2006 (7) TMI 250 - AT - Income Tax

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Taxability of deemed dividend under section 2(22)(e) of the Income-tax Act.
3. Applicability of exemption under section 10(33) read with section 115-O to deemed dividend.
4. Adjustment of previously taxed deemed dividend against the current deemed dividend.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was delayed by 220 days. The assessee claimed the delay was due to being misguided by their previous advocate, who advised against pursuing the matter further. The assessee realized the mistake when penalty proceedings under section 271(1)(c) were initiated. The Tribunal found that in the interest of justice, the delay should be condoned, and thus, the appeal was entertained.

2. Taxability of Deemed Dividend under Section 2(22)(e):
The assessee received a loan of Rs. 73,00,000 from a company, which was outstanding as of 31st March 1998. The Assessing Officer added this amount as deemed dividend under section 2(22)(e), which was confirmed by the CIT(A). The assessee's argument that the amount was a temporary borrowing was not accepted. The Tribunal upheld the CIT(A)'s decision, confirming the addition of Rs. 73,00,000 as deemed dividend.

3. Applicability of Exemption under Section 10(33) Read with Section 115-O to Deemed Dividend:
The assessee contended that deemed dividend should be exempt under section 10(33) as it exempts dividends referred to in section 115-O. However, the Tribunal noted that the Explanation at the end of Chapter XII-D explicitly excludes deemed dividend under section 2(22)(e) from the definition of dividends for the purposes of this chapter. Therefore, the deemed dividend is not exempt under section 10(33). The Tribunal upheld the CIT(A)'s order on this issue.

4. Adjustment of Previously Taxed Deemed Dividend Against the Current Deemed Dividend:
The assessee argued that Rs. 3,37,133, previously taxed as deemed dividend in the assessment year 1996-97 and subsequently repaid, should be adjusted against the current deemed dividend of Rs. 73,00,000. The Tribunal referred to the Bombay High Court's decision in the case of Walchand & Co. (P.) Ltd., which held that repayment of a loan previously treated as deemed dividend cannot be adjusted against a fresh loan. The Tribunal concluded that the provisions of law are clear and do not allow such an adjustment, confirming the CIT(A)'s order.

Conclusion:
The Tribunal dismissed all three appeals, upholding the CIT(A)'s decisions on the taxability of the deemed dividend and rejecting the claims for exemption under section 10(33) and adjustment of previously taxed deemed dividend.