Per Sunil Kumar Yadav, Judicial Member. - These appeals are preferred by the assessee against the respective orders of the CIT(A). Since these appeals were heard together, these are being disposed of by this single consolidated order. We, however, prefer to adjudicate them one by one.
2. Appeal No. 1088/Mum./2002 : In this appeal, the order of the CIT(A) has been assailed on the following grounds :
"A. Assessment of Rs. 1,51,25,647 being trade advance received from Standard Vishwas Marble Industries Pvt. Ltd. as deemed dividend income under section 2(22)(e).
1. On the facts and in the circumstances of the case, the learned CIT(A) erred in facts and in law in confirming the action of the Assessing Officer of assessing a sum of Rs. 1,51,25,647 out of the receipt by way of a trade advance from M/s. Standard Vishwas Marble Industries Pvt. Ltd. for goods to be supplied and services to be rendered to them as dividend.
2. The addition of Rs. 1,51,25,647 may please be deleted and/or substantially reduced.
B. Addition of Rs. 1,76,40,000 in respect of alleged unexplained cash credits of various parties by invoking the provisions of section 68 of Income-tax Act, 1961.
3. On the facts and in the circumstances of the case, the learned CIT(A) erred in facts and in law in confirming addition of Rs. 1,76,40,000 made on account of alleged cash credits in computation of total income.
4. The appellant prays that the addition of Rs. 1,76,40,000 may please be deleted.
C. Disallowances of Interest Rs. 5,37,635
5. On the facts and in the circumstances of the case, the learned CIT(A) erred in facts and in law in confirming disallowance of interest of Rs. 5,37,635.
6. The appellant prays that the disallowance of interest of Rs. 5,37,635 may please be deleted.
D. General
7. The Assessing Officer and the CIT(A)’s order being contrary to law, evidence and facts of the case should be set aside, amended or modified in the light of the grounds deduced above.
8. The appellant craves leave to reserve to itself the rights to add, to alter or amend any of the grounds of appeal at or before the time of hearing and to produce such further evidences, documents and papers as may be necessary."
3. Apropos ground No. 1, it is, noticed that during the course of assessment proceedings, Assessing Officer has observed from the copy of the account of M/s. Standard Vishwas Marble Industries Pvt. Ltd. (hereinafter called as ‘SVMIPL’) that the assessee had received certain amount from SVMIPL. Having noticed that there were common shareholdings in the assessee as well as SVMIPL, Assessing Officer asked the assessee to explain as to why the payment received from SVMIPL should not be treated as deemed dividend as per the provisions of section 2(22)(e) of the Income-tax Act. In response to this querry, assessee has stated through its letter dated 9-2-2000 as under :
"Implications of advance received from M/s. SVMIPL during the year ended 31-3-1997 vis-a-vis the provisions of section 2(22)(e) of the Income-tax Act, 1961.
At the out set, it is submitted that the provisions of section 2(22)(e) cannot be invoked for treating the advances received from M/s. SVMIPL as deemed dividend income under section 2(22)(e), as the assessee-company is not a shareholder in that company.
Without prejudice to aforesaid, it is submitted that these advances have been received in the ordinary course of company’s business against specific arrangements made with that company for supply of goods and material viz., marble tiles. These advances were trade advances, received in the ordinary course of company’s business and the same were necessitated on account of the fact that due to non-availability of working capital, it was not possible for the company to enter into large scale contracts for supply of goods and materials with that company. Thus, the advances in question have a nexus to its day-to-day business activity with that company and not to common shareholders in both these companies. As stated earlier, assessee-company is not a shareholder in the said company and, therefore, prima facie, there is no case for invocation of the provisions of section 2(22)(e) of the I.T. Act, 1961."
