TaxTMI 
TaxTMI 
2008 (6) TMI 226
X X X X Extracts X X X X
X X X X Extracts X X X X
....s in M/s Golok Developers (P) Ltd. ('GDPL'), where the public are not substantially interested. He observed that the assessee had taken loan of Rs. 12,47,261 from M/s GDPL which had accumulated profits of Rs. 18,13,605. The AO asked the assessee to explain as to why the amount taken as loan by the assessee should not be treated as deemed dividend under s. 2(22)(e) of the IT Act to the extent of accumulated profits of M/s GDPL. 3. The assessee submitted that M/s GDPL was a builder and developer and for the purpose of taxation, the profit was being estimated on percentage of WIP method. The real profit could only be determined at the end of the project or after substantial completion of the project. Since, only the provisional profit was available and there was no substantive real profit which could be utilized for distribution of dividend, therefore, the profit could not be treated as accumulated profit for the purpose of provisions under s. 2 (22)(e) of the Act. The decision of the Hon'ble Supreme Court in the case of CIT vs. Urmila Ramesh (1998) 146 CTR (SC) 81 : (1998) 96 Taxman 533 (SC) was also relied upon. It was further submitted that though the main business of GDPL was t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompany not immediately required in any manner from time to time as may, from time to time be determined by the directors of the company. Referring to p. 15 of the paper book which contains cl. 117 of the other objects, he submitted that the company is entitled to give loan to shareholders and directors. Referring to p. 5 of the paper book which contains the trading, P&L a/c of GDPL for the year ending 31st March, 2001, he submitted that the net profit during the year was shown at Rs. 8,89,942. Referring to p. 8 of the paper book he submitted that the company has advanced loan to shareholders amounting to Rs. 16.89 lakhs and to other private parties amounting to Rs. 13.55 lakhs. Referring to p. 9 of the paper book he submitted that the company has received loan from shareholders amounting to Rs. 50.15 lakhs and from others amounting to Rs. 8 lakhs. Referring to the written submissions filed before the learned CIT(A) and a copy of which is placed at paper book at pp. 1-4, he submitted that the learned CIT(A) has not properly adjudicated the case. He submitted that the profits which are deemed to be dividend would be those which were capable of being capitalized and which can be distr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... concern 7,00,000 Closing credit Interest payable 82,823 balance 12,47,261.50 ------------ --------- 13,22,823.00 13,22,823 ------------ --------- 9. From the above it is clear that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 per cent of the income of such concern." 11. From a bare reading of the above provisions, we find that Expln. 2 of s. 2(22)(e) is very clear according to which accumulated profits in s. 2(22)(e) shall include all profits of the company upto the date of payment of such loans/advances. Therefore, the action of the learned CIT(A) in upholding the AO's action regarding applicability of provisions of s. 2(22)(e) is justified. However, we find, since the assessee had an opening debit balance of Rs. 67,561.50, the learned CIT(A) was justified in deleting that amount from the loan taken by the assessee. The submission of the learned counsel for the assessee that an amount of Rs. 8,000 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 busines....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 dividend on the basis of accumulated profits upto the date of payment of each such loan or advance in the nature of loan. Following the same ratio, the grounds raised by the assessee for this year are also allowed for statistical purposes. ITA No. 1922/Mum/2006; Asst. yr. 2001-02: 16. Grounds of appeal raised by the Revenue are as under: "1. The CIT(A) erred in confirming the addition of Rs. 20,000 on account of deemed dividend under s. 2(22)(e) of the IT Act, though the conditions relating to the same are not in existence. 2. On the facts and circumstances of the case and in law, the CIT(A) erred in not appreciating the facts that there was no accumulated profit available for distribution and hence question of deemed dividend did not arise. The CIT(A) erred in confirming the addition of Rs. 20,000 on account of deemed dividend under s. 2(22)(e) of the IT Act. 3. Without prejudice t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. 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 arguments of the assessee that an amount of Rs. 50,000 representing salary to the directors is included in the said loan amount and the same should be reduced from the said deemed dividend. Aggrieved with such order of the learned CIT(A), the assessee is in appeal before us. 19. After hearing both the sides, we find as per Expln. 2 to s. 2(22)(e) accumulated profits in s. 2(22)(e) include all profits of the company upto the date of payment of such loans or advances. This issue has already been decided by us in ITA No. 1924/Mum/2006. We therefore following the same ratio, restore the matter back to the file of the AO directing him to determine the accumulated profit on the date of loans/advances and decide the issue in the light of our observations therein. We hold and direct accordingly. The grounds of appeal Nos. 1 and 2 raised by the assessee are accordingly partly allowed for statistical ....