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TMI Blog2015 (12) TMI 1614X X X X Extracts X X X X X X X X Extracts X X X X ..... e advances received by the Appellant as Deemed dividend. 3. The Ld. CIT(Appeals) erred in confirming the addition made by Ld. A.C.I.T. on account of Deemed dividend even when the company advancing loan had accumulated loss and not accumulated profit. Additional Ground of Appeal The learned Asst. CIT was not justified in making and the learned CIT(Appeals) was not justified in confirming, the addition of Rs. 46,67,500/- as deemed dividend u/s.222(e) made in the assessment completed u/s153A since the same is not based on any incriminating material found in the course of the search." 2. The issue raised in the first three grounds of appeal relate to confirming the addition by CIT(A) amounting to Rs. 46,67,500/- on account of deemed dividend as made by A.O. by treating share premium account as part of the accumulated profit whereas as a matter of fact there was accumulated loss in the balance sheet of the assessee. The assessee also raised an additional ground raising the issue therein that the CIT(A) was not justified in confirming the addition of Rs. 46,67,500/- as deemed dividend u/s.2(22)(e) made in the assessment completed u/s.153A as the same was not based on any incrimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, this ground is dismissed." 5. Ld. A.R. submitted before us that the basis on which the addition of Rs. 46,67,500/- on account of deemed dividend u/s.2(22)(e) was wrong as the company THPL had no accumulated profits rather the said company had accumulated loss to the tune of Rs. 14,27,174/-. The company had share premium account amounting the Rs. 93,35,000/- which was shown under the head 'reserve and surplus'. The ld. A.O. treated the same as accumulated profit for the purpose of deemed dividend and thus added Rs. 46,67,500/- as deemed dividend u/s.2(22)(e) of the Act. Ld. Counsel further submitted that the case of assessee is fully covered in favour of the assessee in her son's case in ITA No.5561/Mum/2012, A.Y. 2005-06, order dated 11.04.2014, wherein similar addition made by the A.O. was deleted. The ld. Counsel also cited a number of other judgments in support of the assessee's stand. The ld. Counsel also submitted that the return for the instant year was processed u/s.143(1) of the Act, whereas the search was conducted on 21.08.2009 and therefore, the assessment had attained finality and the same had not abated as nothing was pending on the date of search and thus, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumulated profits which are deemed to be dividend in the hands of the shareholder. Thus, the share premium account cannot be stated to be commercial profits in the true sense of the term having regard to the provisions of the Companies Act. 8.1. As mentioned elsewhere, if the share premium amount is taken out of Reserves and Surplus, the assessee is having negative balance under the head profit and loss account which means that it has accumulated losses for the year ending 31.3.2005, which lead to only logical conclusion that there cannot be any question of deemed dividend. The findings of the Ld. CIT(A) are accordingly reversed. The AC) is directed to delete the addition made on account of deemed dividend u/s. 2(22)(e) of the Act. 9. As we have directed the AO to delete the addition on the facts of the case, we do not find it necessary to decide the additional ground raised by the assessee." Since, the facts of the assessee are identical to the issue involved in the above ITA and we, therefore, respectfully following the decision of Co-ordinate Bench decide the ground nos. 1 to 3 in favour of assessee. 6.1 In the additional ground raised by the assessee, the issue is whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case are that the assessee's principal business was to make investment in share and securities by buying and selling of shares and to earn profit. During the year, assessee received Rs. 3,86,424/- as dividend which was claimed exempt. The ld. A.O. during the course of assessment proceedings found that the assessee had not made any disallowance and therefore, the provisions of Section 14A were attracted. The assessee submitted before the A.O. that provision of Section 14A r.w.Rule 8D were applicable from 08-09 onwards, however, the same were not applicable in case of strategic investments as made by the assessee in the group companies. However, without prejudice, this claim of the assessee, the assessee filed a working of disallowance u/s.14A r.w.Rule 8D. The ld. A.O. observed that the assessee, without prejudice to claim, has computed the disallowance u/s.14A r.w.Rule8D at Rs. 13,97,843/- which is found in accordance with the Act u/s.14A r.w.Rule8D and added the same to the income of the assessee. 9. Ld. CIT(A) also dismissed the appeal of the assessee on the ground that she has received dividend income of Rs. 3,86,424/- during the year and also investment in some co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Mum/2012, order dated 28-11-2014); ii) Garware Wall Ropes Ltd., ITA Nos.5408,4957/Mum/2012, 65 SOT 86); iii) M/s JM Financial Limited (ITA No.4521/Mum/2012, order dated 26-3-2014); 11. We have gone through the orders of the -authorities below and found that as per the audited balancesheet, the assessee has made substantial investment in group concern as a strategic investment. As per the decision of coordinate bench, strategic investment are required to be excluded from total investment while working out disallowance under Rule 8D. The precise observation of the Tribunal in case of M/s Smart Chip Ltd. (supra) was as under:- "6. We have considered the rival contentions, carefully perused the record, gone through the orders of authorities below and the judicial pronouncement referred by the lower authorities as well as Id. Representatives of both the parties during the course of hearing before us. From the record we found that the Assessee has made investment in group company which was 100% subsidiary of the Assessee. The investment was made as strategic investment for the purpose of business wherein the sole intention was to carryout the business purpose of the Assesseec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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