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TMI Blog2013 (6) TMI 751X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer in the assessment order dated 12.06.2007 inasmuch as the Assessing Officer considered only the profits that accrued during the period from 01.04.2002 to 31.03.2003 amounting to ₹ 2,61,19,957/- for the purposes of computing the amount assessable under Section 2(22)(e) of the Act. In our considered opinion, the Assessing Officer made no mistake in excluding the sum of ₹ 1,94,62,774/- while determining the 'accumulated profits' for the purposes of computing the amount assessable under Section 2(22)(e) of the Act, Commissioner has differed with the legal position accepted by the Assessing Officer without any justifiable reason. In fact, it would be in fitness to things to observe that the view adopted by the Assessing Officer on the aforesaid aspect was a possible view which is supported by judicial pronouncements and the Commissioner has not found it erroneous on the basis of any contrary judgment or legal position. Notably, the invoking of Section 263 of the Act can be justified only where the Commissioner is able to establish that the order passed by the Assessing Officer is erroneous in the eye of law so as to cause prejudice to the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenged in appeal before the CIT(A). The CIT(A) merely relied upon on the findings of the Commissioner passed in the order under Section 263 of the Act without considering the merits of the case, and holding that the CIT(A) cannot sit over Commissioner's decision. The said unexpected decision of the CIT(A) made the assessee opt for filing of an appeal before the Tribunal against the order of the Commissioner passed under Section 263 of the Act. The aforesaid fact situation led to the delay in filing of appeal before the Tribunal. 5. The learned counsel for the assessee has explained that all along assessee wanted to agitate the directions given by the Commissioner in his order passed under Section 263 of the Act and opted to seek remedy for filing of an appeal before the learned CIT(A) against the consequential order passed by the Assessing Officer under Section 143(3) read with Section 263 of the Act under a misunderstanding of law. Learned counsel submitted that in a similar situation Ahmedabad Bench of the Tribunal in the case of Sakar Patal Vibhag Jungle Kamdard Sahakari Mandli Ltd. v. ITO [1991] 39 TTJ (Ahd.) 54 condoned the delay in filing of appeal against the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal assessment had been set aside, there was no necessity of challenging the order of the Commissioner in appeal before the Tribunal. It was in fact after the decision of his appeal by the CIT(A) against the order of fresh assessment that the assessee realized that it ought to have challenged the order of the Commissioner passed under Section 263 of the Act in appeal before the Tribunal. In our considered opinion, misconstruction of the order of the Commissioner by the assessee and not filing an appeal against it within time is wrong but the same cannot be considered to be mala fide or with any ulterior purpose. Because, the assessee was aggrieved with the manner in which the amounts have been determined to be assessable under Section 2(22)(e) of the Act by the Commissioner, and opposed the same during the consequential assessment proceedings. Therefore, it is not a case where assessee intended to give up the challenge to the enhanced amount sought to be assessed by the Commissioner under Section 2(22)(e) of the Act. 9. We may refer to the judgment of the Hon'ble Bombay High Court in the case of Taj Sats Air Catering Ltd. (supra) wherein the assessee had filed an appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of loans received during the year were (i) Avinash Bhosale- ₹ 1,52,67,276/- (holding 59% shareholding); (ii) Inderkumar Jain- ₹ 76,33,928/- (holding 13% shareholding); (iii) Vimalkumar Jain- ₹ 76,33,928/-(holding 14% shareholding) thereby reflecting total loans of ₹ 3,81,69,640/-received by the shareholders during the year under consideration from the company which fell within the purview of Section 2(22)(e) of the Act in the hands of respective four shareholders, including the assessee. 12. For the A.Y 2003-04 i.e. assessment year under consideration, assessee originally filed a return of income on 29.09.2003 declaring total income of ₹ 34,80,900/-, which was processed under Section 143(1) of the Act on 19.11.2003. Subsequently, the Assessing Officer reopened such assessment by issuing notice under Section 148 of the Act on 28.05.2007 in order to tax an income chargeable to tax which had escaped assessment. In the consequent assessment framed under Section 143(3) read with Section 147 of the Act dated 12.06.2007, the total income of the assessee has been assessed at ₹ 77,59,640/- as against returned income of ₹ 34,80,900/-, thereby resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flected by the 'General Reserve' appearing in the Balance sheet as on 31.03.2003 at ₹ 42,30,501/-. In this manner, the Assessing Officer taxed an amount of ₹ 42,49,008/- under Section 2(22)(e) of the Act in the hands of the assessee. 