2024 (11) TMI 1216

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ssessment year 2000-01. The appeal was admitted by a Bench of this Court on the following substantial questions of law. "1. Whether on the facts and in the circumstances of the case, for the purpose of arriving at the accumulated profits u/S.2(22)(e) of the Income-tax Act whether deduction of depreciation as provided under the Income-tax Act is necessary or not for taxing any loan borrowed from the company, as deemed dividend? 2. Whether the loan borrowed by the appellant amounting to Rs. 14,51,281/- is liable to tax as deemed divided u/S.2(22)(e) of the Income-tax Act on the facts and circumstances of the case? The factual backdrop in which the aforesaid substantial questions of law arise for consideration need mention which is stated....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....to adjustment and depreciation as granted in accordance with the rates prescribed under the Act and therefore, the accumulated profits are to be computed taking into account the depreciation as per the Income-tax Rules. The Commissioner of Income-tax (Appeals) placed reliance on the decisions of Bombay High Court in Navnit Lal C Javeri v. Commissioner of Income-tax, Bombay City [(1971) 80 ITR 582 (Bom)] and Commissioner of Income-tax, Bombay City v. Jamnadas Khimji Kothari [(1973) 92 ITR 105 (Bom)] and by an order dated 23.09.2004 allowed the appeal. 5. Being aggrieved, the Revenue filed an appeal before the Income Tax Appellate Tribunal. The Appellate Tribunal placed reliance on the decision of the Supreme Court in P.K. Badiani v. Commiss....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

..... 8. We have considered the rival submissions made on both sides and have perused the record. 9. In Navnit Lal C Javeri (supra), Bombay High Court dealt with the issue as to what is the correct method for determination of accumulated profits under Section 2(6A)(e) of the Income-tax Act, 1922 and if there are any accumulated profits so determinable, what is the correct amount thereof. The aforesaid issue was answered by the Division Bench of Bombay High Court in the following terms. "....If the gross profits are treated as profits without provision of any depreciation, at the end of the useful life of the assets they will be lost completely. It is to provide for replacement of the capital assets so lost by reason of normal wear and tear ....