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2008 (9) TMI 435 - AT - Income TaxDeemed dividend u/s. 2(22)(e) - Whether accumulated profits as per the Companies Act are not the correct accumulated profits to be considered for the purpose of Section 2(22)(e)? - CIT(A) agreed with the contention of the assessee that accumulated profit is to be worked out only after allowing depreciation as per IT Act. Hence, deleted the addition made by the AO. HELD THAT:- Admittedly, the provisions of s. 2(22)(e) are similar to the provisions regarding deemed dividend in the old Act, 1922 u/s. 2(6A)(e). Therefore, even the decisions rendered under the old Act are relevant. It is further clear in the decision of Hon'ble Supreme Court in the case of P.K. Badiani vs. CIT [1976 (9) TMI 3 - SUPREME COURT] the expression "accumulated profits" occurring in cl. (e) of s. 2(6A) would mean profits in the commercial sense. We observed that, for determining the commercial profits, what is required to be considered is whether depreciation charge is to be reduced or not. In our view, depreciation is definitely charged on the assets of the company in the sense that it represents wear and tear of various assets which are used for the purpose of business. Such wear and tear leads to the reduction in the values of assets and after useful life of such assets, the same are required to be replaced. Depreciation is thus recognised under Companies Act as well as IT Act as a charge towards profits. Since IT Act has prescribed particular rates of depreciation, in our view, such depreciation has to be reduced from the commercial profits for the purpose of s. 2(22)(e). This position has been indirectly recognised by Hon'ble Supreme Court. Further, Hon'ble Bombay High Court in the case of Navnitlal C. Jhaveri vs. CIT [1970 (3) TMI 33 - BOMBAY HIGH COURT] and in the case of CIT vs. Jamnadas Khimji Kothari [1972 (10) TMI 24 - BOMBAY HIGH COURT] has taken this stand and it cannot be said that this position has been overruled by Hon'ble Supreme Court. In these circumstances, we find nothing wrong with the order of the CIT(A) and confirm the same. In the result, the appeal filed by the Revenue is dismissed.
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