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  • K.R. Dixit
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Smart Summary

Structured Summary of the Tribunal Opinion

Factual and Procedural Background

The appellant company (assessee) held more than 20% shares in Hynoup Food and Oil Industries Pvt. Ltd. During the relevant previous year the appellant received a loan of Rs. 56,65,000 from Hynoup. The Assessing Officer (AO) treated this loan as a deemed dividend under section 2(22)(e) of the Income-tax Act after determining that accumulated profits (after taking certain current-year profits and other adjustments into account) exceeded the loan amount. The AO also added Rs. 47,01,000 under section 68 as unexplained cash credits and disallowed interest of Rs. 2,08,617 claimed on the loan on the ground that the loan was deemed dividend.

The assessee appealed to the Commissioner of Income-tax (Appeals) ("CIT(A)"). CIT(A) confirmed the deemed dividend addition of Rs. 56,65,000 but set aside the cash credit and interest issues for fresh consideration. The AO passed a fresh order on 31 March 1997, accepting some of the cash credits and reducing the addition to Rs. 23,03,500. For assessment year 1992-93, an addition of Rs. 10,75,000 as deemed dividend and Rs. 1,70,000 under section 68 were confirmed by CIT(A).

The assessee filed multiple appeals and applications (including applications for admission of additional grounds and additional evidence) before the Tribunal. The Tribunal heard rival contentions, considered authorities and the documentary record (including audited accounts of Hynoup in part), and finally disposed of three consolidated appeals partly in favour of the assessee.

Legal Issues Presented

  1. Whether provisions of section 2(22)(e) were rightly invoked by the Assessing Officer in respect of loans advanced by Hynoup to the assessee, and how "accumulated profits" are to be worked out for the purpose of section 2(22)(e).
  2. Whether current year business profits (profits of the year in which the loan is advanced) are includible within "accumulated profits" under Explanation 2 to section 2(22)(e).
  3. Whether the loan is exempt from deeming as dividend because the lending company is carrying on business of money-lending (i.e., the loan was advanced in the ordinary course of its business).
  4. Whether additional grounds of appeal and additional evidence should be admitted at the Tribunal stage.
  5. Validity of additions under section 68 for unexplained cash credits (including adequacy of evidence to prove identity, creditworthiness and genuineness of creditors).
  6. Whether interest under sections 234B/234C was validly levied — specifically whether there was a specific order by the Assessing Officer authorising levy of interest and whether demand notices were valid.

Arguments of the Parties

Assessee's (Appellant's) Arguments

  • Section 2(22)(e) should be interpreted in light of its purpose; it applies when advancement of a loan deters payment of dividend. Since the lending company declared reasonable dividends (example given: Rs. 8 lakhs on equity of Rs. 32 lakhs) and the loan was advanced in the normal course of the parent company's business, s.2(22)(e) should not apply.
  • Section 104 (earlier provision imposing additional tax for failure to declare dividend) has been repealed and the disincentive for non-declaration of dividend no longer exists, affecting the context of s.2(22)(e).
  • Explanation 2 to s.2(22)(e) should not be read as enlarging the main provision to include current year business profits; accumulated profits should be restricted to profits up to the end of the preceding year except possibly limited adjustments in exceptional cases. Reliance was placed on V. Damodaran and other authorities to show a distinction between accumulated profits and current year's business profits.
  • The lending company carried on money-lending business and therefore the loans advanced to the assessee were in the ordinary course of business and not liable to be deemed dividends; s.2(22)(e)(ii) supports this exemption.
  • Additional grounds involve substantial questions of law and should be admitted; additional documentary evidence (confirmation letters and audited parts of Hynoup's accounts) should be admitted in the interest of justice.

Departmental Representative's (Revenue's) Arguments

  • Section 2(22)(e) is plain and unambiguous; Explanation 2 clearly mandates inclusion of all profits up to the date of payment/advancement of the loan, so there is no scope for the assessee's purposive reading to exclude current-year accruals that are capable of determination.
  • The decision in V. Damodaran has been overtaken / rendered ineffective to the extent necessary by the incorporation of Explanation 2; accumulated profits should be worked out taking account of profits up to the date of the loan.
  • The assessee has not discharged the onus to prove that the lender was engaged in money-lending on a substantial basis; the burden to establish such a business rests on the assessee.
  • Additional grounds that require further fact investigation should not be entertained at the Tribunal stage; additional evidence should not be admitted without satisfactory explanation for non-production before the revenue authorities.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
P.K. Badiani v. Commissioner Of Income Tax, Bombay [1976] 105 ITR 642 Principle that once an amount goes out of accumulated profits as a loan and is deemed dividend, the same amount when repaid cannot again be deemed dividend; accumulated profits must be notionally reduced by amounts deemed dividends. Cited by the AO in relation to treatment of amounts transferred to general reserve; Tribunal relied on the principle to support the requirement to notionally reduce accumulated profits by amounts already deemed dividend.
National Thermal Power Co. Ltd. v. Commissioner Of Income Tax [1998] 229 ITR 383 Procedure for admission of additional grounds: substantial questions of law may be admitted if there is material on record and proper explanation for non-taking earlier. Relied upon in considering whether additional grounds and additional evidence should be admitted; Tribunal applied the settled principle when admitting or rejecting individual additional grounds/evidence.
CIT v. D.S. Screen (P.) Ltd. [2001] 248 ITR 633 (Bombay HC) Support for admitting substantial questions of law at appellate stage when appropriate. Used (with National Thermal Power) to assess admissibility of additional grounds raised by the assessee.
Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 Legislative purpose behind deeming provisions: to counter device of advancing loans to shareholders to evade tax; and that business profits accrue at the end of the year. Assessee relied on it to argue purposive reading of s.2(22)(e); Tribunal recognized the decision as indicating legislative intention but held Explanation 2 serves a specific purpose without overruling the accrual principle.
CIT v. V. Damodaran [1980] 121 ITR 572 (Supreme Court) Held distinction between "accumulated profits" and "current year's profits" — current year's business profits do not form part of accumulated profits. Identified as a controlling precedent; Tribunal held Explanation 2 does not have the effect of including current year business profits contrary to Damodaran.
First Income Tax Officer, Salem v. Short Brothers (P) Ltd. [1966] 60 ITR 83 Principle that accounts/profits are generally determined at year end and mid-year computation of profits is exceptional. Referenced by the assessee; Tribunal considered the authority when explaining the limited scope for reckoning business profits mid-year.
CIT v. Mrs. Maya B. Ramchand [1986] 162 ITR 460 (Bombay HC) For purposes of s.2(22)(e), accumulated profits are to be calculated up to the date of payment of each loan. Tribunal cited it to support the proposition that accumulated profits must be worked out as on the date of each payment/advancement of loan.
Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345; Tarulata Shyam v. CIT [1971] 82 ITR 485 (Calcutta HC) Statutory language of the deemed-dividend provisions is clear; courts should not import words into the statute; defects, if any, are to be remedied by legislation. Invoked to support literal reading of the statute and to emphasise limited scope for judicial amendment; Tribunal referred to it in interpreting Explanation 2 vis-à-vis main section.
Commissioner Of Income Tax, Gujarat v. Ashokbhai Chimanbhai [1965] 56 ITR 42 (Supreme Court) Profits do not accrue day-to-day; ascertainment of profits requires comparison of assets at two stated points; rights to profits arise on contingency or on events creating that right. Used to explain that business profits generally accrue only at year-end and so Explanation 2 must be understood without disturbing that principle.
CIT v. G. Narasimhan [1979] 118 ITR 60 (Madras HC) Principle that accumulated profits must be notionally reduced by amounts which are to be treated as deemed dividend. Tribunal relied on this authority when describing adjustments required under Explanation 2 to avoid double taxation of amounts already treated as dividends.
CIT v. P.K. Badiani [1970] 76 ITR 369 (Bombay HC) Discussed treatment of advances and account positions; supports notionally reducing accumulated profits by amounts deemed dividends. Cited by the Tribunal alongside other authorities in explaining adjustments to accumulated profits.
Walchand & Co. Ltd. v. CIT [1975] 100 ITR 598 (Bombay HC) Whether a company carries on money-lending business on a substantial basis is for the assessee to prove (onus on assessee). Tribunal applied this rule to reject the assessee's contention that the lender was in money-lending business; found no evidence to discharge the burden.
Ranchi Club Ltd. v. CIT [1996] 222 ITR 44 (Patna HC), affirmed by the Supreme Court Assessing Officer must pass a specific order relating to levy of interest under section 234; in absence of specific order, demand notice including interest may be invalid. Tribunal relied on this to conclude that levy of interest under sections 234B/234C required a specific AO order; restored the interest issue to CIT(A) for fresh decision after verification.
Kalyankumar Ray v. Commissioner Of Income Tax, West Bengal-IV, Calcutta [1991] 191 ITR 634 ITNS 150 (receipt) is part of the assessment order; necessary to record a finding whether there is a specific AO order for charging interest under sections 234B/234C; a general direction in the AO's order is insufficient. Tribunal applied this authority in restoring the interest levy issue to the CIT(A) for fresh consideration because the assessment record did not show a specific AO order charging interest.

