The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) has deleted the addition holding that accumulated profits should be arrived after allowing depreciation as per Income Tax Act, 1961 and not as per companies Act.
During the course of assessment proceedings, the AO noted that the assessee, XL Enterprises Ltd had received advance from P N Memorial Neuro Centre & Research Institute Ltd against which no interest was paid or provided. The AO also observed that the assessee company was holding 17.94% equity shares and the said company had accumulated profit as on 31.03.2012. The AO and the amount were treated as deemed income under Section 2(22)(e) of the Income Tax Act, 1961 and added to the income of the assessee.
Manoj Kataruka, on behalf of the assessee submitted that the accumulated profit means the profit as accumulated as per Companies Act and as adjusted by the amount of depreciation as per the Income Tax Act. He further submitted that the accumulated profit was in fact as per the provisions of Companies Act before making any adjustment to the depreciation as per the Income Tax Act and therefore the said amount of accumulated profit was not the correct amount of accumulated profit for the purpose of Section 2(22)(e) of the Income Tax Act.
Vijay Kumar, on behalf of the revenue contended that the accumulated profits were not defined in the Act and therefore the meaning has to be drawn and interpreted as per Companies Act.
The Division Bench of Rajesh Kumar, (Accountant Member) and Sonjoy Sarma, (Judicial Member) allowed the appeal observing that, “We observe that in case the depreciation as per Income Tax Act is taken into account then the accumulated profits of the assessee would be working out to be in negative meaning thereby that there are no accumulated profits for the purpose of Section 2(22)(e) of the Income Tax Act. In the aforesaid decisions it has been held that the accumulated profits have to be arrived at after allowing depreciation as per the Act and not as per Companies Act.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
