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Issues Involved:
1. Deletion of addition made on account of deemed dividend under Section 2(22)(e) of the Income Tax Act for the assessment years 2006-07 and 2007-08. 2. Deletion of addition made under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act for the assessment year 2007-08. Issue-wise Detailed Analysis: 1. Deletion of Addition Made on Account of Deemed Dividend under Section 2(22)(e) of the Income Tax Act for the Assessment Years 2006-07 and 2007-08: The Revenue challenged the orders of the CIT(A) for the assessment years 2006-07 and 2007-08, which deleted the additions made by the Assessing Officer (AO) on account of deemed dividend under Section 2(22)(e) of the Income Tax Act. The AO had treated a sum of Rs. 55.00 lacs received by the assessee from M/s. Sun Polytex (P) Ltd. as deemed dividend, arguing that the assessee held 23.67% shares in M/s. Sun Polytex (P) Ltd. and the loan received should be taxed as deemed dividend under Section 2(22)(e). The AO cited the Hon'ble Bombay High Court's decision in Seksaria Biswan Sugar Factory Ltd. vs CIT and the Hon'ble Kerala High Court's decision in CIT vs P.V. John to support his stance. The assessee contended that the loan was taken in the ordinary course of business and that M/s. Sun Polytex (P) Ltd. was engaged in the business of financing as per its Memorandum of Association, which empowers the company to lend money. The CIT(A) accepted the assessee's argument, observing that M/s. Sun Polytex (P) Ltd. was engaged in money lending to associated concerns on interest out of unsecured loans and not from accumulated profits. The CIT(A) concluded that the provisions of Section 2(22)(e) were not applicable to the inter-corporate deposits given by M/s. Sun Polytex (P) Ltd. to the assessee. Upon appeal, the Tribunal analyzed the balance sheet and profit and loss account of M/s. Sun Polytex (P) Ltd. and found that the interest income was not a substantial part of the company's income. The Tribunal held that the AO was justified in treating the loan of Rs. 55.00 lacs as deemed dividend in the hands of the assessee for the assessment year 2006-07. For the assessment year 2007-08, the Tribunal restored the issue to the AO to ascertain whether the advance during the year exceeded the closing balance of the previous year. If it did, the amount should be treated as deemed dividend; otherwise, no addition should be made. 2. Deletion of Addition Made under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act for the Assessment Year 2007-08: The Revenue also contested the deletion of an addition of Rs. 5,710/- made by the AO under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act. The CIT(A) had deleted this addition, and the Tribunal upheld the CIT(A)'s decision, citing the decisions in CIT vs AIMIL Ltd. & Others and CIT vs Vinay Cement Ltd., which held that employees' contributions paid before the due date of filing the return are allowable under Section 43B of the Act. Conclusion: The Tribunal allowed the Revenue's appeal for the assessment year 2006-07, treating the loan of Rs. 55.00 lacs as deemed dividend. For the assessment year 2007-08, the Tribunal partly allowed the Revenue's appeal, restoring the issue of deemed dividend to the AO for further verification. The Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 5,710/- under Section 36(1)(va) read with Section 2(24)(x) for the assessment year 2007-08.
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