TMI Blog2014 (8) TMI 1139X X X X Extracts X X X X X X X X Extracts X X X X ..... ed profit for the purpose of calculating deemed dividend, he should not accepted the decision of the FAA and should not have filed the appeal. FAA had directed the AO to recomputed the accumulated profit after lying down certain principles. In our opinion direction given by him are as per the provisions of law. He has rightly held that Income tax paid, propose dividend distribution tax and prior period expenses cannot be considered for determining accumulated profits. - Decided against revenue. - ITA No.7480/Mum/2011 - - - Dated:- 13-8-2014 - I. P. Bansal Rajendra Order u/s. 254 (1) of the Income-tax Act, 1961 (Act) Per Rajendra, AM Challenging the order dated. 10. 08. 2011 of the CIT (A) -32, Mumbai, Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion that the provisions of Sec. 2 (22) (e) of the Act were attracted. Accordingly, the case was reopened u/s. 147 after recording of reasons. During the reassessment proceedings the assessee asked to explain why the provisions of section (22) (e) should not be applied in respect of the amount received by him from UHPL. The assessee filed its reply, arguing that the capital subsidy and the investment allowance appearing in the reserves was not available for distribution as dividend, that same was required to be used for purchase of capital asset and should be excluded from reserves available with company for the purposes of the computation of deemed dividend. The AO, however, did not agree to the contentions of the assessee on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 3,32,000/-, Dividend proposed of ₹ 4,86,000/-, Dividend distribution tax of ₹ 63,514/-, prior period expenses of ₹ 5,85,477/-and deferred tax liability of ₹ 22,52,957/- which were further paid or provided by the company, that same were not at all available for being taken to accumulated reserves, that only the free profits which are available for distribution as dividend could only be considered, that the amounts which were either paid or provided were not available for distribution could not form part of accumulated profits for purpose of deemed dividend, that the Investment allowance was not part of accumulated profit, that as per provisions of the Act it could not be used for distribution as dividend. Aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same was also a diversion out of the commercial profits only, that the deferred liability of 22,52,957/-was also only a notional reserve against the difference in the depreciation allowance under Company s Act and the Act, that same did not affect the commercial profits of the company, that the deferred tax liability could not be allowed to be reduced from accumulated reserves, that the company had received capital investment subsidy of ₹ 30 lacs which was never in the nature of profits, that same could not be part of the accumulated reserves out of profits, that income tax of ₹ 3, 32, 000/- and dividend distribution tax of ₹ 63, 514/-had to be reduced from the profits of the company to arrive at the commercial profits, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO to the FAA, that deals with the capital subsidy reads as under: (a) Capital Subsidy: As regards capital subsidy of ₹ 30 lacs reflecting in the balance sheet of Universal Hotels Private Limited as on 31 March 2004 and 31 March 203 have examined the papers produced before me. The Assessee has submitted a letter dated 29-12-209 issued by Joint Director of Industries, Nasik confirming that Universal Hotels has been granted and paid capital subsidy of ₹ 30 lacs by SICOM Limited. That is reflected as a separate line item in the aforesaid balance sheet. Capital subsidy received cannot be considered as part of profits accumulated profits. If the AO himself had admitted in the remand report that capital subsidy wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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