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TMI Blog2016 (7) TMI 1591X X X X Extracts X X X X X X X X Extracts X X X X ..... ued as dividend for all purposes. While computing the deemed dividend one has to be considered the payments made by the assessee to the company. Hence as observed each debit will have to be individually considered because it may or may not be a loan. AO is, therefore, directed to verify the each debit entry on the aforesaid loan and treat only the excess amount of debit in the books of accounts of the company as a deemed dividend u/s.2(22)(e). Only those net amounts which reflected the debit side of the books of accounts of the assessee falling under the definition of the loans and advances, is with regard to these assessee in the relevant assessment years will be entitled to be taken as a deemed dividend. AO has to compute the day to day debit balance of these assessee in the books of accounts and thereafter the AO has to arrive at average yearly balance of the debit in the books of account of each company and compare with it, accumulated profit in respect of each company and lower of these to be considered as deemed dividend in the hands of present assessee. With this observation, we remit the issue to the file of AO for fresh consideration. Whether only peak debit balance of loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d partial relief. Aggrieved by assessee, the CIT(A) order was challenged before the ITAT. The Chennai Tribunal had passed a common order dated 17.01.2012 for assessment years 2005-06,2006-07 2007-08 in respect of above three assessees. The relevant directions given in the order by the ITAT are reproduced as under:- 12. We heard both sides in detail and considered the issue. It is not proper on the part of the Commissioner of Income-tax(Appeals) to hold that credit entries made in the accounts of the assessees by the company would not fall under section 2(22)(e) only for the reason that the credits were provided through journal entries. That is not a sustainable proposition. An assessee may avail benefit either by direct transfer of funds or by conferring credit by passing journal entry or through any other lawful method and still such benefit would amount to deemed dividend under section 2(22)(e) of the Act. Therefore, it is not the form which is paramount, what is important is the substance. The assessing authority should have examined every journal entry conferring credit to the assessees and verify whether any fund/benefit has been transferred by the company to the assessees dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In result, we have set aside the orders of both the assessing authority and the Commissioner of Incometax(Appeals) for all the four assessment years under appeal. The files are remitted back to the assessing authority. He is directed to examine the evidences and details with reference to the issues and arrive at a lawful conclusion, before which he shall provide ample opportunities to the assessees to present their cases before him. Thereafter Hon ble ITAT Chennai Bench A has passed another order dated 06.08.2010 vide ITA No.443/Mds./2010 in the case of Shri Harbinder Singh for assessment year 2007-08, the relevant directions of the ITAT order are reproduced hereunder: 6. We have duly considered the rival contentions and the material on record. Certain basic facts are not in dispute. Three companies are involved in the matter. They are RHPL, ROCPL and RACPL as mentioned earlier. It is not in dispute that all the three companies are associate concerns and that the assessee is a director with substantial shareholding in all the three companies. The companies are not in which the public are substantially interested. It is also not in dispute that ROCPL and RACPL have made payments to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies. However, the contention of the ld. counsel is that the two companies owed certain monies to RHPL. RHPL, instead of getting its repayment directly, directed the two companies to pay the amounts to the assessee. Therefore, the argument is that the loan is deemed to have been given by RHPL and not the two companies. If the loan is deemed to have been given by RHPL, then on the date of payment RHPL had accumulated losses and hence, the payment cannot be deemed to be dividend. This contention of the ld. counsel has to be examined in the light of the judgment of the Supreme Court in the case of Miss P. Sarada v. CIT (229 ITR 444) on which the ld. D.R. has relied. We shall now examine the said judgment. 9. In the case before the Supreme Court, the assessee who was a major shareholder in a closely held company had withdrawn ₹ 93,027/- from the company. The Assessing Officer treated this as deemed dividend on the ground that the assessee had no credit balance in her account with the said company at the material time and that there were sufficient accumulated profits to cover the withdrawal. The contention of the assessee was that Mahesh, another shareholder, had directed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served at placitum B on page 449 of ITR 229. The Assessing Officer is directed to examine the first aspect of the matter as discussed above. 