Court's Reasoning and Analysis

The Tribunal proceeded in a structured manner. The central question was whether s.2(22)(e) had been correctly invoked and how "accumulated profits" should be computed under Explanation 2.

Step 1 — Plain reading of s.2(22)(e): The Tribunal acknowledged the main provision is straightforward — loans/advances by closely held companies to substantial shareholders are deemed dividends to the extent of accumulated profits.

Step 2 — Conflict between earlier Supreme Court authority and Explanation 2: The Tribunal recognized that, without Explanation 2, the decision in V. Damodaran establishes that current year's business profits are not part of accumulated profits. A doubt arises whether Explanation 2 supersedes Damodaran.

Step 3 — Examination of authorities and legislative purpose: The Tribunal canvassed authorities (including Navnit Lal C. Javeri, Ashokbhai Chimanbhai, Tarulata Shyam and Mrs. Maya B. Ramchand) to determine legislative intent and proper interpretation. It observed (a) business profits ordinarily accrue at year-end, (b) Explanation 2 was not intended to obliterate the accrual principle, but (c) Explanation 2 was intended to require inclusion of profits "up to the date" of payment that are capable of determination in the middle of the year (for example, capital gains, dividend receipts, interest receipts, subsidies — items that do not necessarily await year-end to be determined).

Step 4 — Reconciling the authorities: The Tribunal concluded that Explanation 2 does not authorize inclusion of current year business profits (which generally accrue at year-end) but does require adjustments to the accumulated profits as at the date of each loan to include those profits or income items that have accrued or are determinable up to that date. It also reiterated the settled principle that amounts already deemed dividend must be notionally reduced from accumulated profits so as to avoid double treatment.

Step 5 — Practical outcome and directions: Given these principles, the Tribunal directed that accumulated profits must be worked out for each date of advancement of loan, including permitted mid-year income items (but excluding current year business profits that have not accrued). The Tribunal therefore restored the issue to the Assessing Officer to recompute accumulated profits on each date of payment/advancement of loans and to apply s.2(22)(e) subject to the maximum of accumulated profits so computed. The Tribunal also required that any deemed dividend in assessment year 1991-92 be reduced from accumulated profits when computing for assessment year 1992-93.

Other points of analysis:

  • The Tribunal found insufficient evidence to accept that the lender was engaged in money-lending business on a substantial basis, placing the burden on the assessee to prove same and rejecting the contention in absence of supporting accounts or evidence.
  • On admission of additional grounds/evidence, the Tribunal applied the settled tests: admit where question of law is substantial and material exists on record to decide it, and reject admission of evidence where no satisfactory explanation was given for non-production before revenue authorities. The Tribunal admitted certain additional grounds (e.g., those that were not new or could be decided on record) and admitted parts of Hynoup's audited accounts, while rejecting late confirmation letters and other documentary evidence for want of satisfactory explanation.
  • On unexplained cash credits under s.68, the Tribunal upheld the principle that the assessee must prove identity, creditworthiness and genuineness; where the assessee failed to produce corroborative evidence despite multiple opportunities, the AO's additions were sustained (subject to amounts accepted on re-examination).
  • On levy of interest under sections 234B/234C, the Tribunal relied on authorities requiring a specific AO finding/order for charging interest; lacking such specific AO order in the assessment record, the Tribunal remitted the interest issue to CIT(A) for fresh determination after verification.

Holding and Implications

CORE RULING: The appeals are PARTLY ALLOWED (the Tribunal partly allowed the assessee's appeals and partly sustained revenue's additions) and certain issues were restored to the Assessing Officer or remitted to CIT(A) for fresh decision in accordance with the Tribunal's directions.