15. As per the Commissioner, the action of the Assessing Officer in restricting the addition to ₹ 42,49,008/- i.e. 14% of the 'accumulated profits' corresponding to assessee's shareholding of 14% in the company, was incorrect, because there was nothing in Section 2(22)(e) of the Act permitting or prescribing such a restriction. Further, in the order passed by the Commissioner the determination of 'accumulated profits' by the Assessing Officer is found to be incorrect. As per the Commissioner, the 'accumulated profits' available as per the Balance sheet of the assessee for the year ending 31.03.2002 i.e. preceding year was ₹ 1,94,62,774/- and after taking into consideration the post-tax profit of the year under consideration, the 'accumulated profits' as on 31.03.2003 would work out to ₹ 4,36,08,197/-. Therefore, according to the Commissioner, the aforesaid amount of 'accum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r words, the 'accumulated profits' up to 31.03.2002 amounting to ₹ 1,94,62,774/- was to be reduced to the extent of the loans and advances made in the earlier years and after doing so, there did not remain any positive figure. 17. In this context, it is to be noted that under Section 2(22)(e) of the Act, any payment by a company, not being a company in which the public are not substantially interested, of any sum by way of any loan or advance to a shareholder, to the extent that the company possesses 'accumulated profits', is liable to be considered as 'deemed dividend' paid to the shareholder. Quite clearly the amounts paid to the shareholder are liable to the treated as 'deemed dividend' only to the extent company possesses 'accumulated profits'. In the context of the present controversy, the moot point is as to whether the loans/advances given to the shareholders in the earlier years which are assessable as 'deemed dividend' in the hands of the respective shareholders in the past years, should be reduced from the surplus while determining the 'accumulated profits' in the hands of the company during the year under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Dy. CIT [2010] 133 TTJ (Delhi) 490 also support the proposition accepted by the Assessing Officer. In our considered opinion, the Commissioner has differed with the legal position accepted by the Assessing Officer without any justifiable reason. In fact, it would be in fitness to things to observe that the view adopted by the Assessing Officer on the aforesaid aspect was a possible view which is supported by judicial pronouncements and the Commissioner has not found it erroneous on the basis of any contrary judgment or legal position. Notably, the invoking of Section 263 of the Act can be justified only where the Commissioner is able to establish that the order passed by the Assessing Officer is erroneous in the eye of law so as to cause prejudice to the interest of the Revenue. In the present case, where the Assessing Officer has adopted a possible view, based on legal precedents, and the Commissioner is denuded from exercising his power under Section 263 of the Act. We hold so. 18. The second aspect brought out by the Commissioner is with regard to the amount assessable under Section 2(22)(e) of the Act. As per the factual details noted earlier by us, the amount of loans a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is paid advances or loans in excess of the 'accumulated profit'; then the amount which would be treated as dividend in his hands would be limited to the extent of 'accumulated profit'. If, on the other hand, a shareholder takes advances or loans, which is less than the 'accumulated profit', then the entirety of the loan to the extent the company has 'accumulated profit' would be treated as dividend in the hands of the shareholder. In this manner, the Hon'ble High Court held that the advance made to the assessee to the extent of the 'accumulated profit' of that year i.e. ₹ 4,003/- and not to the extent of 25% (being the one-fourth share of the assessee) of the said amount of 'accumulated profit', was to be taxed. Quite clearly the aforesaid decision does not render any error in the assessment order dated 12.06.2007 (supra). In the present case, the total 'accumulated profit' available is ₹ 2,61,19,957/- whereas four shareholders (including the assessee) having voting power more than 10% in the company, have received loans and advances of ₹ 3,81,69,640/-. The entire available 'accumulated profits' a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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