TaxTMI 
TaxTMI 
2019 (4) TMI 1226
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....return was processed u/s. 143(1) of the Income Tax Act [Act] on 28-10-2013. 3. During the assessment proceedings in the case of M/s. United India Construction Co. (P) Ltd., for the AY. 2012-13, it was noticed that the company has advanced loans and advances of Rs. 18,61,380/- to the assessee, who is holding the position of Joint Managing Director in the above said company. As per the return filed by the company, the shareholdings of the assessee are 22.5% of the existing shares of the company. On the date of Balance sheet, the company has a reserve of Rs. 14,99,138/- and the book profit of the relevant year is Rs. 14,55,238/-. Therefore, the provisions of Section 2(22)(e) of the Act are attracted in the case of assessee. Accordingly, ass....
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.... "6.4 The appellant owns 22.5% shares In the company Mis United India construction Pvt. Ltd. and it has reserves as on 31.03.2012 at Rs. 14,99,138/-. The appellant has been advanced loan of Rs. 18,61,380/- during the year. The AO noted that all the conditions of deemed dividend ul s. 2(22}(e) are satisfied as the loan has been given to a shareholder by a company in which public arc not substantially interested and having reserves more than the quantum of loan advanced to the appellant. The AR stated that the reserves will not exist as there is a subsequent liability of MAT which has not been charged to the reserves of the company. The AO noted that at the time of finalization of the accounts for the year ended 31.03.2012....
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.... Act 1961, by the AO is arbitrary and liable to be deleted on account of existing tax liabilities because of which there were no free reserves as on that date of31.03.2012. 4. Any other ground at the time of hearing." 6. Before us, Ld.AR submitted that the company M/s United India Construction Co. (P) Ltd. filed return of income for the AY. 2011-12 and accordingly, return was processed u/s. 143(1) of the Act on 17-01-2012, determining tax liability of Rs. 49,51,416/- and similarly, for the AY. 2010-11, company filed its return of income on 26-09-2010 and return was processed u/s. 143(1) of the Act dt. 25-02-2011, determining the tax liability of Rs. 49,27,550/-. The company has finalised the Balance Sheet for the AY. 2012-13 and....
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.... material on record. We noticed that the company, M/s. United India Construction Co. (P) Ltd., filed its return of income for the AY. 2012-13 and completed the Balance sheet with the accumulated reserve to the extent of Rs. 14,99,138/-. During the year, assessee has taken an advance over and above the accumulated profit declared in the Balance sheet of the company, M/s. United India Construction Co. (P) Ltd. There is no doubt that the conditions of Section 2(22)(e) of the Act satisfies in the given case. However, we noticed that the company, M/s. United India Construction Co. (P) Ltd., no doubt declared favourable accumulated profit in the Balance Sheet. However, it has accumulated tax liability as determined by the department u/s. 143(1) o....
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....has been made by way of a foot note in the balance sheet and this was in accordance with the accountancy practice". We have already held above that accumulated profits are to be construed as commercial profits for the purposes of s. 2(22) of the IT Act. Since tax liabilities have been created by the IT authorities and assessment orders as well as demand notices in support of the said liabilities have been produced during the assessment proceedings, such liabilities are to be taken note of, even if not provided in the books for ascertaining the accumulated profits. In the absence of specific reserves for taxation created by the company those liabilities may have to be met from the general reserves. In such circumstances to take the figure of....