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TMI Blog2011 (6) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Walchand & Co. Ltd. v. CIT [1975] 100 ITR 598. 2. Learned A.R. has filed an adjournment petition which is rejected since no proper reasons have been mentioned for seeking adjournment. 3. Short facts apropos are that assessee, a Director in a firm called Western Agencies (Madras) P. Ltd., had filed his return of income for the impugned assessment year admitting total income of Rs. 8,04,113. M/s. Western Agencies (Madras) P. Ltd. which was a closely held company in which assessee was a Director, holding more than 10 per cent of shares, had advanced loan totalling to Rs. 12,66,140 to the assessee. Assessee was put on notice by the Assessing Officer that provisions of section 2(22)(e) of the Act would be attracted since M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet was not only notional and imaginery but, was in fact a negative figure. Ld. CIT (Appeals), after going through the submission of the assessee, was of the opinion that in order to apply section 2(22)(e), the company which had given loans or advances to a shareholder should posses accumulated profits. As per ld. CIT (Appeals), the company M/s. Western Agencies (Madras) (P.) Ltd. was not possessing any accumulated profits since there were unadjusted income-tax payments of earlier years appearing in the debit side of balance sheet. He, therefore, was of the opinion that there was no reason for invoking section 2(22)(e) of the Act and deleted the addition made in the hands of the assessee. 5. Now before us, learned D.R., strongly assailin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent shares of M/s. Western Agencies (Madras) (P.) Ltd. M/s. Western Agencies (Madras) (P.) Ltd. was a closely held company. M/s. Western Agencies (Madras) (P.) Ltd. had advanced loans to assessee to the extent of Rs. 12,66,140. Balance sheet of M/s. Western Agencies (Madras) (P.) Ltd. as on 31-3-2002 showed a balance under the head "Reserve" of Rs. 1,97,33,800. The said balance sheet also showed a sum of Rs. 2,80,74,859 under the head "Unadjusted Income-tax payments" on the asset side forming part of Schedule F. Contention of the assessee is that such unadjusted income-tax payments were to be considered and set off against the reserve and if it was so done, there would be no balance whatsoever of any accumulated profits. In other word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company up to the date of distribution of dividend, which inter alia, include advance or loan given to a shareholder holding not less than 10 per cent of voting power by virtue of deeming provisions of section 2(22)(e) of the Act. The question is whether the term "accumulated profits" used in clause (e) of sub-section (22) of section 2 can be equated with reserve. All reserves appearing in a balance sheet of the company need not be coming from accumulated profits. Accumulated profits would be profits of the company accumulating on an year to year basis to the extent it remained unappropriated. Here, the claim of the assessee is that it had income-tax dues which were shown by it in the asset side of the balance sheet. The expression "accumu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits as per the profit and loss account prepared in accordance with provisions of Parts II and III of Schedule VI to the Companies Act, 1956. As against this, "accumulated profits" mentioned in Explanations 1 and 2 of section 2(22) of the Act has not been linked by the Legislature to the Companies Act at all. Hence, it would not be possible to come to a conclusion that "accumulated profits" mentioned in section 2(22)(e) of the Act would be always equal to reserve and surplus mentioned in a balance sheet prepared under the Companies Act. No company would have made income-tax payments totalling to a substantial amount of Rs. 2,80,74,859 without any tax liability being fastened on it and to presume that such payments were made without any li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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