TMI Blog2008 (6) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... d in deleting that amount from the loan taken by the assessee. The submission of the learned counsel for the assessee that an amount to be reduced from such deeming provisions does not carry much force since the law does not give any relief for any repayment of such loan. The submission of the learned counsel for the assessee that the assessee was in the business of lending of money and provisions of s. 2 (22)(e) are not attracted also does not have any force in it since the learned counsel for the assessee could not prove that the assessee was in fact engaged in the business of moneylending and a part of the income of the assessee consists of income from such moneylending. However, for the purpose of quantifying such deemed dividend, we find in the case of M.B. Stock Holding (P) Ltd. vs. Asstt. CIT [ 2001 (12) TMI 190 - ITAT AHMEDABAD-B] has taken the view that for determining the deemed dividend u/s. 2(22)(e), accumulated profits are to be worked out upto the date of payment of such loan or advance in the nature of loan. We therefore, are of the opinion that the deemed dividend has to be calculated on the basis of accumulated profits upto the date of each loan/advance. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 998) 96 Taxman 533 (SC) was also relied upon. It was further submitted that though the main business of GDPL was the business of construction, the company was also advancing money to others and earning interest on the same and therefore, the advances received by the assessee from GDPL were of the object clause of the company and business activity. It was further submitted that there was a debit balance of Rs. 67,562 in the name of the company advanced by the assessee in the earlier years to the company and therefore, to that extent, the amount received from M/s GDPL was repayment of loan to the assessee. 4. The above explanations given by the assessee were not accepted by the AO on the ground that the assessee held more than 10 per cent. share in M/s GDPL which is a closely-held company in which the public was not substantially interested. Further, moneylending was not substantial part of the GDPL. After discussing the provisions of s. 2(22)(e) and relying on various decisions, the AO made an addition of Rs. 12,47,261 as deemed dividend under s. 2(22)(e) of the Act. 5. On appeal, the learned CIT(A) upheld the action of the AO as regards the application of provisions of s. 2 (22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are deemed to be dividend would be those which were capable of being capitalized and which can be distributed to its shareholders. Since in the instant case, the profit at the end of the year is merely provisional and estimated surplus derived after estimation of gross profit therefore, it could not be said to be distributable profit. He accordingly submitted that the addition sustained by the learned CIT(A) should be deleted. 7. The learned Departmental Representative, on the other hand referred to cl. 117 of the other objects and paper book p. 5 containing the P L a/c of GDPL and submitted that there is no income shown by that assessee from moneylending business. Therefore, income from moneylending is not a substantial part of the income of the assessee company. Since the company has accumulated profit to the extent of Rs. 18,13,605 and since the assessee is having substantial interest in the said company in shape of shareholding to the extent of 25 per cent, therefore, the action of the learned CIT(A) in sustaining the deemed dividend to the extent of Rs. 11,79,700 is justified. He accordingly supported the order of the learned CIT(A). 8. We have considered the rival sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 1: The expression 'accumulated profits', wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st March, 1948, and before the 1st April, 1956. Explanation 2: The expression 'accumulated profits' in sub-cls. (a), (b), (d) and (e) shall include all profits of the company upto the date of distribution or payment referred to in those sub-clauses, and in sub-cl. (c) shall include all profits of the company upto 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. Explanation 3: For the purposes of this clause,- (a) 'concern' means an HUF, or a firm or an AOP or a BOI or a company; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The CIT(A) erred in confirming the addition on account of deemed dividend under s. 2 (22)(e) of the IT Act though the provisions are not attracted on the facts and circumstances of the case and in law. The profit to the extent of deemed dividend was not available to the distribution. 2. On the facts and circumstances of the case and in law. CIT(A) erred in confirming the additions though the appellant was in the business of lending of money and provisions of s. 2(22)(e) are not attracted. 3. On the facts and circumstances of the case and in law and without prejudice to above, the CIT(A) erred in not considering the fact that there was no new loan taken during the year but it was out of the repaid amount received back. In view of the above, provisions of s. 2(22)(e) are not attracted. 4. The CIT(A) erred in enhancing the additions by Rs. 76,562 without giving any proper opportunities to the appellant in respect of the same." 15. After hearing both the sides, we find the above grounds are identical to that of the grounds of appeal in ITA No. 1924/Mum/2006. We have already decided the issue and restored the matter back to the file of AO directing him to calculate the deemed di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sented brought forward figure from the earlier years. It was further submitted that the company had accumulated net loss of Rs. 25,37,552 as on 31st March, 2000 and as such, the provisions of s. 2(22)(e) were not applicable as there was no accumulated profit in the hands of the company. Relying on a number of decisions, it was submitted that profit does not accrue from day to day or even from month to month and profit accrues only at the end of the year, since on the date of the loan, the company had no accumulated profit, therefore, the provisions of s. 2(22)(e) are not applicable. However, the AO did not accept the explanation given by the assessee. Relying on a number of decisions and the Expln. 2 of s. 2(22)(e), he held that the accumulated profits has to be calculated upto the date of payment of loan or advance. He accordingly made an addition of Rs. 2,00,000 under s. 2(22)(e) of the Act. 18. On appeal, the learned CIT(A) upheld the action of the AO holding that M/s SEPL has a current profit of Rs. 31,15,793 and the loan has been given out of profits as on the date of loans made and squarely covered by provisions of s. 2(22)(e) of the Act. He also rejected the alternate argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of deemed dividend under s. 2(22)(e) of the IT Act. 3. Without prejudice to above, on the facts and circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the amount of Rs. 50,000 was credited in loan account by way of remuneration should have been set off against the loans of Rs. 2,00,000 and erred in not reducing the deemed dividend of Rs. 50,000. 4. Without prejudice to above, CIT(A) erred in not appreciating the fact that the total accumulated profit as on 31st March, 2001 is Rs. 5,78,240 and there were loans and advances to other shareholders; in any case the addition in respect of all other shareholders should not be more than the accumulated profit." 22. After hearing both the sides, we find, the grounds raised by the assessee are identical to that of grounds of appeal in ITA No. 1922/Mum/2006. We have already decided the issue and restored the matter back to the file of the AO directing him to calculate the deemed dividend on the basis of accumulated profits on the date of each loan and advance. Following the same ratio, we restore the matter back to the file of the AO directing him to calculate the deemed dividend on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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