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2013 (1) TMI 42 - AT - Income TaxDeemed dividend u/s 2(22)(e) - CIT(A) deleted the addition - Held that:- There is no doubt that M/s Radhe Sham Jain Diamond Jewellers (P) Ltd is a company the assessee i.e. Shri Radhe Sham Jain is holding more than 10% shares was incorporated by way of conversion of proprietorship business of Jain Diamond Jewellers on 9.2.2008. Perusal of the balance sheet of the proprietorship concern on 9.2.2008 clearly shows that there was a capital balance of ₹ 12,34,430/-. There was also a liability on account of cheque issued - OBC to the extent of ₹ 1.50 crores. Perusal of the capital account of the assessee in the proprietary concern also shows that there was opening capital balance of ₹ 1,64,34,402/-. There are various transactions done in the capital account till 8.2.2008 and there was a credit balance of ₹ 1,59,39,810/- on that date. Against which payment of ₹ 1.50 crores was made by the proprietorship concern to the assessee i.e. Shri Radhe Sham Jain on 8.2.2008. This cheque was not encashed and shown as liability in the balance sheet. Because of the conversion of proprietary concern into a Private Limited company the cheque could not be encashed later on and the same was returned to the Private Limited Company which has been credited by the company to the assessee's account on 15.3.2008. Thus it is clear that this amount belonged to the assessee on account of capital in the proprietorship concern and because the cheque could not be encashed, therefore, the money belonged to the assessee which has credited by the company. The so called cheque on account of loan or advance which have been issued by the Company have been issued only after 15.3.2008. The AO has failed to appreciate that because of the conversion of the proprietorship concern, the cheque could only be encashed by the assessee. Since all the assets have been taken over by the Private Limited company, the said company owned assessee this amount of ₹ 1.50 crores which was credited to his account on 15.3.2008. Because of non-encashment of the cheque the same is not reflected in the bank statement. This fact has been correctly appreciated by the ld. CIT(A). CIT(A) has also correctly noted that there was definitely a debit balance amounting to ₹ 11,75,569/- on 29.3.2008 in the name of the assessee in the books of the Private Limited company. However, he has correctly restricted the addition to ₹ 34,858/- i.e. to the extent of accumulated profits. As decided in P.K. Badiani v. CIT [1976 (9) TMI 3 - SUPREME COURT] that accumulated profits would mean profit in the commercial sense and not assessable taxable profits - share premium account would not partake the nature of commercial profits and therefore, by no stretch of imagination, this can be called accumulated profits - appeal of the Revenue dismissed.
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