2015 (12) TMI 362 - AT - Income Tax

Eligibility for deduction u/s 10B - Held that - As decided in assessee's own case for the assessment year 2007-08 there was no prohibition in the use of the business premises of FFIPL by the assessee and also of the employees and customers of FFIPL and further that the transfer of employees and customers of the assessee was only a small percentage of the total employees and customers of the assessee respectively. Thus holding, the CIT(A) set aside the finding of the AO and allowed the deduction u/s 10B of the Act. We find that the CIT(A) has given elaborate reasons for coming to the conclusion and that the learned Departmental Representative has not been able to rebut any of the findings of the CIT(A) with any evidence to the contrary. Since the findings of the CIT(A) are based upon the evidence produced by the assessee which has not been rebutted by the revenue, we do not see any reason to interfere with the order of the CIT(A) - Decided in favour of assessee. Addition u/s 2(22)(e) on account of deemed dividend - Held that - When there is no accumulated profits in the books of the assessee, then merely because the reserve and surplus having the balance on account of premium on security would not lead to the conclusion that the assessee was having sufficient accumulated profits to invoke the provisions of sec.2(22)(e). - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for deduction under Section 10B of the Income-tax Act, 1961.
2. Addition under Section 2(22)(e) on account of deemed dividend.
3. Disallowance of certain expenses including rent, legal and professional charges, wash trial expenditure, and payment of sales commission.

Detailed Analysis:

1. Eligibility for Deduction under Section 10B:
The revenue's appeal contested the CIT(A)'s decision to allow the deduction under Section 10B, arguing that the assessee company was formed by the reconstruction of an existing business and utilized used plant and machinery, violating Section 10B provisions. The Tribunal noted that this issue had been previously decided in favor of the assessee for the assessment year 2007-08, where it was determined that the assessee's use of old plant and machinery did not exceed 20% of the total plant and machinery. The CIT(A) had concluded that the manufacturing activity was carried out using new plant and machinery, and the transfer of business premises, employees, and customers from FFIPL to the assessee did not violate Section 10B provisions. Since the revenue could not provide contrary evidence, the Tribunal upheld the CIT(A)'s decision, dismissing these grounds of the revenue's appeal.

2. Addition under Section 2(22)(e) on Account of Deemed Dividend:
The revenue argued that the assessee had advanced Rs. 23,08,94,447/- to a concern where the directors were interested, treating it as deemed dividend under Section 2(22)(e). The CIT(A) found that the assessee had no accumulated profit, and the reserve and surplus were due to premium on securities. The Tribunal referred to the Punjab & Haryana High Court's decision in CIT vs. Radhe Sham Jain, which held that share premium amounts are not considered accumulated profits for Section 2(22)(e). Since the assessee's reserve and surplus did not include accumulated profits, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's ground.

3. Disallowance of Certain Expenses:
The assessee's appeal challenged the CIT(A)'s disallowance of expenses related to rent, legal and professional charges, wash trial expenditure, and sales commission. The Tribunal noted that a similar issue was addressed in the assessee's case for the assessment year 2007-08, where it was determined that disallowance of expenses would only increase the claim for deduction under Section 10B, making the issue academic. Since the deduction under Section 10B was allowed, the Tribunal maintained consistency with its previous ruling and dismissed the assessee's appeal on these grounds.

Conclusion:
Both the revenue's and the assessee's appeals were dismissed. The Tribunal upheld the CIT(A)'s decisions regarding the eligibility for deduction under Section 10B and the non-applicability of deemed dividend provisions under Section 2(22)(e). Additionally, the disallowance of certain expenses was deemed academic due to the allowance of the Section 10B deduction. The judgment was pronounced in the open court on 27th November 2015.