TaxTMI 
TaxTMI 
2005 (11) TMI 193
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....ate Net Advances 20-4-1995 1,50,000 29-4-1995 10,00,000 01-5-1995 10,00,000 03-5-1995 3,00,000 20-5-1995 19,20,000 23-5-1995 10,00,000 24-8-1995 5,000 28-8-1995 20,00,000 01-9-1995 2,500 25-1-1996 5,00,000 13-3-1996 &nbs....
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....d not be treated as 'accumulated profits' for the purposes of s. 2(22)(e); that the 'accumulated profits' are to be understood as meaning commercial profits and not assessed income. The assessee also placed reliance on the decisions of the Hon'ble Supreme Court in the case of P.K. Badiani vs. CIT 1976 CTR (SC) 466 : (1976) 105 ITR 642 (SC) and in the case of Navnit Lal C. Javeri vs. K.K. Sen, AAC (1965) 56 ITR 198 (SC). In addition, the assessee reiterated his submissions that till29th Feb., 1996the company did not possess accumulated profits after considering the losses brought forward from the earlier years. The CIT(A) after considering the submissions of the assessee has since sustained the addition. Although the CIT(A), in principle, agreed with the plea of the assessee that loan/advance can be considered as deemed dividend under s. 2(22)(e) only if the company possesses accumulated profits on the date of payment but justified the addition in the following manner. The CIT(A) noted that as on 31st March, 1996 the 'reserve and surplus' in the company's balance sheet stood at Rs. 17,88,778 and the profit earned during the year, as per regular books of account was of Rs. 28,76,997,....
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.... to tax under s. 158BC, which has been referred to by the CIT(A), was with respect to an addition made under s. 68 of the Act. The explanation of the company with regard to certain credits appearing in its books of account was not found to be acceptable and therefore, the said addition was made. It was argued that notwithstanding the ultimate result of the said addition, it could not constitute 'accumulated profits' inasmuch as the same cannot be said to be earned from business and instead reflected only a deemed income. For the proposition that only commercial profits have to be looked into for the purpose of ascertaining 'accumulated profits', the learned counsel for the assessee referred to the decisions in the cases, viz., P.K. Badiani vs. CIT, Vanguard Fire & General Insurance Co. Ltd. vs. CIT (1966) 60 ITR 496 (SC); CIT vs. Urmila Ramesh , Etc. (1997) 139 CTR (SC) 12 : (1997) 224 ITR 301 (SC) and CIT vs. Urmila Ramesh (1998) 146 CTR (SC) 81 : (1998) 230 ITR 422 (SC). The third argument of the learned counsel for the assessee was that the entire impugned amounts advanced to the assessee have been paid by the company out of the sale proceeds of sulphur sold which was in turn pu....
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....s in the earlier paragraphs are also not in dispute. The case of the assessee is that the company did not possess 'accumulated profits' on the respective dates of payment of advances and thus, the application of s. 2(22)(e) fails. For this proposition, the assessee has relied upon the trading, profit & loss of the company to demonstrate that it did not earn profits up to29th Feb., 1996. The Revenue's contention, on the other hand, is to the effect that the company possessed adequate 'accumulated profits' on account of the fact that the undisclosed income assessed in the hands of the company under s. 158BC of Rs. 55,50,000 being an addition made under s. 68, can also be considered to calculate the accumulated profits. In the above background, the issues that arise for our consideration in relation to the applicability of s. 2(22)(e) are: (i) what is the meaning of 'accumulated profits' for the purpose of the said subsection; and (ii) what is the relevant date to ascertain 'accumulated profits'. 7. Insofar as the first question is concerned, in our view, the expression 'accumulated profits' as appearing in s. 2(22)(e) should be understood as meaning profits in the commercial sense....
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....mulated profits' refers to "...all profits of the company up to the date of distribution or payment..." Thus, for the purposes of s. 2(22)(e), the accumulated profits have to be ascertained on the date of payment of loan or advance to the shareholder. If on the date of such payment the company possesses accumulated profits, then to the extent of such profits the payment is liable to be treated as dividend. In other words, the existence of accumulated profits has to be ascertained with reference to each date of payment of loans or advances by the company to its shareholder. In the instant case, the plea of the assessee is that the company did not possess any 'accumulated profits' on the various dates when the impugned amounts were paid to the assessee. We find that the facts, as contended by the assessee before the lower authorities and also referred to before us, support the aforesaid plea. In this regard, it would be appropriate to refer to the following extract of the assessee's reply dt.9th Feb., 1999to the AO: "As per the final accounts of Dang & Co. (P) Ltd., there was accumulated losses up to31st March, 1995(1995-96) of Rs. 10,88,218.21 and there was no transaction of purc....
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....resaid facts in the instant case, the payments made by the company to the assessee up to 29th Feb., 1996 cannot be treated as deemed dividend inasmuch as there was an absence of 'accumulated profits' with the company within the meaning of s. 2(22)(e) of the Act. However, the amount of Rs. 30,000 advanced to the assessee on 13th March, 1996 is liable to be treated as deemed dividend under s. 2(22)(e) as there is no material to conclude that the company did not possess accumulated profits as on the above date. 10. Another plea advanced on behalf of the assessee was that the impugned amounts have been advanced merely out of its sale proceeds of goods which were purchased on credit. The said stand is not justified having regard to the import of s. 2(22)(e). A bare reading of the section reveals that it brings within its fold all payments, made from whatever source. The only condition being that the company should have adequate accumulated profits on the date of such payment. The said plea of the appellant is accordingly rejected. 11. In the result, we set aside the order of the CIT(A) and direct the AO to scale down the addition to Rs. 30,000 in terms of s. 2(22)(e) of the Act. T....
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....sent the earnest money received for the purchase of land; that the opening balances had already been taxed in the order under s. 158BC Hence, any taxation of the credits in their account, pertaining to the current year, would amount to double taxation." 14. In the above background, the AO held that the assessee had failed to discharge its onus to prove the genuineness or identity of the creditors. That in the absence of particulars not available in the records of the IT Department and also with the summons issued under s. 131 unserved, the genuineness of the affidavits was held to be questionable by the AO The AO also noticed failure on the part of the assessee to produce the said creditors. Even with regard to the plea of the assessee that the impugned amounts were in fact opening balances standing in the account of the creditors at the beginning of the year in the case of Shri Rajesh Srivastava at Rs. 4,50,000 and Shri R.P. Rai at Rs. 5,34,000, the AO contended that the cash payments shown to have been received during the year are bogus entries and therefore, treated the aforesaid sums as unexplained cash credits under s. 68 of the Act. The CIT(A) has since sustained the afore....