TMI Blog2012 (11) TMI 1127X X X X Extracts X X X X X X X X Extracts X X X X ..... d position of the law. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the Assessing Officer with the direction to carry out due verification of the computations made with regard to the accumulated profits and also determine the amount of ‘deemed dividend’, if any, accordingly after verifying the record with regard to the amount to be deducted as per clause (iii) of sec. 2(22)(e) of the Act, which was discussed in the preceding paragraph. Appeal of the assessee is treated as partly allowed for statistical purposes. - ITA No. 293/Vizag/2012 - - - Dated:- 16-11-2012 - SHRI D MANMOHAN, VICE PRESIDENT AND SHRI BR BASKARAN, ACCOUNTANT MEMBER For the Appellant: Shri C. Subrahmanyam, CA For the Respondent: Shri K.V.N. Charya, CIT(DR) ORDER Per Shri B. R. BASKARAN, Accountant Member: The appeal of the assessee is directed against the order dated 29-06-2012 passed by Ld CIT(A) and it relates to the assessment year 2007-08. 2. The grounds raised by the assessee give rise to the following two issues. (a) Validity of re-opening of assessment (b) Validity of assessment of deemed dividend u/s 2(22)(e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer was not convinced with the various explanations given by the assessee. The aggregate amount of loan given to the assessee and the partnership firm was ₹ 1,63,34,000/- and the accumulated profit, according to the Assessing Officer was ₹ 87,48,366/-. As per the provisions of sec. 2(22)(e), the loan or advance given to the shareholder shall be treated as Deemed Dividend , only to the extent to which the company possesses accumulated profits. Accordingly, the AO assessed the amount equivalent to the accumulated profit as on 31.3.2007, i.e., ₹ 87,48,366/- as deemed dividend in the hands of the assessee for the asst. year 2007-08. 6. The assessee challenged the order passed by the Assessing Officer by filing appeal before Ld CIT(A). Before him, the assessee advanced following arguments:- (a) The provisions of sec. 2(22)(e) are not attracted in the hands of the assessee, as the company has actually declared dividend during the year relevant to the assessment year under consideration, viz., assessment year 2007-08. (b) Even, if it is considered as attracted, the accumulated profit computed by the AO is not correct. 7. With regard to the first conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had advanced a sum of ₹ 77,50,000/- to the assessee herein during the year immediately preceding the year under consideration, i.e., in the year relevant to the assessment year 2006- 07 and the company had accumulated profit of ₹ 55,87,174/- as on 31.3.2006. Accordingly, the assessee contended that the AO should have assessed a sum of ₹ 55,87,174/- as deemed dividend in the assessment year 2006-07. Hence the accumulated profit should be reduced by the amount that should have been assessed as deemed dividend in the assessment year 2006-07. (b) During the year relevant to the asst. year 2007-08, the company made a profit of ₹ 31,61,192/- and the same has been declared as dividend. Hence the accumulated profit should be taken as NIL as on 31.3.2006 and hence no amount could be assessed as deemed dividend during the year under consideration, i.e., asst. year 2007-08. In support of the point listed as (a) above, the assessee relied upon the decision of Hon ble Supreme Court in the case of Ms P Sarada Vs CIT (229 ITR 444), wherein it was held that the legal fiction embodied in sec. 2(22)(e) comes into play as soon as monies were paid by the company. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of the assessee. Aggrieved, the assessee is in appeal before us. 10. We have heard the rival contentions and carefully perused the record. There is no dispute with regard to the fact that the assessee is holding 37.88% of share holding in the company and was entitled to a share of 50% in the Partnership firm. Under sec. 2(22)(e) of the Act, the loan amount or the accumulated profit whichever is less is liable to be taxed as deemed dividend . We notice that the assessee is accepting the fact that the deemed dividend is liable to be assessed in his hands, provided there is accumulated profit in the hands of the company as per the provisions of sec. 2(22)(e) of the Act and further the adjustments towards dividend declared by the company is made. Thus, the first question that requires our consideration is about the determination of the quantum of accumulated profits for the purpose of assessment of deemed dividend for asst. year 2007-08. 11. Before us, the Ld A.R contended as under:- (a) As per the decision of the Hon ble Supreme Court in the case of P. Sarada ((Supra)), the apex court held that the legal fiction embodied in sec. 2(22)(e) of the Act comes into p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 ITR 60), it was held that the loans advanced in earlier years and deemed to be dividend u/s 2(22)(e) have to be deducted. (d) As per clause (iii) of sec. 2(22)(e), the dividend does not include the amount paid by the company as dividend and which was set off by the company against the amount previously paid by it and which was treated as dividend u/s 2(22)(e) of the Act. In the instant case, the assessee has accepted that there was no such set off. This issue was addressed by Ld CIT(A) in para 5.7 of his order. (e) As per Explanation 2 to sec. 2(22)(e), the accumulated profit shall include all profits of the company up to the date of distribution or payment. The Ahmedabad bench of Tribunal also has held so in the case of M.B. Stock Holding (P) Ltd, supra. (f) If, by any chance, the Tribunal feels that a part of deemed dividend was assessable in the assessment year 2006-07, suitable direction may be given in that regard. 