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TMI Blog2024 (11) TMI 963X X X X Extracts X X X X X X X X Extracts X X X X ..... llegal. 3. On the facts and circumstances of the case and in law, the learned CIT Appeals, NFAC. Delhi ought to have seen that the assessee assessee has taken Inter Corporate Deposit which is out of purview of section 2(22)(e) of the I. T. Act. 4. Without prejudice to above grounds, on the facts and circumstances of the case the working of accumulated profit for the purpose of section 2(22)(e) of the I.T. Act is unjustified, arbitrary and highly excessive. 5. The Assessee craves leave to add, amend, alter, vary and / or withdraw any or all the above grounds of Appeal." 3. Before us, during the course of hearing, the learned Counsel, Shri Kapil Hirani, appearing on behalf of the assessee, initially submitted that he wish to press grounds no.2, only. Rest all other grounds are not being adjudicated as per his concession. 4. Facts in Brief:- The assessee is a Private Limited Company engaged in infrastructure development. For the year under consideration, the assessee filed its return of income on 30/08/2011, declaring total income at ` nil, [current year loss being ` (-)6,927]. The return of income was accepted under section 143(1) of the Income Tax Act, 1961 ("the Act") and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order that how the figure of Rs. 2,64,51,100/- was computed. It appears that the Assessing Officer has considered pro-rata business pro9fits of the current year to arrive at the quantum of accumulated profits as on the date of granting of ICD. Further, the Assessing Officer also added Rs. 4,79,825 to the total income of the assessee. Thus, the order under section 143(3) r/w section 147 of the Act was passed on 30/12/2018 making total addition of Rs. 2,69,30,925, as deemed dividend under section 2(22)(e) of the Act. Against this addition, the assessee preferred appeal before the first appellate authority. 6. The matter was agitated before the learned CIT(A), who did not find favour with the arguments of the assessee. The appeal of the assessee was dismissed by holding as follows:- "6.3. The contention of the Appellant, Grounds of appeal, the statement of facts, online submissions of the appellant and the case laws relied upon and the assessment order have been considered. The AO observed that as explanation 2 to section 2(22)(e) clearly states that "accumulated profits" includes all profits of the company up-to the date of distribution or payments; all other conditions of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of payment. Hon'ble Jurisdictional High Court in CIT v/s Mrs. Maya B. Ramchand: [1986] 162 ITR 460 (Bombay) while considering the issue of -accumulated profit" under Section 2(6A)(e) of the Indian Income-tax Act, 1922 [corresponding to section 2(22) of the Act), observed as under: "The position, as found by the Supreme Court in Navnit Lal C. Javen's case (supra)and this Court's judgment in P.K. Badiani's case (supra) is that, for the purposes of section 2(6A)(e), the company's accumulated profits must be determined upon the day on which the loan or advance to the shareholder is made." The learned CIT(A) also relied upon various other judicial precedents, while upholding the addition made by the Assessing Officer under section 2(22)(e) of the Act. Thus, in view of the above legal position, we do not find any infirmity in the order passed by the learned CIT(A) affirming the addition on account of deemed dividend. The Para 9 of the order is as under: "...9. We have considered the submissions and perused the material available on record. Section 2(22)(e) of the Act reads as under. "(e) any payment by a company, not being a company in which the public are su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration 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." As per the provision of Explanation 2, all the profits of the company up to the date of distribution or payment under section 2(22)(e) of the Act shall be considered as accumulated profits. Thus, the provision of Explanation 2 to section 2(22) of the Act does not distinguish between the profit accumulated in the immediately preceding year and the current year profit. and takes within its ambit all the profits up to the date of payment. 10. We find that Hon'ble Jurisdictional High Court in CIT v/s Mrs. Maya B. Ramchand: [1986] 162 ITR 460 (Bombay) while considering the issue of accumulated profit "under Section 2(6A)(e) of the Indian Income-tax Act, 1922 [corresponding to section 2(22) of the Act], observed as under: -The position, as found by the Supreme Court in Navnit Lal C. Javeri's case (supra)and this Court's judgment in P.K. Badiani's case (supra) is that, for the purposes of section 2(6A)(e) the company's accum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Tribunal (Delhi) in the case of ACIT Vs. Sanjay Passi in ITA. No.1450/Del/2015 for AY 2012-13 dated 11.07.2018 and the Hon'ble Supreme Court decision in the case of CIT Vs. Ashokbhai Chimanbhai (1965) 56 ITR 42 (SC) wherein the Hon'ble Supreme Court has held as under: - "6. In the gross receipts of a business day after day or from transaction to transaction lies embedded or dormant profit or loss, on such dormant profit or loss undoubtedly taxable profits, if any, of the business will be computed. But dormant profits cannot be equated with profits