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2006 (3) TMI 198 - AT - Income TaxDeemed Dividend u/s 2(22)(e) - accumulated profits - unexplained cash credits - HELD THAT:- Undisputedly, the shareholders of the lender-company Mr. Kirti Kapadia and Mrs. Tanuben Kapadia were holding more than 10 per cent of the equity shares in the lender-company i.e., SVMIPL and these shareholders also held more than 20 per cent of the equity shares in the assessee-company. Being a common shareholdings in both the companies, the assessee's case falls within the category No. 2 as discussed. The lower authorities are given a categorical finding in this regard and nothing is placed on behalf of the assessee to rebut this finding. We, therefore, have no hesitation in holding that provisions of section 2(22)(e) were rightly invoked by the revenue authorities on the advance given to the assessee. In this section, it has not been distinguished whether these advances are the trade advances or for different purposes. Only few exceptions are given in which these advances do not fall within the category of deemed dividend. In the instant case, assessee has taken a plea that the advances and loans were given in the ordinary course of its business, but, nothing is placed on record to establish that the substantial part of the business of the lender-company i.e., SVMIPL was lending of money. Whereas, CIT(A) has given a categorical finding in the light of profits earned by the lender-company i.e., SVMIPL and has held that the gross receipt of the lender-company were to the tune of Rs. 7,80,69,819 out of which only Rs. 4,38,835 was accounted for interest receipt. During the course of hearing, nothing had been placed before us on behalf of the assessee to establish that the substantial part of the business of the lender-company is of lending money. In these circumstances, we agree with the finding of the CIT(A) that the assessee does not fall within any exemption clause. Once the Legislature has defined the words 'accumulated profit', no other meaning of accumulated profits can be inferred or interpreted. In the instant case, though the Revenue is required to compute the accumulated profits up to the date of distribution or payment, but, they have computed up to the end of the last quarter of this previous year which is less than the accumulated profits computed on the date of the distribution or the payment. But, these facts are not clear from the record. We, therefore, restore the matter to the file of the Assessing Officer with a direction to re-compute the accumulated profits up to the date of distribution or payment and if it is found to be lesser than the accumulated profits adopted by the Assessing Officer, then, it should be taken into account for the purpose of deemed dividend income as per section 2(22)(e) of the Act. Otherwise, the Order of the Assessing Officer would be upheld. Unexplained cash credits - From careful perusal of the orders of the lower authorities, we find that the assessee was not given sufficient time to prove these cash credits as the enquiry with regard to the cash creditors was initiated in January or February when the assessment is going to be time-barred on 31st March. Since most of the creditors belong to Bhavnagar, assessee should have been given sufficient time to produce the confirmations or any other evidence in order to prove the genuineness of the credits and creditworthiness of the creditors. Since the issue was not properly investigated by the Assessing Officer in the light of explanations of the assessee, we are of the view that this issue requires a fresh adjudication. We, therefore, set aside the order of the Commissioner (Appeals) in this regard and restore the matter to the file of the Assessing Officer to re-adjudicate the issue afresh after affording a proper-opportunity of being heard to the assessee. In the result, Appeal No. 1088/Mum./2002 is partly allowed for statistical purposes - In the result, Appeal No. 1089/Mum./2002 is allowed for statistical purposes.
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