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2023 (1) TMI 1319 - AT - Income TaxAddition u/s 2(22)(e) - accumulative profits as on 31.03.2011 was minus/loss - HELD THAT:- Ahmedabad bench of Tribunal in the case of M/s M.B. Stock Holdings (P) Ltd Vs ACIT [2001 (12) TMI 190 - ITAT AHMEDABAD-B] took note of the Hon’ble Supreme Court decision in the case of CIT Vs. Asokbhai Chimanbhai [1964 (10) TMI 11 - SUPREME COURT] wherein it was held that the profits do not accrue from day to day or even from month to month and have to be ascertained by a comparison of assets at two stated points. Also unless the right to profits comes into existence there is no accrual of profits and the destination of profits must be determined by the title thereto on the day on which they arise. AO not to include the current year profit to be part of accumulated profit while determining the amount of deemed dividend u/s 2(22)(e) after considering Explanation-2 to Section (2(22)(e) (which defines the accumulated profit). And the Hon’ble High Court specifically observed that while determining the amount of deemed dividend under Explanation 2 to Section 2(22)(e) of the Act, the current profit was not required to be included to be part of accumulated profit. And their Lordship also took note that the issue was already settled by the Hon’ble Supreme Court against the revenue in the case of Associated Banking Corporation of India Ltd. [1964 (10) TMI 7 - SUPREME COURT] wherein the view was taken that the profit accrues when the books of account are closed. In the light of the judicial precedent laid by Hon’ble Gujarat High Court in CIT Vs. M. B. Stockholding (P) Ltd [2015 (5) TMI 232 - GUJARAT HIGH COURT] and since no decision of jurisdictional High Court was cited in support of impugned action of Ld CIT(A), we are of the considered opinion that in the present case, while determining the deemed dividend, the AO/Ld. CIT(A) ought to have taken into consideration the accumulated profit as on 31.03.2011 i.e loss/(-) of Rs. 74,80,633/- and not accumulated profit adopted as on 31.03.2012 ( Rs. 3.46 crores). Therefore, no addition was possible u/s 2(22)(e) of the Act in the facts of the case and thus the assessee succeeds. And consequently, we direct the deletion of Rs. 3,41,96,270/. It is noted that the Revenue’s reliance on the judgment of P.K. Badiani Vs. CIT [1976 (9) TMI 3 - SUPREME COURT] was misplaced because the Hon’ble Apex Court was answering the question as to whether the development rebate reserve created by the company by duly charging the amount in profit & loss account, although liable as a deduction under the Income Tax Act, 1922, constituted accumulated profit of the company within the meaning of Section 2(6A)(e) of the Act, 1922. In this judgment, we couldn’t even find an obiter-dicta which could support the contention of the revenue. So the same cannot be of any help to the revenue. Therefore, by applying the ratio in CIT Vs. Damodran as well as CIT Vs. Ashokbhai Chamanbhai [1964 (10) TMI 11 - SUPREME COURT] and Associated Banking Corporation [1964 (10) TMI 7 - SUPREME COURT] and as held by the Hon’ble Gujarat High Court in CIT Vs. M. B. Stockholding [2015 (5) TMI 232 - GUJARAT HIGH COURT] we uphold the contention of the Ld AR of the assessee as discussed supra and allow the appeal.
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