TMI Blog2023 (1) TMI 1319X X X X Extracts X X X X X X X X Extracts X X X X ..... eemed dividend under Explanation 2 to Section 2(22)(e) of the Act, the current profit was not required to be included to be part of accumulated profit. And their Lordship also took note that the issue was already settled by the Hon ble Supreme Court against the revenue in the case of Associated Banking Corporation of India Ltd. [ 1964 (10) TMI 7 - SUPREME COURT] wherein the view was taken that the profit accrues when the books of account are closed. In the light of the judicial precedent laid by Hon ble Gujarat High Court in CIT Vs. M. B. Stockholding (P) Ltd [ 2015 (5) TMI 232 - GUJARAT HIGH COURT] and since no decision of jurisdictional High Court was cited in support of impugned action of Ld CIT(A), we are of the considered opinion that in the present case, while determining the deemed dividend, the AO/Ld. CIT(A) ought to have taken into consideration the accumulated profit as on 31.03.2011 i.e loss/(-) of Rs. 74,80,633/- and not accumulated profit adopted as on 31.03.2012 ( Rs. 3.46 crores). Therefore, no addition was possible u/s 2(22)(e) of the Act in the facts of the case and thus the assessee succeeds. And consequently, we direct the deletion of Rs. 3,41,96,270/. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the reassessment order passed by the Assessing Officer u/s 143(3) rws 147 of the IT Act dated 09.12.2019 assessing total income at Rs,3,46,93,780/- as against returned income of Rs. 1,85,690/-,which was requested to be held as a in law as the same was liable to be quashed and cancelled as the assessment order was passed without considering the version of Appellant that the basic condition to assume the jurisdiction u/s 2(22)(e) is not existing as the accumulative profits on 31/03/2011 are (-) Rs. 74,80,633/- as per audited accounts. Hon ble ITAT is requested to reverse the order of CIT(A)/ NFAC on this account and allow the ground. 3 On the facts and in the circumstances of the case, the CIT(A)/NFAC has failed to appreciate that there is no individual benefit derived and also there is no avoidance of dividend distribution tax (DDT) on the same therefore the object of introduction of section 2(22)(e) not fulfilled in instant case as no dividend could have been paid to shareholders because of accumulative profits on 31/03/2011 are (-) Rs. 74,80,633/-as per audited accounts. Hon ble ITAT is requested to reverse the order of CIT(A)/NFAC on this account and allow the ground as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act ) when the accumulative profits as on 31.03.2011 was minus/loss of Rs. 74,80,633/-. 5. Brief facts the AO noted in this regard are that the assessee had filed return of income for AY. 2012-13 on 28.07.2012 declaring total income of Rs. 1,85,690/- and current years loss of Rs. 12,92,885/-. Later on, the case of the assessee was re-opened for the reason which has been reproduced by the AO at page no. 1 2 of the re-assessment order u/s 147/143(3) of the Act dated 09.12.2019. The AO noted in the re-assessment order that the assessee has received an amount of Rs. 16.19 crores from M/s. Sony Mony Developers Pvt. Ltd. in which the assessee is director and 50% shareholder of the said company. According to the AO, the loan taken by the assessee from M/s. Sony Mony Developers Pvt. Ltd. would attract Section 2(22)(e) of the Act (deemed dividend). After considering the submission of assessee, the AO did not accept the same and was of the opinion that the transaction of the assessee with M/s. Sony Mony Developers Pvt. Ltd. would fall in the ken of Section 2(22)(e) of the Act (deemed dividend). And taking note from the balance-sheet of M/s. Sony Mony Developers Pvt. Ltd. as on 31.03.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assumes practical importance, for it is only on the right to receive profits or income, profits accrue to that person. If there is no right, no profits will be deemed to have accrued ..... 7. And the Ld. AR relied on the decision in CIT vs. M. B. Stockholding Pvt. Ltd., wherein the Hon ble Gujarat High Court observed as under: - CIT vs. M. B. Stockholding Pvt. Ltd., 2015-TIOL 1139-HC-AHM ++ while determining the amount of deemed dividend under Explanation 2 to Section 2(22)(e) of the Act, the current profit was not required to be included to be part of accumulated profit. As such, as observed by the Tribunal, the issue is already settled by the Supreme Court against the Revenue in the case of Associated Banking Corporation of Ind. Ltd. V Is. Commissioner of Income-Tax, Bombay reported in (1965) Vo1.56 ITR 1 (SC) by which, the view taken that the profit accrues when the books of account are closed. 