4. Having noticed that there are common shareholders of the two concerns and Mr. Kirti Kapadia and Ms. Tanuben Kapadia hold more than 10% of the equity shares of M/s. Standard Vishwas Marble Industries Pvt. Ltd. and more than 20% of equity shares of the assessee-company, the Assessing Officer held that the assessee is a concern in which shareholders of M/s. Standard Vishwas Marble Industries Pvt. Ltd. holding more than 10% of equity shares, have got substantial interest within the meaning of Explanation 3(b ) below section 2(22) of the Income-tax Act (hereinafter called as an ‘Act’) and as such, the provision of section 2(22)(e) are duly attracted. The Assessing Officer, accordingly, made an addition of Rs. 1,51,25,647 as deemed dividend income under section 2(22)(e) of the Act. The Assessing Officer has also dealt with the second objection of the assessee in this regard that advances were made to the assessee by the SVMIPL in the ordinary course of latter’s business, for the services to be rendered to the said company by way of promoting the sales of its product and during the course of money-lending business. Having noticed that in the relevant assessment year gross receipts of SVMIPL were to the tune of Rs. 7,80,69,819 out of which only Rs. 4,38,835 was accounted for interest receipts and none of the main objects in the Memorandum of Association of SVMIPL refer to money-lending activity, the Assessing Officer rejected this contention of the assessee. The next objection raised before the Assessing Officer in this regard is that the payments by way of advance or loan can be deemed as dividend only to the extent of accumulated profits and the accumulated profits of SVMIPL at the beginning of the year were only to the tune of Rs. 7,60,894 and therefore the addition in this regard should be restricted to this amount. Rejecting this argument of the assessee, the Assessing Officer has treated the accumulated profits as on the last day of the accounting year for the purpose of limiting the amount of deemed dividend under section 2(22)(e) of the Income-tax Act.
5. Aggrieved, the assessee preferred an appeal before the CIT(A) with the submissions that the advances made to the assessee are classified in the accounts of M/s. Standard Vishwas Marble Industries Pvt. Ltd. under the head "Advance recoverable in cash or in kind for the value to be received" and hence they could not be said to have been made for siphoning of the profits is not germane in this regard. The term ‘advance’ itself connotes a payment towards goods to be supplied or services to be rendered. The CIT(A) was not convinced with this explanation of the assessee and was of the view that section 2(22)(e) is a deeming provision. Hence, the advance made even in the course of bona fide trade transactions are covered by section 2(22)(e). The consideration of siphoning of profit is not relevant. Hence, the advance or loan are quite wide in import. Relying upon the judgment of the Calcutta High Court in the case of M.D. Zindal v. CIT [1987] 164 ITR 281 in which it has been held that the advance for the purpose of section 2(22)(e) may be even by way of transfer of goods the CIT(A) held that the use of words "any payment" in the beginning of section 2(22)(e) in the context of "advance or loan" signifies that each of the payment made when the payee is not already a creditor constitute advance. It is only when the payee is creditor of the payer that the payments can be construed as repayment of debt not falling in the category of payment by way of advance or loan. Hence, payment made even in running account when the payee has debit balance all along are hit by section 2(22)(e) of the Income-tax Act. In support of this proposition, the CIT(A) has placed reliance upon the judgment of the jurisdictional High Court in the case of CIT v. P.K. Badiani [1970] 76 ITR 369 (Bom.) which was later on confirmed by the Apex Court in the case of P.K Badiani v. Commissioner Of Income Tax, Bombay [1976] 105 ITR 642.