charged to tax under ss. 3 and 4 of the IT Act. The concept of accrual of profits of a business involves the determination by the method of accounting at the end of the accounting year or any shorter period determined by law. If profits accrue to the assessee directly from the business the question whether they accrue de die, in diem or at the close of the year of account has at best an academic significance, but when upon ascertainment of profits the right of a person to a share therein is determined, the question assumes practical importance, for it is only on the right to receive profits or income, profits accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Branch, Mumbai when the assessee's account were analyzed for the period Nov, 2011 to April 2012 reveals fund transfer credits totaling Rs. 21.60 crores out of which funds amounting to Rs. 16.19 crores was received from the account of M/s Sony Mony Developers Pvt Ltd; and that fund was immediately transferred to the account of M/s Sony Mony Electronics Ltd. And since assessee is a director in both the entities (i.e. M/s. Sony Money Developers Ltd. & M/s. Sony Mony Electronics Ltd.), when asked by the AO, he admitted that he has taken unsecured loan from one company for the purpose of investment in another group company. According to Ld. DR, this sort of circulation of funds within the group companies with no business rationality was suspicious. It was pointed out by the Ld. DR that M/s Sony Mony Developers Pvt Ltd has transferred funds of Rs. 16.19 crores to the account of Assessee; and M/s Sony Mony Electronics Ltd has received fund transfers of Rs. 19.08 crores from Mr. Ramesh P Shah (Assessee). And that M/s. Sony Mony Developers Pvt. Ltd. from which the assessee took loan of Rs. 16.19 crores, had accumulated profit of Rs. 3.41 crores as on 31.03.2012. Therefore, in the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid, the Ld. DR, does not want us to interfere with the order of Ld. CIT(A). 11. After hearing both parties, and facts not disputed are not repeated for the sake of brevity. We note that the bone of contention raised in ground no. 3 by the assessee is against the action of AO/Ld CIT(A) in adopting the accumulated profit of M/s Sony Mony Developers Pvt Ltd as on 31.03.2012 (Rs.3.46 crores) and treated the same as deemed dividend, whereas according to the Ld. AR, the AO/Ld. CIT(A) ought to have adopted the accumulated profit as on 31.03.2011 i.e. [(-) Rs. 74,80,633/-] and in such an event, there would have been no occasion for making any addition u/s 2(22)(e) of the Act. The Ld. DR in order to support the action of the AO/Ld. CIT(A) has heavily relied on the Explanation-2 to Section (2(22)(e) of the Act which defines the expression accumulated profit as under:- Explanation 2:- The expression "accumulated profits" in sub clauses (a),(b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those clauses, and in sub clause (c) shall include all profits of the company up to the date of liquidation, but shall not, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation 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". 13. The 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 distinction between the "accumulated profits" of business and the current year's profits of business. (iii) That profits of business accrue at the end of the previou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons on merits and submitted that the learned Tribunal has materially erred in not properly interpreting and/or considering the Explanation 2 to Section 2(22)(e) of the Act. It is submitted that as per Explanation 2 to Section 2(22)(e) of the Act, for the purposes of 'accumulated profit, the current year profit upto the date of distribution has to be taken into account. It is submitted that, therefore, the learned Tribunal has materially erred in deciding the issue on merits, in favour of the assessee and against the Revenue and in allowing the appeal. 3. Though served, nobody appears on behalf of the respondent. 4. It is to be noted that as such, the respondent-company has gone into liquidation and the Official Liquidator has been appointed. However, nobody has appeared on behalf of the Official Liquidator. The same would be the fate even if the matter is remitted either to the learned Tribunal or to the Assessing Officer to consider the issue on merits afresh. Therefore, we ourselves have considered the issue with respect to the main issue on merits whether the Assessing Officer was justified in including the current profit to be part of accumulated profit while determinin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing (P) Ltd.(supra), 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/-."
9. The learned Departmental Representative could hardly controvert the above findings. Thus, respectfully following the aforesaid legal proposition, we set aside the impugned order passed by the learned CIT(A) and allow the ground no.2, raised by the assessee and direct the Assessing Officer to restrict the addition on account of deemed dividend only to the extent of accumulated profits of Rs. 4,79,825, and delete the balance addition made.
10. In the result, appeal filed by the assessee is partly allowed in terms indicated above.
Order pronounced in the open Court on 18/11/2024 X X X X Extracts X X X X X X X X Extracts X X X X
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