8. According to the Ld. AR, it is well-settled that the profit will accrue only when there is a right to receive the same. And since in this case, the right to receive the profits didn t accrue on 31.03.2012 when M/s. Sony Mony Developers Pvt. Ltd. determined the share of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 crores, had accumulated profit of Rs. 3.41 crores as on 31.03.2012. Therefore, in the facts of the case, sec 2(22)(e) are applicable and after issuance of Show cause notice and finding no response from the assessee, and taking note of the fact that in M/s. Sony Mony Developers Ltd, the assessee/ Ramesh P Shah had 50% shareholding and was Director of it, the AO in his order added the Deemed income u/s 2(22)(e) of Rs. 3,41,96,270/- as per balance sheet dated 31.03.2012. According to Ld. DR Accumulated profits mean commercial profits and not profits as assessed for income--tax purposes. From accumulated profits all disbursements legitimately attributable to it by way of expenses, development, dividends and deemed dividends must be reduced. And she relied upon the following case laws: - Hon ble Supreme Court in the case of P.K. Badiani vs CIT 105 ITR 642 (SC) has held that the term profits appearing in Section 2(6a)(e) of Indian Income Tax Act, 1922 which corresponds to Section 2(22)(e) of the 1961 Act, means profits in the commercial sense, i.e. profits made by the company in the usual and true sense of the term. It has also been held that development rebate reserves created ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 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 . 12. The Ahmedabad bench of Tribunal in the case of M/s M.B. Stock Holdings (P) Ltd Vs ACIT (2003) 84 ITD 542] took note of the Hon ble Supreme Court decision in the case of CIT Vs. Asokbhai Chimanbhai (1965)(56 ITR 42) wherein it was held that the profits do not accrue from day to day or even from month to month and have to be ascertained by a comparison of assets at two stated points. It was further held that unless the right to profits comes into existence there is no accrual of profits and the destination of profits must be determined by the title thereto on the day on which they arise. Then the Tribunal went on to explain the purpose of Explanation 2 to sec. 2(22)(e) as under in para 24 of the order:- Keeping i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current year s profits of business. (iii) That profits of business accrue at the end of the previous year. (iv) That loan or advance treated as deemed income up to the date of fresh loan is to be reduced from accumulated profits. (v) That the repayment of loan during the same year is not to be deducted from the accumulated profits. Thus, it has been held that the accumulated profits do not include current year s business profit, since it accrues only at the end of the year. 14. We note that the Revenue has challenged the aforesaid Tribunal order before the Hon ble High Court of Gujarat (CIT Vs. M. B. Stockholding (P) Ltd. Tax Appeal No. 772 of 2007) by order dated 23.04.2015 reported in (2015) 64 taxmann.com 138 the Hon ble High Court considered the following substantial question of law and as under: - (A) Whether the Appellate Tribunal is right in law and on facts in setting aside the order of the CIT(A) and directing the Assessing Officer not to include the current profit to be part of accumulated profit while determining the amount of deemed dividend u/s 2(22)(e) of the Act? (B) Whether the Appellate Tribunal has not substantially erred in not appreciating that the mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was justified in including the current profit to be part of accumulated profit while determining the amount of deemed dividend under Section 2(22) (e) of the Act. 4.1 Having heard M Rs. Bhatt, learned advocate appearing on behalf of the Revenue and considering the provisions of Section 2(22)(e) of the Act, more particularly, Explanation 2 to Section 2(22)(e) of the Act, it cannot be said that the learned Tribunal has committed any error in directing the Assessing Officer not to include the current profit to be part of accumulated profit while determining the amount of deemed dividend under Section 2(22)(e) of the Act. While determining the amount of deemed dividend under Explanation 2 to Section 2(22)(e) of the Act, the current profit was not required to be included to be part of accumulated profit. As such, as observed by the learned Tribunal, the issue is already settled by the Hon'ble Supreme Court against the Revenue in the case of Associated Banking Corporation of India Ltd.v. CIT [1965] 56 ITR 1 by which, the view taken that the profit accrues when the books of account are closed. 5. Under the circumstances and considering the Explanation 2 to Section 2(22)(e) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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