6. With regard to the objection on account of accumulated profits, the CIT(A) has observed that the payment by way of loan and advances to the assessee is started from 14-10-1996 and the total amount during the year was Rs. 1,51,25,647. The major amounts were paid in the last quarter of the year. Rs. 50 lakhs was paid on 10-1-1997, another sum of Rs. 50 lakhs was paid on 18-1-1997 and Rs. 24 lakhs was paid on 31-3-1997. The profits of M/s. Standard Vishwas Marble Industries Pvt. Ltd. for the year ending 31-3-1997 was Rs. 2,14,55,625. The proportionate profit up to the month of September, 1996 will work out to Rs. 1,07,27,807. This profit when added with the accumulated profits as on 31-3-1996 amounting to Rs. 7,60,894, comes to Rs. 1,14,88,701 which is sufficient to cover the payment made before the begin- ning of the last quarter. The proportionate profit for the third quarter comes to Rs. 53,63,903 and when it is added to the accumulated profits up to second quarter, the total accumulated profits at the beginning of the last quarter comes to Rs. 1,68,52,604 which is sufficient to cover the payments made in the last quarter. The CIT(A) further observed that even if the successive payments are reduced from day-to-day accretion in the accumulated profits worked out in this manner, subsequent payments are found to be less than the accumulated profits so reduced. He, accordingly, held that the total amount of payment by way of advance or loans during the year is covered by the amount of accumulated profits and constitutes deemed dividend under section 2(22)(e) of Explanation 2 of the Income-tax Act.
6A. Now the assessee has preferred an appeal before the Tribunal. Besides reiterating its contentions raised before the lower authorities, the learned counsel for the assessee has submitted that the assessee is not the shareholder of the lender company, as such, provisions of section 2(22)(e) of the Act cannot be invoked. In support of his contention, he placed reliance upon Explanation 3(b ) below section 2(22)(e) of the Act, according to which, a person shall be deemed to have a substantial interest in a concern, other than a company, if it is at any time during the previous year, beneficially entitled to not less than 20% of the income of such concern. The learned counsel for the assessee further contended that while making an advance to the assessee-company, no benefit was passed over to any of the shareholders and moreover it was only a trade advance and not a loan, as such, provisions of section 2(22)(e) of the Act cannot be invoked. With regard to the accumulated profits, the learned counsel for the assessee has invited our attention that accumulated profits of the immediately preceding year should be taken into account for the purpose of its distribution. It cannot be computed on daily basis. In support of this plea he has relied upon the following judgments:
1.CIT v. V. Damodaran [1980] 121 ITR 5721 (SC)
2.P.K. Badiani’s case (supra)
3.Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC)
4.CIT v. H.K. Mittal [1996] 219 ITR 4202 (All.)
5.CIT v. Nagindas M. Kapadia [1989] 177 ITR 3933(Bom.)
6.R. Dalmia v. CIT [1982] 133 ITR 1694 (Delhi)
7.M.B. Stock Holding (P.) Ltd. v. Asstt. CIT [2003] 84 ITD 542 (Ahd.)
7. The learned DR on the other hand has invited our attention to the provisions of section 2(22)(e) of the Income-tax Act with the submissions that any payment by a company, not being a company in which the public is substantially interested, of any sum by way of advance or loan to a shareholder, or to any concern in which such shareholder is a member or a partner and in which he has substantial interest or any payment by any such company on behalf of or for the individual benefit or of any such shareholder to the extent to which the company in either case possesses accumulated profits. Undisputedly, there is a common shareholding between the assessee as well as lender company. The revenue authorities has given a categorical finding that Mr. Kirti Kapadia and Ms. Tanuben Kapadia held more than 10% of the equity shares of the lender company i.e., SVMIPL and more than 20% of equity shares of the assessee-company and these findings were not rebutted by the assessee by placing any documentary evidence. In these circumstances, since there are common shareholdings, provisions of section 2(22)(e) are attracted.