Direct consequences and implications for the parties (as stated in the opinion):

  • The matter concerning the deemed dividend additions under section 2(22)(e) (Rs. 56,65,000 for one year and Rs. 10,75,000 for the other year) is remitted to the Assessing Officer to work out the accumulated profits on each date of advancement of loan. If accumulated profits as so worked out exceed the loan amounts, the additions shall stand confirmed; if accumulated profits are less, the deemed dividend shall be limited to that lesser amount. The AO must also reduce any earlier deemed dividend from accumulated profits when computing for subsequent assessment year(s).
  • The Tribunal rejected the assessee's contention that s.2(22)(e) applies only where a company has not declared any dividend; the statutory language does not support such a restricted interpretation.
  • The claim that the lending company was engaged in money-lending on a substantial basis was rejected for lack of evidence; the burden to prove such business was on the assessee.
  • CIT(A)'s remand of the cash-credit issue was upheld; the AO's subsequent reduction of the original addition (from Rs. 47,01,000 to Rs. 23,03,500) did not prejudice the assessee and the remand was proper. The Tribunal sustained the addition of Rs. 23,03,500 (where the assessee had failed to substantiate credits) and sustained the addition of Rs. 1,70,000 under section 68 for unexplained cash credits in the other assessment year.
  • The issue of levy of interest under sections 234B/234C was remitted to CIT(A) for fresh consideration because the assessment record did not show a specific AO order charging interest; thus demand notices without a specific AO order could be invalid (per cited authorities).
  • Certain additional grounds were admitted (those which were legal in nature and decidable on record or elaborations of grounds already raised), and certain additional evidence (parts of audited accounts of Hynoup for AY 1991-92) were admitted, while other additional evidence (confirmations and later statements) were refused for lack of satisfactory explanation for non-production earlier.

No broader precedent was created by the Tribunal beyond the application of existing authorities to the facts before it; the Tribunal applied established principles and directed recomputation and remand where necessary.

End of summary.

Show full summary ...

    M.B. Stock Holding (P.) Ltd. v. Assistant Commissioner of Income-tax

    M.A. Bakshi, Vice-President.—We find it convenient to dispose of these three appeals of the assessee, two for assessment years 1991-92 and one for assessment year 1992-93 by this consolidated order. The rival contentions have been heard and record perused.

    The relevant facts in this case are that the appellant company holds more than 20% shares in a company known as Hynoup Food and Oil Industries Pvt. Ltd. The appellant company had received a loan of Rs. 56,65,000 from the said company during the previous year relevant to the assessment year under appeal. As per provisions of section 2(22)(e), if a company advances money to a shareholder having more than 20% share, such advance/loan is deemed to be dividend subject to the maximum of accumulated profit. As per Explanation 2 to section 2(22)(e), all the profits of the company up to the date of payment of loan/advance is to be taken into account for purposes of accumulated profits within the meaning of section 2(22)(e). The accumulated profits of the company Hynoup Food and Oil Industries Pvt. Ltd. up to 31st March, 1990 were Rs. 2,42,025. However, the profit for the year under appeal of the company was Rs. 1,43,48,256. Therefore, the Assessing Officer recorded a finding that after taking into account the profits of the company up to the date of advancement of the loan, the accumulated profits are more than Rs. 56,65,000. The amount of Rs. 56,65,000 was, accordingly, taxed as deemed dividend. The Assessing Officer, relying upon the decision of the Hon’ble Supreme Court in the case of P.K Badiani v. Commissioner Of Income Tax, Bombay [1976] 105 ITR 642 , held that the amount of Rs. 1 crore transferred by the assessee in the financial year 1990-91 relevant to the year under appeal to the general reserve account is also to be taken into account in working out the accumulated profit. He has worked out the accumulated profit as on the end of the previous year at Rs. 1,65,52,939. Though the Assessing Officer has worked out the accumulated profits up to the end of the previous year, it is not disputed by the assessee that if the current profits up to the date of payment of loan are taken into account, the accumulated profits would exceed the amount of loan of Rs. 56,65,000. The Assessing Officer, accordingly, invoked provisions of section 2(22)(e) and held the amount of the loan of Rs. 56,65,000 to be the deemed dividend received by the appellant company in the year under appeal.

    3. Besides, a sum of Rs. 47,01,000 was added under section 68 of the Income-tax Act on account of unproved cash credits. The Assessing Officer also disallowed a sum of Rs. 2,08,617 on account of interest paid to Hynoup Food and Oil Industries Pvt. Ltd. on the ground that the amount of loan has been deemed as dividend and, therefore, the interest on such loan is not allowable as a deduction.

    4. The assessee appealed to the Commissioner of Income-tax (Appeals) and the latter confirmed the addition of Rs. 56,65,000 as deemed dividend. The issue relating to the cash credit as well as the issue relating to disallowance of interest were set aside by the CIT(A).

    5. The assessee is in appeal against the decision of the CIT(A). Whereas the decision relating to the amount of Rs. 56,65,000 as deemed dividend has been challenged on various grounds, the action of setting aside the two issues, one relating to the cash credit of Rs. 47,01,000 and another relating to disallowance of interest of Rs. 2,08,617 has also been challenged.

    6. The Assessing Officer has passed a fresh order on 31st March, 1997 in consequence of setting aside of the two issues referred to above. Out of the addition of Rs. 47,01,000 on account of cash credits, the Assessing Officer has made addition of Rs. 23,03,500 only. Cash credits to the extent of Rs. 23,00,975 have been accepted. The second appeal of the assessee for assessment year 1991-92 is against the addition of Rs. 23,03,500.

    7. For assessment year 1992-93, an addition of Rs. 10,75,000 was made on account of deemed dividend under section 2(22)(e) in respect of loan advanced to the appellant by the widely held company to be deemed income. A sum of Rs. 1,70,000 had been added under section 68 on account of unexplained cash credits. The CIT(A) has confirmed both the additions and hence the appeal of the assessee.

    8. The assessee has filed application for admission of additional grounds and application for admission of additional evidence for assessment year 1991-92 as well as for assessment year 1992-93. The additional grounds for assessment year 1991-92 are as under :—

    "1. The learned Commissioner ought to have held that section 2(22)(e) was not applicable to the assessee in the legal and factual context of the case.

    2. The learned Commissioner ought to have held that the ACIT had failed to prove that the various amounts of loans were paid out of the accumulated profits at the time when the loans were given.

    3. The learned Commissioner ought to have held that the current year’s profits cannot be taken into account because that could be taken only under exceptional circumstances.

    4. The learned Commissioner ought to have held that the assessee’s case was covered by the exception because lending money was part of the business of the lender company, which was also a ground before him.

    5. The Commissioner erred in restoring the matter to the ACIT for verification whether int. on loan could be allowed under section 36(1)(iii) or 57(iii) although he knew that the assessee was an investment company and loan has been used to subscribe for shares of a company.

