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TMI Blog2011 (12) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal, "B" Bench, Chennai, in I.T.A.No.896/Mds/2006. 2. The brief facts of the case are as follows: The assessee is engaged in the business of sale of Electrical Conductors. For the assessment year 1998-99, the assessee viz., M/s.Prem Electrical Conductors Pvt. Ltd., hereinafter referred to as PEC, filed its return of income on 18.01.1999 admitting a total income of Rs.29,660/-. The return was processed under section 143(1A) of the Income Tax Act on 28.09.1999. Subsequently, a notice under section 148 of the Act was issued on 31.03.2005 and it was served on the assessee on 02.04.2005. The assessee, vide letter dated 24.02.2005, requested that the return filed on 18.01.1999 be treated as the one filed in response to the notice under section 148 of the Act. The assessment under section 143(3) read with section 147 of the Act was completed on 30.09.2005. The said order was revised by the Commissioner of Income Tax, Chennai III on 31.01.2006 on the ground that the assessee had received a sum of Rs.1.78 crores from Madras Electrical Conductors Pvt. Ltd., which is a sister concern of the assessee and that the amount received from the sister concern from October 1997 amounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Vs. Creative Dyeing and Printing P. Ltd.) respectively. 6. It is not in dispute that the assessee filed its return of income for the assessment year 1998-99 on 18.01.1999 admitting a total income of Rs.29,660/-; the return was processed under section 143(1) of the Act ; a notice under section 148 of the Act was issued and the assessment was completed on 30.09.2005. At the time of processing the assessment records, the Commissioner of Income Tax found that the assessee received a sum of Rs.1.78 crores approximately from Madras Electrical Conductors Pvt. Ltd. (now known as MEC International Pvt. Ltd.) - (hereinafter referred to as MEC), which is a sister concern of the assessee. Therefore, the Commissioner, exercising the power of revision conferred on him under section 263 of the Act, revised the order passed by the Assessing Officer. While passing such an order under section 263 of the Act, the Commissioner found that the applicability of section 2(22)(e) of the Act was not examined by the Assessing Officer while completing the assessment, though Sri. Ashok P.Shah, who was a Director of the assessee company, was also the Director in Madras Electrical Conductors Pvt. Ltd.; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om October 1997 to March 1998 from MEC is liable to tax as "deemed dividend" and therefore directed the Assessing Officer to bring to tax the said sum of Rs.2,73,500/- in the hands of PEC as "deemed dividend" for the assessment year 1998-99 under section 2(22)(e) of the Act. 8. In addition to the above, the Commissioner also found from the materials available on record that, there was a credit of about Rs.2 crores on 03.03.1998 with the caption "To Prem Krishi"; this was a book adjustment, as the amount reflected in the books of M/s.Prem Krishi P Ltd., was transferred to PEC and that a debt could not be transferred by mere book entries. On the basis of the said finding, the Commissioner directed the Assessing Officer to verify whether any portion of the sum of Rs.2 crores was received during the said period by M/s.Prem Krishi P Ltd., from MEC and to bring such amount to tax in the hands of PEC as "deemed dividend" as per the provisions of section 2(22)(e) of the Act for the assessment year 1998-99, in addition to the sum of Rs.2,73,500/- referred to earlier. The Commissioner also directed the Assessing Officer to bring the entire amount of Rs.2 crores received on 03.03.1998 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer. In the decision of the Hon'ble Supreme Court of India reported in (2007) 290 ITR 433 referred to above and relied upon by the learned counsel appearing for the Revenue, the Supreme Court has held as follows: 11. .................... The companies having accumulated profits and the companies in which substantial voting power lies in the hands of the person other than the public (controlled companies) are required to distribute accumulated profits as dividends to the shareholders. In such companies, the controlling group can do what it likes with the management of the company, its affairs and its profits. It is for this group to decide whether the profits should be distributed as dividends or not. The declaration of dividend is entirely within the discretion of this group. Therefore, the Legislature realised that though funds were available with the company in the form of profits, the controlling group refused to distribute accumulated profits as dividends to the shareholders but adopted the device of advancing the said profits by way of loan to one of its shareholders so as to avoid payment of tax on accumulated profits. This was the main reason for enacting secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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