute the deemed dividend in line with the decisions of the Hon'ble Supreme Court and the Hon'ble Bombay High Court, after giving the assessee adequate opportunity to produce evidence.

3. Eligibility for deduction u/s 80IB(4):
The assessee claimed that it was eligible for deduction u/s 80IB(4) as an industrial undertaking in a backward state. The Tribunal noted that this issue was not considered by the Assessing Officer or the Commissioner of Income-tax (Appeals). In the interest of natural justice, the Tribunal remitted the issue back to the file of the Assessing Officer to verify the allowability of deduction u/s 80IB(4), granting the assessee the opportunity to produce evidence to support its claim.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, with the issues of calculation of deemed dividend and eligibility for deduction u/s 80IB(4) remitted back to the Assessing Officer for reconsideration.