TMI Blog2010 (8) TMI 1028X X X X Extracts X X X X X X X X Extracts X X X X ..... om other sources for the year under consideration. In the course of survey conducted under sec.133A of the Act and subsequent assessment proceedings, it was noticed that the assessee had received an advance of ₹ 4,21,92,324/- from Rattha Overseas Co. Pvt. Ltd. (ROCPL) and ₹ 5,58,48,771/- from Roverco Apparel Co. Pvt. Ltd. (RACPL). The Assessing Officer found that both the companies had sufficient accumulated profits and accordingly, invoked the provisions of sec.2(22)(e). The contentions of the assessee that the amounts advanced were in turn given to another group company, that the origin of the amount received by the assessee was from another company and there was no device to avoid any tax were rejected by the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted to the file of the Assessing Officer to examine it afresh in entirety. 5. On the other hand, the contention of the ld. D.R. was that the argument of the assessee that the loan is advanced by RHPL cannot be accepted and since the payment is by ROCPL and RACPL, accumulated profits only of these two companies have to be seen and for the limited purpose of ascertaining the exact accumulated profits as on the date of payment, the matter may be sent back. 6. We have duly considered the rival contentions and the material on record. Certain basic facts are not in dispute. Three companies are involved in the matter. They are RHPL, ROCPL and RACPL as mentioned earlier. It is not in dispute that all the three companies are associate conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e construed as loan, there must be a lender, a borrower and a thing loaned. One of the most important aspect of the provision is that the amount of payment deemed to be dividend cannot exceed the accumulated profits of the company as on the date of payment. In other words, when a payment is made, the accumulated profits must be notionally reduced by the amount of all loans etc. and the last payment will be deemed to be dividend only to the extent of the balance accumulated profits. If some amount is repaid by the shareholder, the amount so repaid cannot go to augment the accumulated profits. Now let us examine the facts of the present case in the light of the principles mentioned above. 8. Two aspects need to be addressed by us. The firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e withdrawal. The contention of the assessee was that Mahesh, another shareholder, had directed the company to make available to the assessee a sum of ₹ 1 lac out of his credit balance in the company and therefore, the withdrawal made by the assessee should be treated as withdrawal from the account of Mahesh. Supreme Court rejected the contention of the assessee on the facts of the case. The question is, which are those facts which led the Supreme Court to negative the contention of the assessee. The Court found that the withdrawals were not made by debiting the credit balance of Mahesh which remained intact till 31.3.1973, i.e. upto the last day of the accounting year on which date the adjusting entry was passed. This singular fact f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the two companies and hence, deemed dividend. Subsequent adjustment in the account of RHPL will not save the assessee from the mischief of sec.2(22)(e). This has been categorically held by the Supreme Court in the case of P. Sarada (supra) as observed at placitum B on page 449 of ITR 229. The Assessing Officer is directed to examine the first aspect of the matter as discussed above. 10. We now come to the second aspect which is whether the addition is correctly quantified. In our opinion, the reply is clearly in the negative. It is well established that the computation of the amount of deemed dividend is to be made on the basis of company s accumulated profits on each day a loan or advance to the assessee is made. This proposition is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be extended in its effect and impact to all the permissible areas. The close enunciation dealing with the operation of a fiction, cannot be overlooked in that context. When the statute commands a deeming of the putative state of affairs as the real state of affairs, imagination should not boggle half way through. In the present case, the addition is exactly the result of the Assessing Officer s imagination which boggled half way through. 11. Summing up the above discussion, the Assessing Officer is directed first to ascertain which company or companies have given loans to the assessee on the basis of the discussion in paragraph 9 above. Having arrived at the conclusion in accordance with law with regard to the first aspect, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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