TMI Blog2003 (2) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to produce the excise register containing entries of its stock of raw-material and manufactured goods etc. before the AO on 5th Feb., 2003 as he sought to adduce this register as evidence for the first time before the Tribunal. The AO was also directed to verify entries of the same and send his comments thereon on or before 26th Feb., 2003. The learned Departmental Representative Smt. Kavita Pandey has produced a report from the AO stating that the assessee did not make any appearance on the appointed day in spite of directions given to him by the Tribunal. On the contrary, the assessee s counsel Shri G.M. Mehta produced an affidavit from the assessee s counsel Shri Rakesh Gupta, C.A. in practice. He has deposed that he went to the office of the AO Shri D.L. Malhotra in room No. 208 on 2nd Floor of Central Revenue Bldg. on 5th Feb., 2003, along with the requisite register but the AO was not available in his office. The assessee s counsel Shri Mehta also makes a statement at Bar that on that day he has seen Shri Rakesh Gupta waiting outside the room of the AO between 12-12.30 noon and stands as a witness to his appearance in compliance to the directions of the Tribunal. When ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,44,286 which was the loss shown by the assessee and reduced to NIL by the learned CIT(A). 6. Parties have been heard with reference to material on record. Before the AO, the assessee did not produce the stock register nor any bills and entries regarding purchase, sales, expenses and receipts, etc. However, some bills regarding consumption of power were produced. Since the assessee did not produce vouchers, the books of account were liable to be rejected. The genuineness of the purchases, receipts and expenses were not verifiable. The learned CIT(A) was, therefore, justified in not deleting the trading addition of Rs. 1,44,286 which was on account of gross loss of trading account and reduced to Nil by him. The assessee s ground, therefore, stands rejected. 7. Ground 2 has not been pressed by the assessee. The same also stands dismissed as not pressed. 8. In Revenue s appeal in ITA No. 352/Jp/2001, the appeal was filed on 31st May, 2001, by raising the following three grounds: The CIT(A) has erred on facts and circumstances of the case and in law: (i) in deleting the addition of Rs. 8,22,806 to the trading account by holding that provisions of s. 145 were not attracte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground also, as there is no such prayer on record for trading the same as additional ground. No explanation has been given by any amendment nor any letter has been placed before us for showing the nature of mistake, if any, committed by the AO which warranted any such amendment. Under such circumstances, the fresh memo of appeal so filed on 17th Aug., 2001 has to be treated as a new appeal. The order of the first appellate authority was communicated on 3rd April, 2001, as is borne out from the appeal memo. The appeal was due to be filed on 2nd June, 2001 but the same has been filed in this office on 17th Aug., 2001 and the appeal is barred by limitation. There is no application for condonation of delay. No reasons have also been advanced for filing the appeal late. The appeal of the Revenue, therefore, was dismissed by the order of the Bench. 13. As a result the Revenue s appeal in ITA No. 352 stands dismissed as also announced on the Bench at the time of hearing itself. 14. Ground No. 3 in assessee s appeal relates to treating of Rs. 9,84,936 as dividend within the meaning of s. 2(22)(e) of the IT Act, 1961. Shri Mehta contends that the assessee is a shareholder having shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined in analogous provision as contained in s. 2(6A)(e) of the old Act of 1922. The assessee has not taken any advance or loan. He has incurred certain expenses which could not be treated as advance or loans so as to fall in the category of deemed dividend within the meaning of s. 2(22)(e) of the IT Act, 1961. Another plea made by the learned counsel for the assessee is that the income on account of subsidy is not chargeable to tax as it has also not been charged to tax. The same cannot be treated as accumulated profit in view of the decision of the apex Court in the case of Tea Estate India (P) Ltd. vs. CIT 1976 CTR (SC) 256 : (1976) 103 ITR 785 (SC). 