    6. The Commissioner ought to have held that interest levied under section 234B was not recoverable because ACIT had not applied his mind to it."

    Reliance has been placed on the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. Commissioner Of Income Tax [1998] 229 ITR 383 and that of the Bombay High Court in the case of CIT v. D.S. Screen (P.) Ltd. [2001] 248 ITR 633 in support of the contention that the issues involving substantial questions of law may be admitted and disposed of on merits.

    9. A request for the admission of the following additional evidence has been made for assessment year 1991-92 :—

    "1. The statement of income of the assessee for financial year 1994-95 showing the dividend received on the shares which were obtained out of the loans from Hynoup. This is in connection with the additional grounds No. 1 and No. 5.

    2. Confirmation letters in respect of "cash credit" for which has been added under section 68. The assessee has made strong and sincere efforts to produce confirmation letters in all cases. The fact that he was able to produce them in respect of more than half of the cash credits prove this. However, in spite of the strong and sincere efforts the assessee has succeeded only now in obtaining the remaining confirmation letters. Their admission as additional evidence is necessary in the interest of justice. For which the assessee relies on the following authority.

    3. Material part of the audited accounts of Hynoup for A.Y. 1991-92 showing the total amount of lending as against total of paid up capital, free reserved and unsecured borrowals. Their admission as additional evidence in necessary in the interest of justice. For which the assessee relies on the following authority."

    10. For assessment year 1992-93, the additional grounds of appeal raised by the assessee are as under :—

    "1. The learned Commissioner ought to have held that section 2(22)(e) was not applicable to the assessee in the legal and factual context of the case.

    2. The learned Commissioner ought to have held that the assessee’s case was covered by the exception because lending money was part of the business of the lender company.

    3. The Commissioner ought to have held that interest levied under section 234B was not recoverable because ACIT had not applied his mind to it."

    11. A request for admission of the following additional evidence has been made for assessment year 1992-93 :—

    "1. The statement of income of the assessee for financial year 1994-95 showing the dividend received on the shares which were obtained out of the loans from Hynoup. This is in connection with the additional ground No. 1.

    2. Dividend declared by Hynoup Food and Oil Industries Ltd. (called Hynoup) for the Financial Year 1991-92 as shown in audited accounts of Hynoup.

    3. Material part of the audited accounts of Hynoup for A.Y. 1991-92 showing the total amount of lending as against total of paid up capital, free reserved and unsecured borrowals. Their admission as additional evidence in necessary in the interest of justice. For which the assessee relies on the following authority."

    12. The ld. Departmental Representative strongly objected to the entertainment of additional grounds of appeal. It was contended that the additional grounds cannot be decided without investigation of further facts and, therefore, these are not to be entertained. Reliance in this regard was placed on the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra) which was also relied upon by the learned counsel for the assessee. The ld. DR also objected to the admission of additional evidence at this stage without there being any satisfactory explanation for non-furnishing of this evidence before the revenue authorities.

    13. It was pleaded by the learned counsel for the assessee before us that the additional grounds raised are involving substantial questions of law and, therefore, in the interest of justice, may be entertained. In regard to the admission of additional evidence, it was contended that there were large number of cash creditors and, therefore, the assessee could not produce the necessary evidence in support of the creditors before the Assessing Officer. Since the evidence is now available, justice demands that the same may be entertained and issue decided in accordance with law.

    14. We have given our careful consideration to the rival contentions. It is well-settled principle of law that the grounds involving substantial questions of law should be entertained provided there is material on record for taking a decision in respect of the said additional ground of appeal and that there are good reasons as to why such a ground(s) was not taken before the lower authorities. Now, let us consider the additional grounds of appeal raised by the assessee in the light of the above principles of law which are well-settled.

    15. The additional grounds of appeal raised have been reproduced in para 8 of this order No. 1 is, in our view, not an additional ground of appeal. The ground relating to assessment of Rs. 56,65,000 had been taken by the assessee in the original appeal and, therefore, there is nothing new in the ground raised by the assessee. Therefore, we have no hesitation in allowing this ground of appeal to be raised. Ground Nos. 2 and 3 are also a legal grounds which can be disposed of on the basis of the evidence on record. This being a different facet of the ground raised earlier relating to the assessment of deemed dividend, we admit the same. Ground No. 4 involves a finding of fact in which evidence is not on record and the assessee has not given satisfactory explanation as to why this ground of appeal was not raised before the lower authorities and as to why any evidence in support of the claim was not produced before the revenue authorities. The balance sheet of the lender company which has been filed along with the paper book does not establish that the lender company is also engaged in the business of financing at all, much less the substantial income is derived from the business of money lending. Therefore, this additional ground of appeal does not qualify for admission. The same is, accordingly, not entertained. Ground No. 5 is relating to the disallowance of interest of Rs. 2,08,617 the issue which has been set aside by the CIT(A). The assessee had raised a ground of appeal against the disallowance. This ground of appeal is merely an elaboration of the ground of appeal already raised. We have, therefore, no serious objection to the admission of the said ground of appeal. Ground No. 6 is relating to levy of interest under section 234B. This ground of appeal has been raised in view of the decision of the Hon’ble Supreme Court in the case of CIT v. Ranchi Club Ltd. [2001] 247 ITR 2091 (SC). Since the law was not clear on the subject when the assessee filed the appeal, this ground of appeal is also entertained.

    16. We now take up the matter relating to admission of additional evidence. The evidence sought to be admitted has been referred to in para 9 above. Sr. No. 1 is not admissible at this stage without there being any explanation as to why such evidence was not produced earlier before the revenue authorities. Sr. No. 2 is relating to the confirmation letter in respect of cash credits. The CIT(A), in the first round had recorded a finding of fact that the assessee has not been given sufficient opportunity to produce the evidence. However, the issue was set aside for the purpose of giving an opportunity of being heard to the assessee which also enabled the assessee to produce further evidence before the Assessing Officer. The assessee had second innings before the Assessing Officer but this evidence was not produced before him even in the second innings. We, therefore, find no justification to entertain this evidence at this late stage. Sr. No. 3 is material part of audited accounts of Hynoup Food and Oil Industries Pvt. Ltd. for assessment year 1991-92. The accounts of a widely held company namely, Hynoup Food and Oil Industries Pvt. Ltd. is the basis for addition of Rs. 56,65,000. We, therefore, have no objection of entertaining the accounts for assessment year 1991-92. The same is, accordingly, entertained.

