2012 (7) TMI 769 - AT - Income Tax

Disallowance of depreciation on electric fittings - Held that - As both the parties have not brought on record details of the Asset under question so as the issue can be completely adjudicated - thus it shall be in the interest of the justice to restore this issue back to the file of AO for proper verification. Addition on account of deemed dividend - Held that - It is the definition of dividend which is enlarged by the deeming provision of s.2(22)(e) and not that of shareholder and, therefore, a concern which is given loan or advance by a company cannot be treated as shareholder/member of the latter simply because a shareholder of the lender company holding voting power of 10 per cent or more therein has substantial interest in such concern, and such loan or advance cannot be treated as deemed dividend under s.2(22)(e) at the hands of such a concern - the loan obtained by assessee-company in the N Trust had 20% share holding from a company in which N Trust had 10% share holding, could not be taxed as deemed dividend u/s.2(22)(e) since N Trust was only a registered shareholder and not a beneficial shareholder - in favour of assessee.

Summary

Issues:
1. Disallowance of depreciation on electric fittings
2. Addition on account of deemed dividend

Issue 1: Disallowance of depreciation on electric fittings

The appellant contested the disallowance of depreciation on electric fittings amounting to Rs. 75,864, arguing that the Assessing Officer allowed depreciation at 10% while the appellant claimed it at 15%. Referring to a previous decision, it was established that depreciation at 25% is allowable for electrical fittings integral to plant & machinery, and at 15% for those independently used. As both parties failed to provide asset details, the issue was remanded to the Assessing Officer for proper verification. Following this precedent, the issue for the current year was also restored for the Assessing Officer's decision. Consequently, the ground was treated as allowed for statistical purposes.

Issue 2: Addition on account of deemed dividend

The Assessing Officer added Rs. 1,22,260 as deemed dividend due to a loan from Troikaa Exports Pvt. Ltd. to the assessee, Troikaa Pharmaceuticals Ltd., where common directors had substantial interests in both companies. The appellant argued that as they were not shareholders of Troikaa Exports Pvt. Ltd., the provisions of deemed dividend under section 2(22)(e) did not apply. However, the Assessing Officer held that since the common shareholders had over 20% holdings in both companies, the loan was deemed dividend. The appellant further contended that inter-corporate deposits differ from loans and advances, citing relevant case law. The CIT(A) upheld the addition, emphasizing the interpretation of loans and advances as deemed dividend. In the appeal, the appellant relied on specific case laws, while the Revenue cited the common beneficial ownership to justify the disallowance. The Tribunal referenced recent decisions, concluding that the loan in question did not qualify as deemed dividend under section 2(22)(e) due to specific shareholding criteria. Consequently, the addition was deleted, and the appeal was partly allowed for statistical purposes.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented by the parties, and the reasoning behind the final decision for each issue.