13. We notice that the Learned D.R is heavily taking support from the Explanation 2 to sec. 2(22)(e) and the said provision defines the term accumulated profits as under:- Explanation 2:- The expression accumulated profits in sub cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount in determining the accumulated profits notwithstanding the fact that such an event has taken place in the middle of the year. It is so the determination of capital gains is not to wait for the end of the previous year. Similarly, there can be income from other sources also such as receipt of dividend income or interest which may not have to wait for determination at the end of the year. Similarly, some subsidy may be received from the Government which may be taxable on receipt basis. Such income shall also have to be taken into account in determining the accumulated profits as it has not to wait for determination of income at the close of the year . The Hon ble Tribunal has expressed the above said view, when it was pointed out to it by the counsel for the assessee that the Hon ble Supreme Court in the case of CIT Vs. V.Damodaran (1980)(121 ITR 572) has held that the accumulated profits shall not include current year s profit. Finally the Tribunal summarized the principles of sec. 2(22)(e) as under:- (i) That for purposes of s. 2(22)(e), the accumulated profits are to be worked out upto the date of each payment/advancement of loan. (ii) That there is a distincti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of Hon ble Supreme Court in the case of Tarulata Shyam (Supra) and has expressed the view that the deemed dividend assessable in any of the earlier years has to be reduced from the accumulated profits, even if it was not assessed in that year. The relevant observations made by the Cochin bench are extracted below:- 11. In Smt. Tarulata Shyam s case (supra), it was held by the Supreme Court that the statutory fiction created by s. 2(6A)(e) would come into operation at the time of payment of advance or loan to a shareholder and tax is attracted to the loan or advance to the extent to which the company possesses accumulated profits the moment the loan or advance is received, and even if the loan or advance ceases to be outstanding at the end of the previous year, it can still be deemed to be dividend if the conditions of the section are satisfied. It was also observed that the language of the section is clear and unambiguous and that there is no scope of importing into the statute words which are not there and that once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans and advances as deemed dividends and to allow such omissions to bloat the accumulated profits, so that the whole of the large advances taken in the last assessment year are converted into deemed dividends. As rightly pointed out by the CIT(A), the advances or loans in the earlier assessment years should be treated as dividend which the Department omitted to assess. If so, it follows that the accumulated profits should be reduced by the earlier loans or advances in spite of the fact that they were not assessed to tax as deemed dividends by the Department. It is a well settled proposition of law that an income pertaining to a particular assessment year can be assessed in that year only. For example, the income pertaining to the assessment year 2005-06 can be assessed only in that year, i.e., the said income cannot be assessed in any other assessment year, even if the tax authorities wish to do so. Hence, the assessee cannot be compelled to pay tax on the income which was omitted to be assessed in an earlier year, by assessing the said income in any other assessment year. Accordingly, we are inclined to follow the decision rendered by the Cochin bench in the case referred sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ======= Lower of (a) or (b) 26,71,628 --------------- Accumulated profit for the purpose of ascertaining Deemed dividend in the year relevant to a.y. 2007-08 29,15,546 ======= We have already noticed that the aggregate amounts of loans given by the company to the assessee and the partnership firm during the financial year relevant to the assessment year 2007-08 was ₹ 85,84,000/- (Rs.5,46,500/- to the assessee and 50% of the amount given to M/s PSV Enterprises ₹ 80,37,500/-). Under sec. 2(22)(e) of the Act, the lower of the loan amount or the accumulated profit is taken as deemed dividend., i.e. lower of ₹ 85,84,000/- or ₹ 29,15,546/- is taken as deemed dividend, i.e., ₹ 29,15,546/- is to be taken as deemed dividend. Since the Learned A.R has claimed that the dividend declared and paid by the company is required to be deducted, the applicability of the provisions of clause (iii) of sec. 2(22)(e) requires verification. Similarly, the computations discussed above also require verification by the tax authorities. 18. As per clause (iii) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
