TMI Blog2007 (1) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... idend under section 2( 22 )( e ) of the I.T. Act, 1961 by holding that the amount of reserve and surplus shown in the balance sheet of the concerned company cannot be treated as accumulated profits as stipulated in section 2( 22 )( e ). 2. In granting the relief of Rs. 5,01,251 the ld. CIT(A) has ignored the fact that even the assessee himself in para 3.13 of his submission made before the CIT(A) has stated that provisions of section 2( 22 )( e ) can be invoked to the extent of Rs. 3,77,250 instead of Rs. 5,01,251. 3. On the facts and in the circumstances of the case and in law, the ld. CIT has erred in deleting the interest of Rs. 43,134 and Rs. 55,660 charged under sections 234A and 234B respectively of the I.T. Act, 1961 ignorin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the orders of assessment. After taking such liability into consideration, there are no accumulated profits in the hands of M/s. Kalon Engineers (P.) Ltd. He accordingly deleted the addition. He also held that since the Assessing Officer has not mentioned about the chargeability of interest in the body of assessment order, charging of interest under sections 234A and 234B is not sustainable. The revenue is in further appeal before us. 3. The learned DR Shri David Z. Chawngthu submitted that before learned CIT(A), the assessee by his letter dated 25-9-2002 has submitted that out of the amount received by assessee from the company, the net amount received after reducing the amount receivable by the director is only Rs. 3,77,251. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accumulated profits or not needs to be examined. He submitted that the clause "accumulated profits" means profits in the commercial sense and not the assessable profits or taxable profits liable to income-tax. This was so held in the case of P.K. Badiani v. CIT [1976] 105 ITR 642 (SC). In CIT v. Gangadhar Banerjee Co. (P.) Ltd. [1965] 57 ITR 176, Hon ble Supreme Court held that the words "smallness of profits" in section 23A of Indian Income-tax Act, 1922 which is akin to section 104 of the Income-tax Act, 1961 refers to actual accounting profit and not assessable profits in the year. Thus, while deciding the issue in relation to accumulated profits as occurring in section 2( 22 )( e ) of the Act, the provision must be worked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as deemed dividend under the Act. As regards charging of interest, learned counsel for assessee agreed that in view of the later decision of the Special Bench of Tribunal in the case of Motorola Inc. v. Dy. CIT [2005] 95 ITD 269 (Delhi) ( SB ) (Mag.), the interest will be consequential in nature and may be charged as per law. 6. We have considered relevant facts, arguments advanced and the case laws cited. The clause "accumulated profits" as occurring in section 2( 22 )( e ) is not defined specifically. However, as per Explanation 2 to section 2( 22 ), the expression "accumulated profits" shall include all profits of the company upto the date of the distribution or payment referred to in those sub-clauses of section 2( 22 ). Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledged as such. Thus, the profit as declared in the accounts are available to the company for distribution of dividend therefrom. The assessee in his personal capacity as shareholder cannot challenge the correctness of the accounts which he himself has certified to be true and fair as Managing Director of such company. Thus, the profit as appearing in the accounts of the company will form part of accumulated profits of the company and needs no further adjustment. 7. In the present case, it is seen that the assessee in his individual capacity as well as proprietor of Suri Associates received a sum by way of loan amounting to Rs. 6,08,000. After reducing the balance due to him by the company of Rs. 2,30,749 the loan received were to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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