2016 (5) TMI 1613 - AT - Income Tax

Maintainability of appeal against CIT(A) order - Addition of loan received by the assessee from its 100% subsidiary as deemed dividend - debenture redemption reserve within the meaning of Explanation 1(b) of section 115JB - CIT(A) deleted addition made u/s 2(22)(e) and holding that the debenture redemption reserve is not a reserve within the meaning of Explanation 1(b) of section 115JB - Assessee submitted that the tax effect in this case is below 10 Lakhs and as per the CBDT Circular No. 21 of 2015, dated 10-12-2015, the present appeal is not maintainable. HELD THAT - DR fairly conceded that the tax effect in department s appeal is below 10 Lakhs. We find that the issue raised in appeal does not fall under any of the exceptions specified in para 8 of the Circular. Since, it has been specifically clarified in the Circular aforesaid that the instruction will apply retrospectively to all the pending appeals, the present appeal filed by the revenue is not maintainable. We, therefore, dismiss the appeal in limine.

Summary

Issues Involved:
1. Challenge to deletion of addition u/s 2(22)(e) of the Act
2. Challenge to treatment of debenture redemption reserve as a 'reserve' under section 115JB of the Act

Analysis:
1. The first issue raised in the appeal pertains to the deletion of addition made u/s 2(22)(e) of the Act by the Ld. CIT(A). The revenue contended that the loan received by the assessee from its 100% subsidiary should be treated as deemed dividend due to the total accumulated profit of the subsidiary during the relevant year. The Ld. CIT(A) had ruled in favor of the assessee, leading to the revenue's challenge. However, the Ld. Counsel for the assessee argued that the tax effect in this case was below 10 Lakhs, making the appeal not maintainable as per CBDT Circular No. 21 of 2015. The Ld. Counsel provided a calculation sheet showing the tax effect on the addition under section 2(22)(e) to be Rs. 6,40,820. Ultimately, the Tribunal dismissed the appeal, noting that the issue did not fall under any exceptions specified in the Circular and that the instruction would apply retrospectively to all pending appeals.

2. The second issue concerned the treatment of debenture redemption reserve as a 'reserve' under Explanation 1(b) of section 115JB of the Act. The Ld. Counsel highlighted that the computation of book profit, including this reserve, was irrelevant due to the higher tax payable under the normal provisions of the Act compared to the tax payable u/s 115JB of the Act as per the assessment order. The Ld. DR representing the revenue acknowledged that the tax effect in the department's appeal was below 10 Lakhs. Consequently, the Tribunal found that the appeal was not maintainable under the CBDT Circular and dismissed it accordingly.

In conclusion, the Tribunal upheld the deletion of the addition u/s 2(22)(e) and rejected the challenge regarding the treatment of debenture redemption reserve, emphasizing the applicability of the CBDT Circular on the maintainability of the appeals based on tax effect thresholds.