2013 (7) TMI 1171 - AT - Income Tax

Summary

Issues Involved:

1. Treatment of share premium account as accumulated profits for deemed dividend u/s 2(22)(e).
2. Eligibility to claim deduction u/s 24(b) for interest on term loan.

Summary:

Issue 1: Treatment of Share Premium Account as Accumulated Profits for Deemed Dividend u/s 2(22)(e)

The Revenue appealed against the order of the CIT(A) which held that the amount available in the share premium account cannot be treated as accumulated profits for the purpose of applying the provisions of section 2(22)(e) of the Income Tax Act. The Assessing Officer (AO) had added Rs. 1,50,27,847/- received as an unsecured loan by the assessee as deemed dividend, considering the share premium account as accumulated profits. The CIT(A) ruled in favor of the assessee, citing that share premium accounts are capital in nature and cannot be considered profits. The CIT(A) relied on the ITAT Delhi Bench decision in DCIT Vs. MIAPO India Limited, which held that section 78 of the Companies Act, 1956, prohibits the use of the share premium account for dividend distribution, thus excluding it from the deeming provisions of section 2(22)(e). The Tribunal confirmed the CIT(A)'s order, dismissing the Revenue's appeal.

Issue 2: Eligibility to Claim Deduction u/s 24(b) for Interest on Term Loan

The Revenue contested the CIT(A)'s decision allowing the assessee to claim deduction u/s 24(b) for Rs. 5,05,52,618/- towards interest on term loan, arguing that only penal interest can be disallowed. The AO had restricted the deduction to Rs. 4,02,14,848/-, excluding interest on interest. The CIT(A) found that the AO did not consider the appellant's submissions and had made assumptions without verifying the actual borrowings and interest rates. The CIT(A) directed the AO to allow the claim after verification, disallowing only penal interest. The Tribunal upheld the CIT(A)'s order, noting the AO had not identified any penal interest payments, thus dismissing the Revenue's appeal.

Conclusion:

The Tribunal dismissed the Revenue's appeal on both grounds, confirming the CIT(A)'s orders regarding the treatment of the share premium account and the eligibility for deduction u/s 24(b). The judgment emphasized the importance of adhering to statutory provisions and proper verification of facts by the AO.