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M/s. Jeans Knit Pvt. Ltd. Versus Asst. Commissioner of Income-tax, Circle 11 (5) , Bangalore

2015 (12) TMI 362 - ITAT BANGALORE

Eligibility for deduction u/s 10B - Held that:- As decided in assessee's own case for the assessment year 2007-08 there was no prohibition in the use of the business premises of FFIPL by the assessee and also of the employees and customers of FFIPL and further that the transfer of employees and customers of the assessee was only a small percentage of the total employees and customers of the assessee respectively. Thus holding, the CIT(A) set aside the finding of the AO and allowed the deduction .....

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2(22)(e) on account of deemed dividend - Held that:- When there is no accumulated profits in the books of the assessee, then merely because the reserve and surplus having the balance on account of premium on security would not lead to the conclusion that the assessee was having sufficient accumulated profits to invoke the provisions of sec.2(22)(e). - Decided in favour of assessee. - ITA No. 1105/Bang/2013, ITA No.1244/Bang/2013 - Dated:- 27-11-2015 - Shri Abraham P. George, Accountant Membe .....

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to law and the facts and circumstances of the case. 2. The CIT(A) erred in allowing the deduction u/s 10B by placing reliance on the decision in ITA No.193/AC-11(5)/A-I/10-11 dated 24.08.2012 for assessment year 2007-08 in assessee's own case without appreciating that the decision has not reached finality and an appeal to ITAT has been preferred. 3. The learned CIT(A) erred in not appreciating that the assessee company has been formed by reconstruction of the business already in existence a .....

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of ₹ 23,08,94,447/- u/s 2(22)(e) holding that there was no accumulated profits and the advances/loans made to sister concern were out of Securities Premium Account of ₹ 63.75 crore which is a capital reserve and placing reliance on ITAT, Chandigarh decision in the case of Radhe Sham Jain reported in 140 ITD 244 (CHD) without appreciating that the relied on decision has not become final and appeal has been preferred before Punjab & Haryana High Court. 6. The learned CIT(A) erred i .....

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ny of the grounds that may be urged at the time of hearing of the appeal. 3. Ground Nos.1 to 4 and 6 are regarding eligibility for deduction u/s 10B of the Income-tax Act,1961 [ the Act for short]. 4. We have heard the learned departmental representative as well as the learned AR of the assessee and considered the relevant material on record. At the outset, we note that an identical issue has been considered and decided by this Tribunal in the assessee s own case for the assessment year 2007-08 .....

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total plant and machinery of the assessee during the said financial year. He further observed that since there was no purchase of old plant and machinery from FFIPL in the earlier assessment year even as per contemporaneous records of the EOU/Customs authorities. The relevant date of the plant and machinery purchased by the assessee over the years is reproduced at para 1.2.3, page 30 of the order of the CIT(A). Thus, CIT(A) held that the manufacturing activity carried on by the assessee in the .....

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ssee respectively. Thus holding, the CIT(A) set aside the finding of the AO and allowed the deduction u/s 10B of the Act. We find that the CIT(A) has given elaborate reasons for coming to the conclusion and that the learned Departmental Representative has not been able to rebut any of the findings of the CIT(A) with any evidence to the contrary. Since the findings of the CIT(A) are based upon the evidence produced by the assessee which has not been rebutted by the revenue, we do not see any reas .....

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rd. The learned departmental representative has submitted that the AO has recorded the fact that the assessee has advanced an amount of ₹ 23,08,94,447/- to concern in which the directors are interested and the same amount is shown as due. The AO proposed to consider the advance given to the concern in which the directors are interested as deemed dividend u/s 2(22)(e) of the Act. He further submitted that the AO found that the assessee was having sufficient amount in its reserve and surplus .....

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the finding of the CIT(A) and submitted that the CIT(A) has recorded this fact at page 55 of the impugned order that the assessee is not having any accumulated profit and the amount shown in the reserve and surplus pertains to premium on securities. Thus, the Senior Counsel has submitted that the provisions of sec.2(22)(e) cannot be invoked when the conditions provided under the said provision, particularly, the existence of the accumulated profit is not satisfied. He has relied upon the decisio .....

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note that the CIT(A) has recorded the fact and details of the reserve and surplus at page 55 of the impugned order as under: Reserves and Surplus March 31, 2008 March 31,2007 Securities Premium Account 63,75,62,600 63,75,62,600 Opening balance of Profit and loss account (2,92,94,761) 33,36,68,037 Appropriations - (32,76,62,239) Profit and loss account closing balance (7,30,08,345) (3,53,00,559) Total 53,52,59,493 60,82,67,838 From the details given above, it is clear that the balance in the res .....

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ession accumulated profits , wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2 - The expression accumulated profits in sub-clauses (a), (b), (d) and (e) shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in subclause (c) shall include all profits of the company up to the date of .....

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on accumulated profit . The Hon ble Punjab & Haryana High Court in the case of Radhe Sham Jain (supra) had the occasion to consider the identical question which is framed as under: Whether the Hon ble ITAT was right in giving a finding that the share premium amount lying as reserve and surplus of the company is not an income of the company and thus are not accumulated profit of the company. While deciding the above question, the Hon ble High Court has held as under: A perusal of the order pa .....

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ricted addition of ₹ 34,858/- i.e. to the extent of accumulated profits. We have considered the arguments advanced by counsel for the revenue and are not inclined to take a view different from the opinion recorded by the Tribunal. The arguments raise disputed questions of fact, which have been answered in favour of the assessee. In the absence of any error, while considering the facts or in applying any provision of the Act, we find no reason to hold that findings of facts recorded by the .....

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ions of sec.2(22)(e). Accordingly, we do not find any error or illegality in the order of the CIT(A) qua this issue. 9. The assessee, in its appeal has raised the following grounds: Ground I 1.1 The order of the learned CIT(A) is erroneous and bad in law to the extent it does not allow the grounds on deductibility of the expenses relating to rent, legal and professional charges, wash trial expenditure and Payment of sales commission, on the ground that the disallowance would only increase the cl .....

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the Appellants claim for deduction of legal fees of ₹ 5,600,000 on merits. 3.2 The learned CIT(A) erred in not deciding that, these payments were not disallowable under Section 40(a)(i) of the Act as the payments made are not taxable in India and therefore the withholding tax provisions would not apply. 3.3 The learned CIT(A) has erred in not upholding the deductibility of expenses in light of the submissions filed by the Appellant during the appellate proceedings. Ground 4: Payment for w .....

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ions filed by the Appellant during the appellate proceedings. Ground 5: Payment of Sales Commission 5.1 The learned CIT(A) has erred in not upholding the Appellant's claim for deduction of ₹ 3,527,095 towards sales commission on merits. 5.2 The learned CIT(A) has erred in not deciding that, these payments were not disallowable under Section 40(a)(i) of the Act as the payments made are not taxable in India and therefore the withholding tax provisions would not apply. 5.3 The learned CIT .....

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