    17. In regard to admission of additional evidence for assessment year 1992-93, Sr. No. 2 is admitted for the reasons recorded for assessment year 1991-92 above. The evidence as per Sr. Nos. 1 and 3 are not admitted as no explanation has been given for not furnishing this evidence before the revenue authorities. With this basis, we now proceed to consider the appeals of the assessee.

    18. The ld. counsel for the assessee contended that the provisions of section 2(22)(e) have wrongly been invoked in this case. Relying upon the decision of the Hon’ble Supreme Court in the case of Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 , it was contended that the purpose of incorporation of the section has got to be taken into account in determining the applicability of section 2(22)(e). The provision, according to the learned counsel, is applicable only when the advancement of loan deters the payment of dividend. It was pointed out that section 104 of the Income-tax Act, 1961 provided for levy of additional tax in such cases where the company fails to declare dividend notwithstanding sufficient profits to declare the same. According to the learned counsel, section 104 has since been repealed, there is no disincentive for non-declaration of dividend. In this case, according to the learned council a dividend of rupees eight lakhs has been paid on the equity of Rs. 32 lakhs which works out to 25 per cent return being most reasonable. Since dividend has been declared by the assessee-company and the advancement of loan to the appellant is in the normal course of business of the parent company, provisions of section 2(22)(e) are inapplicable, contended the ld. counsel. The learned counsel for the assessee further contended that provisions of section 2(22)(e) have got to be interpreted in such a manner so that its unconstitionality is avoided. Elaborating his contention, it was pointed out that the section, if not properly interpreted, will get attracted in all such cases where the loan is advanced without any intention of withholding the dividend and also in such cases where the loan is advanced in an attempt to withhold the dividend. In other words, according to the learned counsel, where a company has declared dividend at a reasonable rate, provisions of section 2(22)(e) should be held to be not applicable. section 2(22)(e), according to the learned counsel, would get attracted only in such cases where the advancement of loan to a shareholder deters the payment of dividend. It was further pointed out that the loan advanced to the assessee by the parent company has been utilised for investments which in turn yielded dividend income. It becomes, therefore, abundantly clear, according to the learned counsel, that there has been no attempt to deter the dividend or to evade any tax. It was, accordingly, urged that section 2(22)(e) may be held inapplicable to the facts and circumstances of this case.

    19. In the alternative, it was contended that the company had meagre accumulated profits up to the end of the preceding year and the Assessing Officer was not justified in taking the profits of the current year also into account for working out the accumulated profit. It was pointed out that section 2(22)(e) provides for deeming any loan or advance to be a dividend subject to the maximum of accumulated profits. Since the loan advanced to the appellant far exceeded the accumulated profits as on the end of the preceding year, at best, section 2(22)(e) would be applicable only to the extent of the accumulated profits up to the end of the preceding year. Relying upon the decision of the Hon’ble Supreme Court in the case of CIT v. V. Damodaran [1980] 121 ITR 5721, the ld. counsel contended that the "accumulated profits" do not include "current year’s profits". Their Lord-ships of the Hon’ble Supreme Court have specifically held that there is distinction between the "accumulated profits" and the "current year’s profits". Referring to Explanation 2 to section 2(22)(e) which provides for inclusion of profit up to the date of loan in the definition of "accumulated profits", the learned counsel contended that the purpose of the Explanation is not to enlarge the scope of the main section. The Explanation merely explains the main provision. Therefore, the Explanation has got to be read in such a manner so as not to distort the main provision of the Act. It was contended that some adjustment may be permissible to be made in the accumulated profits of the preceding year on account of certain developments upto the date of advancement of loan, but since the profits accrue at the end of the year only as per the decision of the Hon’ble Supreme Court in the case of Navnit Lal C. Javeri (supra), it was contended that the action of the Assessing Officer to include the profits of the current year in working out the accumulated profits is clearly contrary to law. The ld. counsel contended that the meaning of Explanation 2 to section 2(22)(e) is that all profits from all sources as accrued to the assessee have to be taken into account up to the date of loan, but the profits which have not accrued cannot be taken into account in working out the accumulated profits. Reference was made to section 205 of the Companies Act which provides for computation of profits of a year and not profits of part of the year. It was pointed out that accounts can be made up to the middle of the year only in certain circumstances such as in the case of liquidation. In this connection, reliance was placed on the decision of the Hon’ble Supreme Court in the case of First Income Tax Officer, Salem v. Short Brothers (P) Ltd. [1966] 60 ITR 83.

    20. It was also contended by the learned counsel for the assessee that provisions of section 2(22)(e) are not attracted in this case for another reason namely that the parent company is also engaged in financing business and the loan to the shareholder has been advanced in the course of its business. In this connection, reference has been made to section 2(22)(e)(ii ) which, according to the learned counsel, is specific in this regard. It was, accordingly, contended that the addition made by the Assessing Officer may be deleted.

    21. The ld. Departmental Representative, on the other hand, contended that section 2(22)(e) is unambiguous and Explanation 2 to the said section clearly provides for taking into account the profits of the company up to the date of advancement of loan. Since there is no ambiguity in the language of the section, there is, according to the ld. DR, no scope for liberal interpretation. According to the learned DR, the law is to be interpreted as per the plain language used in the Act unless there is any ambiguity about it. According to the learned DR, the decision of the Hon’ble Supreme Court in the case of V. Damodaran (supra) has been rendered ineffective with the incorporation of Explanation 2 to section 2(22)(e). Since the accumulated profits are to be worked out after taking into account the profits up to the date of the loan, the provisions are clearly attracted in this case and the Assessing Officer has rightly deter- mined the deemed dividends. It was, accordingly, pleaded that the appeals of the assessee may be dismissed.

    22. We have given our careful consideration to the rival contentions. The issue involved in this case is as to whether provisions of section 2(22)(e) have been rightly invoked by the Assessing Officer on the facts and in the circumstances of this case and as to how the accumulated profits are to be worked out for the purpose of the said section. section 2(22)(e) along with Explanation 2 is reproduced hereunder for the sake of ready reference :—

    "(22) dividend includes—

    (a ) to (d)******

    (e )any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereinafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;

    (i )to (ii)******

    (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 sub-clause (e)

    (iv)any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956)

    (v)any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).

    Explanation 1.—The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956.

    Explanation 2.—The expression "accumulated profits" in sub-clauses (a), (b), (d ) and (e) shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company upto the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place."

