2001 (12) TMI 190 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of section 2(22)(e) regarding deemed dividend.
2. Addition of unexplained cash credits u/s 68.
3. Disallowance of interest on deemed dividend.
4. Levy of interest u/s 234B/234C.

Summary:

1. Applicability of section 2(22)(e) regarding deemed dividend:
The appellant company received a loan of Rs. 56,65,000 from Hynoup Food and Oil Industries Pvt. Ltd., where it held more than 20% shares. The Assessing Officer (AO) deemed this loan as dividend u/s 2(22)(e) since the accumulated profits of the lender exceeded the loan amount. The CIT(A) confirmed this addition. The Tribunal noted that the accumulated profits should be computed up to the date of loan advancement, excluding current year's business profits, and remanded the matter back to the AO for recalculating the accumulated profits.

2. Addition of unexplained cash credits u/s 68:
The AO added Rs. 47,01,000 as unexplained cash credits, later reduced to Rs. 23,03,500 after reconsideration. The CIT(A) remanded the issue for fresh consideration. The Tribunal upheld the CIT(A)'s decision, noting that the assessee failed to produce necessary evidence to substantiate the cash credits.

3. Disallowance of interest on deemed dividend:
The AO disallowed Rs. 2,08,617 as interest paid on the deemed dividend loan. The CIT(A) remitted the matter back for verification. The Tribunal observed that no disallowance was made in the subsequent order and dismissed this ground as infructuous.

4. Levy of interest u/s 234B/234C:
The Tribunal restored the issue of interest levy u/s 234B/234C to the CIT(A) for fresh decision, noting that the AO must pass a specific order for charging interest, as per the Supreme Court's decision in Ranchi Club Ltd.

Conclusion:
The appeals were partly allowed, with the issue of deemed dividend remanded for recalculating accumulated profits, the addition of unexplained cash credits upheld, disallowance of interest on deemed dividend dismissed as infructuous, and the levy of interest u/s 234B/234C remanded for fresh decision.