TMI Blog2011 (6) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Companies Act - Resultantly, the accumulated profits would effectively be a negative figure only - Decided in favor of the assessee - 512 (MDS.) OF 2010 - - - Dated:- 17-6-2011 - ABRAHAM P. GEORGE, GEORGE MATHAN, JJ. Shaji P. Jacob for the Appellant. S. Sridhar for the Respondent. ORDER Abraham P. George, Accountant Member. In this appeal filed by the revenue, its grievance is that CIT (Appeals) deleted an addition for deemed dividend made by the Assessing Officer under section 2(22)(e) of the Income-tax Act, 1961 (hereinafter called "the Act"). As per the revenue, the advance appearing in the name of assessee had to be treated as deemed dividend by virtue of the decision of Hon'ble Bombay High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance sheet of M/s. Western Agencies (Madras) P. Ltd. as a part of its Schedule F, it could not be considered as any tax dues. He, therefore, was of the opinion that no such adjustment as sought by the assessee could be done and made addition in assessee's hand of Rs. 12,66,140 considering the loan amount as deemed dividend under section 2(22)(e) of the Act. 4. In its appeal before ld. CIT (Appeals), argument of the assessee was that the income-tax payment of Rs. 2,80,74,859 though shown in asset side of the balance sheet, should have been actually written off in the profit and loss account and had it been done so, there would not have been any accumulated profits. As per the assessee, the reserve as appearing in the balance sheet w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontra, learned A.R. submitted that the question was whether the company M/s. Western Agencies (Madras) (P.) Ltd. possessed accumulated profits. According to him, M/s. Western Agencies (Madras) (P.) Ltd. had substantial payment of income-tax, but, which were shown as an asset forming part of its Schedule F of balance sheet as on 31-3-2002. According to him, such tax payments appearing on the asset side would necessarily go to reduce the effective surplus available to the company and just because there was a balance in reserve account it would not be proper to assume that such amount represented accumulated profits. 7. We have perused the orders and heard the rival contentions. Undisputed facts are that assessee was holding more than 10 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion "accumulated profits" in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to those in sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, [but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place." A reading of Explanation 2 would show that the accumulated profits should include all profits of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a policy of not declaring dividend and in the course thereof accumulating substantial reserves and distributing its profits as loans to its shareholders. As a natural corollary, when there are no accumulated profits, deeming provision mentioned in section 2(22)(e) would not have any application. Reliance placed by learned D.R. on the decision of Hon'ble Apex Court in the case of Apollo Tyres Ltd. (supra) is not appropriate, in our opinion. There, Hon'ble Apex Court was considering a question regarding adjustment to be carried out on the book profits for the purpose of determining the tax liability under section 115 of the Act. Sections 115, 115JA and 115JB of the Act, all clearly mentioned that such adjustments had to start from the book pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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