    There is no difficulty in appreciating the language of the main provision namely section 2(22)(e). If any company is having accumulated profits and had advanced loan to a shareholder having more than 20 per cent interest in the said company, such loan is deemed to be the payment of dividend by the company to the shareholder and is taxed as such. There is, however, a rider to this provision insofar as the deeming is applicable only to the extent of accumulated profits. In other words, if the accumulated profits are less than the loan advanced to the shareholder, the deeming provision of section 2(22)(e) will apply only to the extent of the accumulated profits. However, if the loan advanced is less than the accumulated profits, then the entire loan is deemed to be dividend within the meaning of section 2(22)(e). In this case, there is no dispute on facts to the extent that the accumulated profits up to the end of the preceding year were far less than the amount of loan advanced to the appellant-shareholder. The Assessing Officer has, however, included the current year’s profits for the purpose of its applicability within the meaning of section 2(22)(e). If section 2(22)(e) were to be considered without Explanation 2, then there does not seem to be any difficulty in appreciating that the accumulated profits do not include the profits of the year in which the loan is advanced to the shareholder. This is well-settled by the decision of the Hon’ble Supreme Court in the case of V. Damodaran (supra). It is in the light of the Explanation 2 to section 2(22)(e) that a doubt arises as to whether the Explanation supercedes the decision of the Hon’ble Supreme Court in the case of V. Damodaran (supra). In order to appreciate the issue in proper perspective, it would be relevant to refer to the decision of the Bombay High Court in the case of CIT v. Mrs. Maya B. Ramchand [1986] 162 ITR 4601 where there Lordships have held that for purposes of section 2(22)(e), the accumulated profits are to be calculated up to the date of payment of each loan. Reference to the decision of the Hon’ble Supreme Court in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 which affirms the decision of the Calcutta High Court in the case of Tarulata Shyam v. CIT [1971] 82 ITR 485 is also pertinent. In the aforementioned cases it was held that for purposes of section 2(22)(e), the accumulated profits are to be seen as on the date of payment and any repayment during the same year after the advancement of the loan will not affect the working of the accumulated profits on the date of loan. In other words, the repayment of loan during the year of advancement of loan is not to be deducted from the accumulated profits.

    23. Their Lordships of the Hon’ble Supreme Court in the case of Commissioner Of Income Tax, Gujarat v. Ashokbhai Chimanbhai [1965] 56 ITR 42 held that profits do not accrue from day to day or even from month to month and have to be ascertained by a comparison of assets at two stated points. Unless the right to profits comes into existence there is no accrual of profits and the destination of profits must be determined by the title thereto on the day on which they arise. Their Lordships further held that the profits do not arise until the contingency, which by operation of law or under a covenant of the partnership deed, gives rise to that right.

    24. The intention of the Legislature in incorporating section 2(22)(e) is evident from the decision of the Hon’ble Supreme Court in the case of Navnit Lal C. Javeri ( supra). In this case, their Lordships of the Hon’ble Supreme Court held as under :—

    "(v)If the Legislature realises that private controlled companies generally adopt the device of making advances or giving loans to their shareholders with the object of evading payment of tax, it can step in to meet this mischief and create a fiction by which the amount ostensibly and nominally advanced to a shareholder as a loan is treated in reality for tax purposes as the payment of dividend to him. In making the fiction the Legislature does not travel beyond the legislative field assigned to it by entry 82 in List I."

    Their Lordships of the Hon’ble Supreme Court in the case of P.K. Badiani (supra) held that section 2(6A)(e) of 1922 Act [corresponding to section 2(22)(e) of the I.T. Act, 1961] must be so interpreted that once an amount goes out of the accumulated profits as a loan and the loan is deemed to be dividend, the same amount when repaid cannot again be capable of attracting the fiction and be deemed to be dividend. To avoid the happening of such eventuality, the "accumulated profits" must be notionally reduced by the amount of all loans, etc. which are to be deemed to be dividend under section 2(6A)(e). Their Lordships further held that "what has to be considered is not the balance in the accounts but the position of every payment and, therefore, the debit balance of the assessee with the company at any point of time could not be taken to represent an advance or loan of a company to the assessee; nor could the amount outstanding at the end of the accounting year be taken as loan within the meaning of section 2(6A)(e)." In the case of the Supreme Court Smt. Tarulata Shyam (supra) their Lordships held as under :—

    "The language of sections 2(6A)(e ) and 12(1B) is clear and unambiguous. There is no scope for importing into the statute words which are not there. Such importation would be not to construe, but to amend, the statute. Even if there be a casus omissus the defect can be remedied only by legislation and not by judicial interpretation."

    Keeping in view the above interpretation of law, it cannot be said that the Explanation 2 to section 2(22)(e) is redundant. It is bound to be for a specific purpose. The question for determination is as to what is the purpose for which this Explanation has been incorporated when the Hon’ble Supreme Court in the case of Ashokbhai Chimanbhai (supra) have held that the profits of business do not accrue from day-to-day or even from month to month. In our considered view, the Legislature has taken into account the fact that whereas the profits from business for the current year may not be determinable in the middle of the year, there are certain sources of income, the income from which is capable of determination which, according to the legislative intent, should also be taken into account while determining the accumulated profits on the day of advancing the loan. The company is a person. It may carry on business and may also derive income from various other sources. For example, the company may sell an asset from which capital gains are derived. If the capital gain is derived before the date of advancement of the loan that profit shall have to be taken into account in determining the accumulated profits notwithstanding the fact that such an event has taken place in the middle of the year. It is so the determination of capital gains is not to wait for the end of the previous year. Similarly, there can be income from other sources also such as reciept of or dividend income or interest which may not have to wait for determination at the end of the year. Similarly, some subsidy may be received from the Government which may be taxable on receipt basis. Such income shall also have to be taken into account in determining the accumualted profits as it has not to wait for determination of income at the close of the year.

    25. Their Lordships of the Hon’ble Supreme Court in the case of V. Damodaran (supra), have specifically held that there is distinction between the "accumulated profits" and the "current year’s business profits" and, therefore, to hold that current year’s business profits are to be included in the accumulated profits would be contrary to the aforementioned decision of the Hon’ble Supreme Court.

    26. Taking the totality of the facts and circumstances of this case into consideration, we are of the view that the intention of the Legislature in incorporating Explanation 2 to section 2(22)(e) was not to override the decision of the Hon’ble Supreme Court but to provide for adjustments for all other profits accrued up to the date of payment of the loan in working out the accumulated profits. Their Lordships of the Hon’ble Supreme Court in the case of Navnit Lal C. Javeri (supra) having held that the business profits accrue only at the end of the year, it is inconceivable that for purposes of application of section 2(22)(e), an exercise shall have to be taken to work out the business profits of the company on each day the loan is advanced. Working out the profits in the middle of the year is a complicated affair in contrast to working out the accumulated profits on the date of loan with reference to the accumulated profits of the preceding year with certain adjustments explained in para 30 of this order.

