TMI Blog2008 (3) TMI 374X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Smt.Tarulata Shyam Vs. CIT [ 1977 (4) TMI 3 - SUPREME COURT] , It is clear that it is the amount that is advanced during the year that is to be considered as deemed dividend and not the balance outstanding at the end of the accounting period. Hence, in the background of aforesaid discussion and precedents, we do not find any infirmity in the order of the learned CIT(A) for the AY 1998-99 as no part of advance given has been treated as deemed dividend before this assessment year. Hence, we affirm the learned CIT(A)'s order for the AY 1998-99. As regards AY 1999-2000, we are not in agreement with the learned CIT(A) that deemed dividend for AY 1998-99 should not be adjusted from the balance of accumulated profits as on the close of AY 1998-99. Hon'ble apex Court's order in G. Narasimhan (Died) Ors.[ 1998 (12) TMI 5 - SUPREME COURT] case is very clear on this point and we do not see any ambiguity in this regard. Hence, for AY 1999-2000, AO is directed to compute deemed dividend equal to the amount advanced during that year to the extent company had accumulated profits after adjustment of deemed dividend for AY 1998-99. In the result, assessee's ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the extent of accumulated profits were subjectible to tax as deemed dividend within the meaning of section 2(22)(e) of the Income-tax Act and further since the firm had not admitted as income any amount towards deemed dividend in the returns of income filed, the Assessing Officer was of the view that income chargeable to tax had escaped assessment and he initiated assessment/reassessment proceedings under section 147 of the Act, by issue of notices under section 148 on March 29, 2005, for both the assessment years. The Assessing Officer concluded the assessment/reassessment proceedings by passing orders under section 143(3) read with section 147 of the Income-tax Act, dated March 31, 2006, in which he had subjected to tax sums of Rs. 2,22,34,064 and Rs. 1,33,13,307 as deemed dividend respectively for the assessment years 1998-99 and 1999-2000. 5. In this context the assessee pleaded before the learned Commissioner of Income-tax (Appeals) that all the relevant materials were before the Assessing Officer in the original assessment under section 143(3). The learned Commissioner of Income-tax (Appeals) elaborately considered the issue. She came to the conclusion that beyond showin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder : 2.22(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a share holder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or with out a right to participate in profits) holding not less than ten per cent. of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (here after in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; but 'dividend' does not include : (i) a distribution made in accordance with sub-clause (c) or sub- clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquida tion to participate in the surplus assets ; (ia) a distribution made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess exigency that is supposed to have prevailed between these two concerns. A copy of the ledger account of the company as per the books of the assessee firm shows that the firm is maintaining nothing but a running account with the company and there is nothing to indicate in these account statements that the amounts advanced by PGIIPL to the assessee-firm were during the course of its business. 10. Having heard both counsel on this issue, we note that on this issue the learned Commissioner of Income-tax (Appeals) has given a finding that these have been mere statements and no documentary evidence was produced to oxygenate the claim that the assessee-firm was utilizing the money for procurement of the mine or mining equipments, etc. The fact remained that the advances received by the firm from the company were utilised by the firm in its own business. Hence, this cannot be said to be a normal business transaction. Hence, the learned Commissioner of Income- tax (Appeals)'s finding in this regard is confirmed. 11. Further, the learned Commissioner of Income-tax (Appeals) had elaborately considered the case. She dealt with the following case laws of the hon'ble apex cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned accounting periods in view of the fact that the profits or the reserves and surpluses of the company were getting reduced year after year. Hence, it was pleaded that there was no accumulated profits available for the relevant accounting period in the hands of the company, so that the amount received as advance by the assessee-firm from the company could be brought under the purview of section 2(22)(e). 14. Learned counsel for the assessee had relied upon the decision of the hon'ble apex court in the case of CIT v. G. Narasimhan [1999] 236 ITR 327. In this case, it was held as under (headnote) : Any legal fiction will have to be carried to its logical conclusion. If the payment under section 2(22)(e) of the Income-tax Act, 1961, is treated as a deemed dividend and is required to be so treated to the extent that the company possesses accumulated profits, the logical conclusion is that this payment must be considered as adjusted against the company's accumulated profits to the extent that it is treated as deemed dividend while calculating accumulated profits of the company. Whenever accumulated profits of the company are required to be determined, such an adjustme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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