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of <h1>Tribunal remands issues to CIT(A) for detailed examination on Companies Act applicability. (A)</h1> <h3>Uday K Pradhan Versus. ITO-26 (2) (3),</h3> Uday K Pradhan Versus. ITO-26 (2) (3), - TMI Issues Involved:1. Addition of deemed dividend u/s 2(22)(d) of the Act2. Interpretation of provisions of section 2(22)(d) of the Act3. Applicability of provisions of Companies Act, 1956 on redemption of preferential shares4. Examination of capital base and distribution of profitsIssue 1: Addition of deemed dividend u/s 2(22)(d) of the Act:The appeal was filed against the order of CIT (A) for adding a sum on account of deemed dividend u/s 2(22)(d) of the Act. The AO added the amount as the assessee received redeemable preference shares against valuable consideration which were subsequently redeemed, resulting in a reduction of capital base. The AO invoked the provisions of section 2(22)(d) of the Act, leading to the addition of the said amount.Issue 2: Interpretation of provisions of section 2(22)(d) of the Act:During the first appellate proceedings, the assessee relied on exceptions provided in subclause (i) of section 2(22)(d) of the Act and argued that the transaction falls within those exceptions. The CIT (A) analyzed the capital account structure of the partners and concluded that the redemption of preferential shares constituted a distribution of profits by the company to the assessee, falling under section 2(22)(d) of the Act. The CIT (A) distinguished a previous case and upheld the addition made by the AO.Issue 3: Applicability of provisions of Companies Act, 1956 on redemption of preferential shares:The assessee argued before the Tribunal that the provisions of section 2(22)(d) were not applicable as the redemption of preferential shares did not amount to a reduction in capital or distribution of profits. The Counsel highlighted provisions of the Companies Act, 1956 related to the redemption of shares and reduction of share capital, which were not raised before the lower authorities. The Counsel contended that the redemption did not reduce the authorized share capital as per the Companies Act.Issue 4: Examination of capital base and distribution of profits:Both parties presented their arguments regarding the capital base manipulation by the firm and the distribution of profits through the redemption of preferential shares. The Ld DR emphasized that the redemption resulted in a reduction of the company's capital base, qualifying as a deemed dividend under section 2(22)(d) of the Act. The Tribunal observed that essential aspects concerning reduction of capital were not deeply examined, and remanded the issues to the CIT (A) for a comprehensive review, allowing the appeal for statistical purposes.In conclusion, the Tribunal remanded the issues to the CIT (A) for a detailed examination, considering the arguments presented regarding the interpretation of legal provisions and the applicability of the Companies Act, 1956 on the redemption of preferential shares.
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