Babulal Jain Vs ITO (Telangana High Court)
Telangana High Court held that accumulated profits under section 2(22)(e) of the Income Tax Act are to be computed taking into account the depreciation as per the Income-tax Rules. Thus, matter decided in favour of the assessee.
Facts- The assessee filed income tax return declaring the total income of Rs.1,95,880/-. The return was accepted by AO by an order passed u/s. 143(1) of the Income-tax Act, 1961. Subsequently, the assessment was reopened and the notice dated 27.03.2003 u/s. 148 of the Act was issued to the assessee. AO inter alia treated the loan taken by the assessee from M/s. Rajadhani Hotels Private Limited in which assessee was a shareholder, during the period from 01.04.1999 to 19.12.1999, as deemed dividend u/s. 2(22)(e) of the Act. AO by an order dated 26.03.2004 completed the assessment and made an addition of Rs.14,51,281/-.
CIT(A) allowed the appeal. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Bombay High Court in Jamnadas Khimji Kothari held that the phrase “accumulated profits” does not mean profits as disclosed by the company’s balance-sheet. The profits disclosed would be subject to adjustment and the depreciation as granted in accordance -with the—rates prescribed by the Income-tax Act would have to be deducted for ascertaining the accumulated profits.
