TMI Blog2013 (1) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... . Because of the conversion of proprietary concern into a Private Limited company the cheque could not be encashed later on and the same was returned to the Private Limited Company which has been credited by the company to the assessee's account on 15.3.2008. Thus it is clear that this amount belonged to the assessee on account of capital in the proprietorship concern and because the cheque could not be encashed, therefore, the money belonged to the assessee which has credited by the company. The so called cheque on account of loan or advance which have been issued by the Company have been issued only after 15.3.2008. The AO has failed to appreciate that because of the conversion of the proprietorship concern, the cheque could only be encashed by the assessee. Since all the assets have been taken over by the Private Limited company, the said company owned assessee this amount of ₹ 1.50 crores which was credited to his account on 15.3.2008. Because of non-encashment of the cheque the same is not reflected in the bank statement. This fact has been correctly appreciated by the ld. CIT(A). CIT(A) has also correctly noted that there was definitely a debit balance amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally withdrawn by the assessee from capital account in the proprietorship concern, however, the cheque remained un-cleared because the business was taken over by the company. Later on this cheque was returned by Shri Radhe Sham Jain i.e. the assessee to the company and the company had credited the same on 15.3.2008 and all the money has been withdrawn later on only. However, the AO did not find force in the submissions because entry regarding cheque of ₹ 1.50 crores could not be verified from the bank statement. It was further stated that a sum of ₹ 12,34,430.60 was opening credit balance in the capital balance of Shri Radhe Sham Jain which was transferred as credit to his account by the company. In this respect the AO was of the view that this sum was meant for the issue of shares, therefore, the same could not be considered as credit. In this background, he held that sum of ₹ 1,81,10,000/- is to be treated as deemed dividend u/s 2(22)(e) of the Act. 4. Before the ld. CIT(A) the submissions made before the AO were reiterated. 5. The ld. CIT(A) found force in the submissions and observed that a sum of ₹ 1.50 crores was basically on account of capital o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2008 amounting to ₹ 11,75,569/-. However, accumulated profits of the company was only ₹ 34,858/- as reflected in the balance sheet of the company. Thus the CIT(A) has correctly applied the provisions of section 2(22)(e) of the Act only to the extent of ₹ 34,858/-. He also referred to ground No. 2 and submitted that Revenue has wrongly taken the ground that accumulated profits could not be taken only at ₹ 34,858/- whereas reserve and surplus account in the balance sheet shows a figure of ₹ 11,17,80,000/-. He contended that reserve and surplus account amounting to ₹ 11,17,80,000/- consist of only share premium account which cannot be treated as accumulated profits. In this regard he relied on the decision of Delhi Bench of the Tribunal in Dy. CIT v. Maipo India Ltd. [2008] 24 SOT 42. He pointed out that the decision has been followed by Mumbai Bench of the Tribunal in case of Ketan B Mehra v. Asstt. CIT [IT Appeal Nos. 1939 to 1943/Mum./2010] (Copy of the order enclosed). 8. We have heard the rival submissions carefully in the light of the material on record as well as the decisions cited by the parties. Section 2(22)(e) reads as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t encashed and shown as liability in the balance sheet. Because of the conversion of proprietary concern into a Private Limited company the cheque could not be encashed later on and the same was returned to the Private Limited Company which has been credited by the company to the assessee's account on 15.3.2008. Thus it is clear that this amount belonged to the assessee on account of capital in the proprietorship concern and because the cheque could not be encashed, therefore, the money belonged to the assessee which has credited by the company. The so called cheque on account of loan or advance which have been issued by the Company have been issued only after 15.3.2008. The AO has mainly stressed on the fact that this seems to be adjustment entry. We are of the opinion that the AO has failed to appreciate that because of the conversion of the proprietorship concern, the cheque could only be encashed by the assessee. The cheque has been shown as liability in the balance sheet of proprietorship concern and was later on returned by the assessee to the Private Limited company. Since all the assets have been taken over by the Private Limited company, the said company owned assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Companies Act, share premium cannot be stated to be commercial profits - Amount of ₹ 1,85,821/- alone out of the amount of ₹ 25,42,772/- can be assessed as deemed dividend u/s 2(22)(e). The above view has been taken particularly following the decision of Hon'ble Supreme Court in case of P.K. Badiani v. CIT [1976] 105 ITR 642. In that decision it was clearly observed that accumulated profits would mean profit in the commercial sense and not assessable taxable profits. In that case development rebate reserve created by the company by charging profit and loss account was held to be accumulated profits though the same was liable to be deducted as rebate. Following this ratio it is clear that share premium account would not partake the nature of commercial profits and therefore, by no stretch of imagination, this can be called accumulated profits. Therefore, in case before us accumulated profits can be taken only at ₹ 34,858/- and the ld. CIT(A) has correctly confirmed the addition deemed dividend u/s 2(22)(e) of the Act to the extent of ₹ 34,858/- which has not been challenged by the assessee. In these circumstances we find nothing wrong in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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