TMI Blog2005 (11) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... 29-4-1995 10,00,000 01-5-1995 10,00,000 03-5-1995 3,00,000 20-5-1995 19,20,000 23-5-1995 10,00,000 24-8-1995 5,000 28-8-1995 20,00,000 01-9-1995 2,500 25-1-1996 5,00,000 13-3-1996 30,000 The assessee, vide his replies dt. 2nd and9th Feb., 1999raised two objections. The first objection raised by the assessee was with regard to the expression 'accumulated profits' as used in s. 2(22)(e). The assessee submitted that as on1st April, 1995the company was not having any accumulated profits. In fact, on1st April, 1995the company was having accumulated loss of Rs. 10,88,218. It is only at the year end, i.e.,31st March, 1996that the company possessed accumulated profits of Rs. 28,76,997. According to the assessee, profits are not to be ascertained on day-to-day or month-to-month basis but are required to be determined either at the beginning or at the end of the financial year. The assessee therefore, submitted that at the time of receiving the above advances/loans, the company did not possess any accumulated profits. The second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified the addition in the following manner. The CIT(A) noted that as on 31st March, 1996 the 'reserve and surplus' in the company's balance sheet stood at Rs. 17,88,778 and the profit earned during the year, as per regular books of account was of Rs. 28,76,997, meaning thereby that the company possessed 'accumulated profits' to the extent of Rs. 28,76,997 plus Rs. 55,50,000, i.e., the income determined in block assessment order passed under s. 158BC/154, dt.28th March, 2002, thereby totalling to Rs. 1,02,15,775. Thus, according to the CIT(A), the company had adequate accumulated profits to cover the impugned loans/advances of Rs. 79,07,500. Accordingly, the addition was confirmed. Not satisfied with the order of the CIT(A), the assessee is presently in appeal before us. 4. We have considered the submissions of the learned counsel Shri C.S. Aggarwal appearing on behalf of the assessee. The learned counsel for the assessee submitted that there is no dispute having regard to the relationship of the assessee with the company and the provisions of s. 2(22)(e) are per se attracted. The first submission of the learned counsel for the assessee, on the facts, is that on the dates of payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 998) 146 CTR (SC) 81 : (1998) 230 ITR 422 (SC). The third argument of the learned counsel for the assessee was that the entire impugned amounts advanced to the assessee have been paid by the company out of the sale proceeds of sulphur sold which was in turn purchased by it on credit. The company sold sulphur and from the sale proceeds, it had advanced moneys to the assessee and for this, our attention was invited to pp. 149, 192, 203 and 208 to 211 of the paper book. It was thus submitted, that at the best, it could be said that the impugned payments were made out of sales proceeds and not out of any accumulated profits. In this manner, the learned counsel has assailed the orders of the lower authorities. 5. On the other hand, the learned Departmental Representative has defended the orders of the lower authorities. According to the learned Departmental Representative, the company in its accounting period ending on31st March, 1996had declared profits. The book profits coupled with the income determined under block assessment under s. 158BC demonstrated that the company had adequate accumulated profits to cover the impugned advances and thus, justified the addition. According to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) what is the relevant date to ascertain 'accumulated profits'. 7. Insofar as the first question is concerned, in our view, the expression 'accumulated profits' as appearing in s. 2(22)(e) should be understood as meaning profits in the commercial sense that is the profits which have been earned by a company in the usual course of carrying out its business activities. The Hon'ble Supreme Court in the case of P.K. Badiani has held that 'accumulated profits' occurring in cl. (e) of s. 2(6A) of Indian IT Act, 1922 (corresponding to the present s. 2(22)(e) of the Act which is before us) means the profits in the commercial sense and not 'assessable or profits liable to be taxed as income'. Further, Supreme Court in the case of CIT vs. Urmila Ramesh while dealing with the expression 'accumulated profits' under s. 2(22)(e) held that the profits assessable by way of legal fiction under s. 41(2) could not be deemed to be part of 'accumulated profits' as the same could not be considered as profits in the commercial sense. Therefore, in the above light we proceeds to examine as to whether the Revenue is justified in including the amount of undisclosed income assessed in the hands of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to refer to the following extract of the assessee's reply dt.9th Feb., 1999to the AO: "As per the final accounts of Dang Co. (P) Ltd., there was accumulated losses up to31st March, 1995(1995-96) of Rs. 10,88,218.21 and there was no transaction of purchases and sales for export business till22nd Dec., 1995and the first export sale invoice was raised on23rd Dec., 1995. Further, Dang Co. had sold only imported goods till22nd Dec., 1995where they had suffered heavy losses. We are enclosing herewith comparative Import Trading account and P L a/c of Dang Co. (P) Ltd. for the period ending on22nd Dec., 1995and31st March, 1996in support of above said contentions. 2. Although we do not agree with your interpretation that profits accrue on day-to-day basis, any how to prove our contention that there were no accumulated profits up to 29th Feb., 1996, we are enclosing herewith comparative Import Trading account, Export trading account and P L a/c of Dang Co. (P) Ltd. for the period ending on 29th Feb., 1996 and 31st March, 1996. (A) There was heavy losses upto 22nd Dec., 1995 of Rs. 21,65,813.53 (B) However, P L a/c for the period ended on 29th Feb., 1996 shows a profit of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d profits on the date of such payment. The said plea of the appellant is accordingly rejected. 11. In the result, we set aside the order of the CIT(A) and direct the AO to scale down the addition to Rs. 30,000 in terms of s. 2(22)(e) of the Act. The assessee accordingly, partly succeeds in the first ground. 12. The last ground taken by the assessee is with regard to the action of the CIT(A) in sustaining an addition of Rs. 5,47,886 representing unexplained credits under s. 68 of the Act. The brief facts are that the AO noticed that the assessee had received cash credits from the following two persons: (i) Sh. Rajesh Srivastava 28-9-1995 2,50,000 3-10-1995 2,00,000 (ii) Sh. R.P. Rai 28-9-1995 97,886 13. The AO required the assessee to get the aforesaid transaction verified with necessary evidence. In support, the assessee submitted the copies of account of the two creditors, affidavits of the two creditors which are placed m the paper book filed before us. These evidences are available before the lower authorities also. In the affidavits, the creditors confirmed having paid the impugned amounts to the assessee as advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition. 15. Having heard the rival parties, we proceed to dispose of the issue in the following lines. The main plea of the appellant is that there are no fresh credits during the year. In fact, a perusal of the account statement of Shri Rajesh Srivastava reveals that there was an opening credit balance of Rs. 4,50,000 which was repaid in cash on 15th April, 1999 and 26th April, 1995 and the same has been received back by the assessee in cash on 28th Sept., 1995 and 3rd Oct., 1995. Similarly, account statement of Shri R.P. Rai reveals that there was an opening credit balance of Rs. 5,34,000 out of which Rs. 97,886 was repaid in cash on4th April, 1995and10th April, 1995and the same has been received back by the assessee on28th Sept., 1995. The AO has chosen to consider unexplained only the amounts received back by the assessee and has not doubted the amounts repaid although the evidence available with the assessee for both the transactions is the same. If the receipt of money is doubted, the payment also has to be disregarded. In any case, we find that the starting point is the opening balances in both the accounts which have been brought forward from earlier year. Having regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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