    27. There is another adjustment which is required to be made in view of Explanation 2 to section 2(22)(e). Section 2(22)( e) has been interpreted in such a manner that once an amount goes out of the accumulated profits as a loan and the loan is deemed to be dividend, the same amount when repaid cannot again be capable of attracting the fiction and be deemed to be dividend. To avoid the happening of any such eventuality, the accumulated profits are to be notionally reduced by the amount of all loans, etc. which are deemed to be dividend under the fiction created by section 2(22)(e). In this connection, it may also be relevant to refer to the decision of the Madras High Court in the case of CIT v. G. Narasimhan [1979] 118 ITR 60 where this principle has been elaborated. The decision of the Bombay High Court in the case of CIT v. P.K. Badiani [1970] 76 ITR 369 , 376/377 is also relevant.

    28. The other possible adjustments for purposes of working out the profit up to the date of advancement of loan are that the amount of accumulated profits as on the beginning of the year has got to be reduced by all disbursements legitimately attributable to it by way of expenses, development, dividend and deemed dividend if any.

    29. This is how we appreciate the meaning of the Explanation 2 to section 2(22)(e). The decision of the Bombay High Court in the case of Mrs. Maya B. Ramchand (supra) is also more or less to the effect that the accumulated profits are to be worked out on each day of loan advanced to the assessee was made.

    30. On analysis of the aforementioned discussion, in our view, the following principles emerge :—

    (i)That for purposes of section 2(22)(e), the accumulated profits are to be worked out up to the date of each payment/advancement of the loan.

    (ii)That there is a distinction between the "accumulated profits" of business and the current year’s profits of business.

    (iii)That the profits of business accrue at the end of the previous year.

    (iv)That loan or advance treated as deemed income upto the date of fresh loan is to be reduced from accumulated profits.

    (v)That the repayment of loan during the same year is not to be deducted from the accumulated profits.

    31. When one keeps all the above four principles of law in mind, it will not be difficult to appreciate that the Explanation 2 to section 2(22)(e) does not have the effect of inclusion of current year’s business profits. These are certain examples to show that Explanation 2 to section 2(22)(e) does not become redundant in the light of the decision of Hon’ble Supreme Court in the case of V. Damodaran (supra).

    32. Therefore, whereas the aforementioned adjustments and other adjustments as may be permissible in law are to be made and, accordingly, accumulated profits worked out on each day of loan or advance is made to the shareholder, we are of the firm view that all the profits that have not accrued to the company advancing the loan upto the each day of advance/loan have to be taken into account in working the accumulated profits within the meaning of section 2(22)(e). But since the business profits of the company accrue only at the end of the year, the current year’s business profits are not to be included. We would, therefore, in the interest of justice, restore this issue to the file of the Assessing Officer for the purpose of working out the accumulated profits on each day of advancing the loan to the appellant and apply section 2(22)(e) to such loans subject to the maximum of accumulated profits up to the date of advancement of the loan.

    33. Before we wind up, we consider it necessary to deal with the contentions advanced on behalf of the assessee that section 2(22)(e) must be held to be applicable only in such cases where the company has not declared any dividend. In our considered view, the contention advanced on behalf of the assessee is not well-founded. section 2(22)(e) in its plain and unambiguous language does not give any scope for such interpretation. The contention advanced on behalf of the assessee that but for that interpretation, the provision would be discriminatory and will violate the constitutional safeguards is also not attractive insofar as the deemed dividend is to be reduced from the accumulated profits as pointed out elsewhere in this order. section 2(22)(e) is attracted only to the extent of accumulated profits as on the date of advancement of loan and once the deemed dividends are reduced from the accumulated profits, the company may not be required to distribute dividend to the extent of the deemed dividend. This we have explained earlier. Now, taking the case of the appellant company into consideration, it is observed that the assessee had not declared any dividend in the preceding year nor up to the date of advancement of the loan. Since the accumulated profits are to be worked out only up to the date of advancement of the loan, therefore, in future possibility of declaration of dividend out of the deemed dividend is ruled out. The assessee had huge accumulated profits at the end of the year under appeal (the Assessing Officer has worked out the accumulated profits of more than Rs. 1.5 crores). Out of that, only Rs. 8 lakhs has been distributed as dividend. Assuming that the company would have declared dividend substantially so as to set off the deemed dividend, the company would be entitled to deduct the deemed dividend from the declared dividend due to the shareholder to whom the loan has been advanced. As such, the section 2(22)(e) is neither harsh nor discriminatory.

    34. Another contention that requires consideration is as to whether the amount of loan advanced to the assessee by the lending company is in the course of carrying on of its business of the money lending. We have gone through the audited accounts of the lending company and find no indication of the lending company carrying on the money lending business. Our attention was drawn to the fact of loan having been advanced by the lender company of more than Rs. 1 crore and it was contended that it should be held that the company was carrying on the money lending business. We are not impressed with this contention. The Bombay High Court in the case of Walchand & Co. Ltd. v. CIT [1975] 100 ITR 598 , held that whether the company was carrying on the money lending business on substantial basis or not, it is for the assessee to prove. In other words, the burden is upon the assessee to establish that the company from which the loan was received was carrying on money lending business on substantial basis. As already pointed out, there is no evidence on record to establish that the company was carrying on money lending business, much less on substantial basis. We, accordingly, reject this contention advanced on behalf of the assessee.

    35. We now proceed to consider the other grounds of appeal. One of the grounds raised by the assessee in ITA No. 943/Ahd./1995 is against the setting aside of the issue relating to the cash credits of Rs. 47,01,000. In our considered view, the CIT(A) has recorded adequate reasons for setting aside the issue for fresh consideration by the Assessing Officer. We have also observed that the Assessing Officer after due consideration of evidence produced before him, has reduced the addition to Rs. 23,03,500. In our view, no prejudice has been caused to the assessee. On the contrary, another opportunity was given to the assessee to furnish evidence in support of the claim. We are of the view that the decision of the CIT(A) in setting aside the issue is just and reasonable. We, therefore, decline to interfere.

    36. The only other ground in appeal No. 943/Ahd./1995 is relating to setting aside of issue relating to disallowance of interest of Rs. 2,08,617. We find that no such disallowance has been made by the Assessing Officer in the subsequent order passed on 31st March, 1997. This ground of appeal has thus become infructuous, more so when the CIT(A) had merely remitted the matter to the Assessing Officer for consideration. The assessee cannot be said to be aggrieved unless some real prejudice is shown to have been caused by the decision of the CIT(A). We generally do not interfere with setting aside of issues for fresh consideration. In this case, subsequent events have established that no prejudice is caused to the assessee. In fact, the addition has been deleted. We, therefore, dismiss this ground of appeal raised by the assessee.

