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2013 (4) TMI 398 - HC - Income TaxDeemed dividend u/s 2(22)(e) - Whether ITAT was justified in holding that the liability of the Sales Tax and Excise Duty in the case of M/s. Kothari Products Ltd. and M/s. Ekta Flavours (P) Ltd. were allowable as deduction from the accumulated profits for the purposes of examining the applicability of Sec. 2(22)(e) - Held that:- In the instant case, it appears that the "deemed dividend" taken together in the hands of all the persons cannot exceed the accumulated profit because the concept is that if there is accumulated profit and if the advances of loan has been made out of that then it is "deemed dividend". In the case of M/s. Ekta Flavours (P) Ltd., it appears from the order of the First appellate Authority that there was a liability of Rs. 3,44,57,866/- on account of excise duty payable, which is not contingent because the said liability cannot be denied. So, loan taken by the assessee from M/s. Ekta Flavours (P) Ltd., cannot be treated as "deemed dividend" within the meaning of Section 22(2)(e). When it is so then the said addition was rightly deleted by the First Appellate Authority as well as the ITAT and the same appears reasonable. Regarding M/s. Kothari Products Ltd., it appears that there was also a sales-tax liability to the tune of Rs. 8,42,26,335/-, as mentioned by the Tribunal in its impugned order. Needless to mention that the Tribunal is the final fact finding authority as per the ratio laid down in the case of Kamla Ganpati vs. Controller of State Duty [2001 (2) TMI 132 - SUPREME COURT]. 2001 (2) TMI 132 - SUPREME COURT In the instant case, it is clear that both the companies in question were having tax or excise liability during the assessment year under consideration.It may also be mentioned that the Hon'ble Supreme Court in the case of CIT vs. P.K. Badiani, [ 1976 (9) TMI 3 - SUPREME Court] observed that the expression, "accumulated profits" occurring in clause (e) of section 2(6A), or for the matter of that in any of other clause, means profits in the commercial sense and not assessable or taxable profits liable to tax as income under the Income Tax Act. Thus no reason to interfere with the impugned order passed by the Tribunal. The same is hereby sustained along with the reasons mentioned therein.
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