17. On the other hand, the learned Departmental Representative contends that the decision of apex Court in P.K. Badiani, speaks of profits in commercial sense and not assessed profits as canvassed by the learned counsel for the assessee. No set off of depreciation as per income-tax assessment can be given. Profits to be taken are in the commercial sense. The balance sheet of M/s Supreme Metprodes Ltd. reveals that the amount was noted under the head "advance". That being so, it cannot be said that the amount has been received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icularly when there is no adverse material available on record. He, therefore, prays that the assessee s ground needs to be decided on the basis of material evidence on record at the time of hearing of appeal by the Tribunal. 19. Parties have been heard with reference to material on record and case laws cited. The Revenue s prayer that some more time may be granted to locate the fact as to whether the amount of subsidy has been brought to tax as revenue receipt or chargeable to tax in the hands of Supreme Metprodes Ltd. cannot be accepted at this stage, as also because the AO has not brought any record in spite of Revenue being aware that the issue is to be concluded and decided before 18th Feb., 2003, being a limitation matter in the light of the directions of the Hon ble High Court. We, therefore, proceed to decide the issue on the basis of available material before us. 20. It is not disputed that the assessee is holding substantial interest and voting power in the company namely Supreme Metprodes Ltd. as required under s. 2(22)(e) of the IT Act, 1961. A perusal of the balance sheet of that company placed at APB pp. 4-15 reveals that in Sch. G to the balance sheet placed at p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits." However, the provisions of s. 2(22)(e) inserted in the IT Act, 1961, and as applicable in the year under consideration, Expln. 2 has also been added where the expression "accumulated profits" appearing in sub-cl. (e) of s. 2(22) includes all profits of the assessee upto the date of distribution or payment referred in this sub-clause. Sec. 2(22)(e) reads as under: 'dividend' (e) any payment by a company, not being a company in which the public are substantially interested of any sum whether as representing a part of the assets of the company or otherwise made after the 31st May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholders is a member or a partner and in which he has a substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in not correctly representing the position of the Malegaon Electricity Co. insofar as amount of depreciation. It is under such circumstance the Hon ble Bombay High Court came to the conclusion that an allowance for depreciation should be made by way of deduction at the rates provided for by the IT Act itself. In the assessee s case before us, however, depreciation has been set apart as per Indian Companies Act, 1956 so as to replace the actual assets which is lost by the reason of the wear and tear of the machinery and plant and like assets and the profits so drawn as per Indian Companies Act cannot be said to have not been correctly representing the position of M/s Supreme Metprodes Ltd., under which such balance sheet statutorily required to be made. Even the Supreme Court in the case of P.K. Badiani vs. CIT accepted the view of the Gujarat High Court in the case of CIT vs. Viramgam Mills Co. Ltd. (1961) 43 ITR 270 (Guj) that the normal depreciation reserve of the company does not form part of the accumulated past profits. It also came to the conclusion that the expression "accumulated profits" occurring in cl. (e) of s. 2(6A) of 1922 Act means profits in the commercial sense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital receipts can be said to be available with the assessee as earned profits available for distribution. 24. By another judgment referred by the Revenue in the case of CIT vs. K. Sreenivasan it was contended that accumulated profits included a general reserve. In this case the Hon ble Court opined that the mere transfer of profits to any other reserve account will not take away from the profits the character of accumulated profits. It is for this reason, the Hon ble Court came to the conclusion that for the purpose of s. 2(6A)(e) of the 1922 Act, accumulated profits include general reserve. Before us, the capital reserve on account of state capital investment subsidy, lab equipment subsidy and ISI subsidy provided by the State Government is not a profit earned by the assessee and transferred to capital reserve account so as to say it as "accumulated profits" in the light of aforesaid judgment. 25. The Revenue has also relied on the decision of Sahney Steel Press Works Ltd. vs. CIT and also another decision in the case of CIT vs. Udaya Pictures (P) Ltd. saying that the subsidy was taxable. Sufficient time was available with the Revenue to bring material on record to show ..... X X X X Extracts X X X X X X X X Extracts X X X X
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