    37. For assessment year 1992-93, there are two issues. One of the issues is relating to applicability of section 2(22)(e) in respect of sum of Rs. 10,75,000. Our decision for assessment year 1991-92 on similar issue shall apply mutatis mutandis to the year under appeal. The Assessing Officer shall work out the accumulated profits on the date of advancement of the loan and if the accumulated profits are more than Rs. 10,75,000 then the addition shall stand confirmed. If the accumulated profits are less than Rs. 10,75,000 then the addition to the extent of accumulated profits not exceeding Rs. 10,75,000 shall stand confirmed. We would like to clarify that for working out the accumulated profits for assessment year 1992-93 any deemed dividend in assessment year 1991-92 shall also be reduced from the accumulated profits for the purpose of applicability of section 2(22)(e). We direct accordingly.

    38. The only other ground in this appeal is relating to addition of Rs. 1,70,000 on account of unexplained cash credits. The addition has been made as the assessee failed to produce any evidence before the Assessing Officer. In some cases, where the evidence was produced, the Assessing Officer accepted the credits as genuine. However, in 15 cases aggregate amount involved Rs. 1,70,000, the addition has been made under section 68. Since no evidence has been produced before the revenue authorities in regard to these cash credits, the addition of Rs. 1,70,000 has rightly been made and is, accordingly, sustained.

    39. The appeals of the assessee for assessment years 1991-92 and 1992-93 are thus partly allowed.

    40. We now take up the second appeal of the assessee for assessment year 1991-92 i.e. ITA No. 2557/Ahd./2000. As already pointed out, the Assessing Officer had made an addition of Rs. 47,01,000 on account of unexplained cash credits. On appeal, the CIT(A) remitted the matter back to the Assessing Officer for reconsideration. A perusal of the assessment order reveals that the sum of Rs. 23,03,500 being aggregate of several cash credits has been treated as income of the assessee from undisclosed sources for want of necessary evidence. The assessee did not produce even the confirmation from the creditors in respect of such amount. The Assessing Officer has given the reasons for the addition as under :—

    "No explanation regarding sources of deposits, creditworthiness of the depositors and identification of the depositors have been furnished."

    In the original assessment, the Assessing Officer has made an addition of Rs. 47,01,000. On re-examination on the directions of the CIT(A), the Assessing Officer accepted the 30 credits aggregating to Rs. 17,23,500 as genuine. Similarly, cash credit of Rs. 6,74,000 was accepted on the basis of the evidence produced. However, in regard to Rs. 23,03,500, the assessee had furnished only the names and addresses of the parties without any supporting evidence. Similarly, no evidence whatsoever was produced in support of the credit of Rs. 2,80,000 in the name of Mr. Jayesh A. Panchal. Thus, the addition of Rs. 23,03,500 was repeated by the Assessing Officer out of the earlier addition of Rs. 47,01,000. It is well-settled principle of law that the assessee is duty-bound to establish the identity of the creditor, the creditworthiness of the creditor and genuineness of the deposit. When the assessee has failed to discharge the onus, the Assessing Officer was justified in making the addition under section 68.

    41. Regarding the contention advanced on behalf of the assessee that the CIT(A) was not justified not in entertaining fresh evidence in the form of confirmatory letters from some creditors, we find that the assessee had got sufficient opportunity to produce the evidence. Firstly before the Assessing Officer in first assessment. Thereafter, the CIT(A) remanded the matter back to the Assessing Officer for fresh decision. The assessee had another opportunity for production of evidence. In the absence of any satisfactory explanation for non-production of evidence before the Assessing Officer in two proceedings, we find no justification to interfere with the decision of the CIT(A) in this regard. In our view, he was justified in not entertaining the fresh evidence at this late stage without there being satisfactory explanation for non-production of such evidence on earlier occasions. The rule regulating the production of additional evidence before the appellate authorities has a purpose behind it and if the evidence sought to be produced before the appellate authorities is admitted without there being valid reasons for non-production of the same before the Assessing Officer the intention behind placing the curb will be defeated. The intention behind Rule 46A is that the tax payer does not get an opportunity to fabricate the evidence. We do not say that in this case, the evidence has been fabricated as we have not gone into the merits of the evidence. However, the possibility of fabrication of evidence at a later stage cannot be ruled out when the evidence has not been produced for several years i.e. from the assessment year 1991-92 to 31st March, 1997 (assessment year involved is 1991-92 and the second assessment has been made on 31st March, 1997). We, therefore, feel that the CIT(A) was justified in not entertaining the additional evidence which was sought to be produced before the CIT(A). It may also be pertinent to mention that the evidence sought to be produced before the CIT(A) is also not conclusive in regard to the burden that rests upon the assessee to prove the identity, creditworthiness of the creditor and the genuineness of the credit. We accordingly, reject this contention.

    42. Now the only issue that remains for consideration is relating to levy of interest under section 234B/234C. The Patna High Court in the case of Ranchi Club Ltd. v. CIT [1996] 222 ITR 441, held that the Assessing Officer must pass an order relating to levy of interest under section 234 and that in the absence of any specific order relating to levy of interest by the Assessing Officer, the demand notice under section 156 of the Income-tax Act, 1961 including the quantum of interest is not valid. This decision of the Patna High Court has been affirmed by the Hon’ble Supreme Court in the case of Ranchi Club Ltd. (supra ).

    43. The ground relating to levy of interest under section 234B/234C had not been raised before the CIT(A) and, therefore, he had no occasion to consider the same. We are also unable to take a decision on the basis of the evidence on record as their Lordships of the Hon’ble Supreme Court in the case of Kalyankumar Ray v. Commissioner Of Income Tax, West Bengal-Iv, Calcutta [1991] 191 ITR 634 held that ITNS 150 is part of the assessment order and, therefore, it will be necessary to record a finding by the revenue authorities as to whether there is any specific order of the Assessing Officer for charging interest under section 234B/234C before the issue of demand notice. The direction of the Assessing Officer in the body of the order "charge interest as applicable" as per the aforementioned decision, is not sufficient. Mention of the specific section has been held to be necessary for the levy of interest under section 234B/234C. We, accordingly, restore this issue for both the assessment years to CIT(A) for fresh decision in accordance with law after verification of facts and after giving reasonable opportunity of being heard to the assessee. The appeal of the assessee is, accordingly, partly allowed.

    44. To sum up, all the three appeals of the assessee are partly allowed.

    9/360

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