10. We now come to the second aspect which is whether the addition is correctly quantified. In our opinion, the reply is clearly in the negative. It is well established that the computation of the amount of deemed dividend is to be made on the basis of company s accumulated profits on each day a loan or advance to the assessee is made. Thisproposition is supported by scores of decisions and to cite only a few, they are : a) CIT v. G. Narasimhan 118 ITR 60 (Mad) b) CIT v. P.K. Badiani 76 ITR 369 (Bom) c) CIT v. Jamnadas Khimji Kothari 92 ITR 105 (Bom) d) Rajpal Brothers Pvt. Ltd. v. CIT 80 ITR 463 (Bom) e) Navnitlal C. Javeri v. CIT 80 ITR 582 (Bom) In the present case, the Assessing Officer has taken only the total amount paid out by the two companies during the year. It is not known whether the entire amount was paid on a single day or whether the payments were on different dates totalling to the amount taken by the Assessing Officer. Further, instead of ascertaining the exact amount withdrawn by the assessee, the Assessing Officer has taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ward 2(2) Vs. Smt Gayatri Chakraborth (2016) 45 ITR 197 (Kol.-Trib) is not applicable to the facts and circumstances of the assessee s case. Further he observed that jurisdictional High Court in the case of Sunil Kapoor vs. CIT 375 ITR 1 (Mad.) wherein the lordhips have discussed elaborately on the issue on hand and also discussed the effect of Supreme Court judgement in the case of Smt.Tarulata Shyam Vs. CIT [1997] 108 ITR 345 (SC). Further, he observed that the judgement of jurisdictional High Court in the case of Smt.Tarulata Shyam Vs. CIT is applicable to the case of the assessee and he confirmed the order of the AO and also the levy of interest u/s.234B 234C of the Act. Against this, the assessee is in appeal before us. 4. Before us, the ld.A.R submitted that two companies called Roverco Apparel Company Pvt. Ltd and Rattha Overseas Company Pvt. Ltd., had running accounts with its directors, who had advanced monies to the company from time to time with free of interest and vice verse. Therefore, he stated that these transactions were done in the ordinary course of business. Hence the provisions of the section 2(22)(e) are not applicable. Ld.A.R relied on the order of the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of ACIT Vs.Smt.G.Sreevidya reported in [2012] 138 ITD 427 (Chen). Further, he placed reliance in the case of CIT Vs. P.K.Badiani reported in 76 ITR 369 (Bom.) wherein held that: Amount of loan once deemed to be a dividend, amount on repayment be again credited to the fund of accumulated profits and company s accumulated profits have to be ascertained at the time of each loan and where shareholder has a mutual, open and current account only the debit in excess of credits can be considered as loan to the extent of accumulated profits. Finally, Departmental Representative submitted that AO duly considered the direction of the Tribunal while remitting the issue to him for fresh consideration and he relied on the judgement of jurisdictional High Court in the case of SUNIL KAPOOR reported in [2015] 375 ITR 1 (Mad) wherein held that in the case on hand, the Assessing Officer has taken the entire amount of ₹ 76,86,829 received by the assessee from the company as dividend, while computing the income, but has lost sight of the payment made. In such circumstances, this court is of the considered opinion that the Commissioner of Income-tax (Appeals) has rightly come to the conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; but dividend does not include- (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ; (ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965 ; (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of subclause (e), to the extent to which it is so set off ; (iv) any payment made by a company on purchase of its own shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auses exist in a given case, Such payments are treated as deemed dividend. This section, further, lays down exclusive situations wherein such distribution of payments are not treated as deemed dividend. In the explanations, the expression accumulated profits has been defined vide Explanation 2 with reference to clauses (a) (b) (d) (e). Since we are concerned with clause (e) of section 2(22) of the Act, Explanation 2 would be relevant. In this Explanation accumulative profits are defined as shall include all profits of the company upto the date of distribution or payment referred to in sub-clause (e) Vide Explanation 3, it is provided that 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 2O% of the income of such concern. We have found it for a fact that the appellant has a shareholder. 9. Sec. 2(22)(e) enacted a deeming fiction whereby the scope and ambit of the word dividend has been enlarged to bring within its sweep certain payments made by a company as per the situations enumerated in S.2(22)(e). It is a settled-rule of interpretation of a fiction th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these assessees in the books of accounts and thereafter the AO has to arrive at average yearly balance of the debit in the books of account of each company and compare with it, accumulated profit in respect of each company and lower of these to be considered as deemed dividend in the hands of present assessee. With this observation, we remit the issue to the file of AO for fresh consideration. 11. The ld.A.R made plea before us that only peak debit balance of loans of each director in the books of accounts in respect of company to be considered to arrive at deemed dividend in terms of Sec.2(22)(e) of the Act. In our opinion, this argument of the ld.A.R is devoid of merit. If we accept this contention of the ld.A.R, it leads to absurdity and makes the Sec.2(22)(e) of the Act as redundant. Since provision is applicable for each payment, then there is no question of arriving at deemed dividend in the hands of Director. Hence, we are not in a position to consider these arguments of the ld.A.R that only peak credit to be considered to determine the deemed dividend. 12. Further, we make it clear that in the Double entry of book keeping, the journal entry is also have the financial impl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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