8. So far as the issue of accumulated profits is concerned, the learned DR has invited our attention that as per provision of section 2(6A) of 1922 Act accumulated profits means "Heaped up, stored-up, or put by". It indicates an effort on the part of a person in that direction. The current profit is what accrues in praesenti, while accumulated profits relate to the past and hence the current profit cannot be included in the accumulated profits as held by the Apex Court in the case of V. Damodaran (supra). Similar view was also taken by the Apex Court and various High Courts in the case of CIT v. M.V. Murugappan [1970] 77 ITR 818 and P.K. Badiani’s case (supra), etc. But, later on sub-clause (e) of section 2(6A) of the 1922 Act was amended in 1956 so as to include for the purpose of that sub-clause, current profit and the amended sub-clause referred to accumulated profits immediately before its liquidation whether capitalized or not. In order to neutralize decision holding that "accumulated profits" in section 2(6A) of the 1922 Act do not include current profit, the expression "accumulated profit" was defined in the 1961 Act, so as to include current profit up to the date of distribution or payment. Explanation 2 to section 2(22) lays down that the expression "accumulated profit" in sub-clauses (a), (b), (d ) and (e) shall include profits of the company up to the date of distribution or payment referred to in those sub-clauses and clause (c) shall include all profits of the company up to the date of liquidation, but, shall not include where the liquidation is consequential on 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, includes any profit of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place. The learned DR has also placed reliance upon the judgment of the Apex Court in the case of ITO v. Salt Bros. (P.) Ltd. [1966] 60 ITR 83. It was further contended that since there is no ambiguity in the definition of accumulated profits, it has to be worked out as per Explanation 2 and it includes all profits of the company up to the date of distribution or payment or liquidation. Since there was sufficient accumulated profits at the end of the third quarter to meet this advance given to the assessee, the Assessing Officer has rightly treated the entire advance to be a deemed dividend in the hands of the assessee.
9. Having carefully examined the orders of the lower authorities in the light of rival submissions, we find that there was common shareholdings between the assessee and the lender company viz., SVMIPL. The learned counsel for the assessee has simply raised the dispute that provisions of section 2(22)( e) can only be invoked when the advance or payments are made the shareholders of a company. But, this is not a correct position of law. According to provisions of section 2(22)(e ) of the Income-tax Act, dividend includes 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 asset of the company or otherwise made after 31st day of May, 1987 by way of advance or loan to a shareholder, being a person who is 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 10 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 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 possessed accumulated profits. The language used in this sub-section is very clear and unambiguous. The Legislature has identified the three categories in which payments made by the company shall be treated to be the dividend (1) any payment by a company to the shareholders being a person who is the beneficial owner of shares, not being shares entitled to fixed rate of dividend whether with or without a right to participate in the profits holding not less than 10 per cent of the voting power (2) Any payment by a company to any concern in which aforesaid shareholder is a member or a partner and in which he has substantial interest (3) Any payment by any such a company on behalf or for the individual benefit of any such holders. But, the payment made by a company can only be treated to be the deemed dividend to the extent of accumulated profits possessed by the company. Through Explanation 1 and Explanation 2, accumulated profits had been defined in an unequivocal terms and according to these Explanations, accumulated profits shall not include capital gain arising before the 1st day of April, 1946 or after 31st day of March, 1948 and before 1st day of April, 1956. The accumulated profits in sub-clauses (a), ( b), (d) and (e) of section 2( 22) 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) it shall include all profits of the company up to the date of liquidation. Through Explanation 3, the substantial interest was also defined in its clause (b) according to which, a person, shall be deemed to have 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 20 per cent of the income of such concern. If the facts of the case are examined in the light of provisions of section 2(22)( e), we would find that undisputedly, the shareholders of the lender-company Mr. Kirti Kapadia and Mrs. Tanuben Kapadia were holding more than 10 per cent of the equity shares in the lender-company i.e., SVMIPL and these shareholders also held more than 20 per cent of the equity shares in the assessee-company. Being a common shareholdings in both the companies, the assessee’s case falls within the category No. 2 as discussed above. The lower authorities are given a categorical finding in this regard and nothing is placed on behalf of the assessee to rebut this finding. We, therefore, have no hesitation in holding that provisions of section 2(22)( e) were rightly invoked by the revenue authorities on the advance given to the assessee. In this section, it has not been distinguished whether these advances are the trade advances or for different purposes. Only few exceptions are given in which these advances do not fall within the category of deemed dividend. In the instant case, assessee has taken a plea that the advances and loans were given in the ordinary course of its business, but, nothing is placed on record to establish that the substantial part of the business of the lender-company i.e., SVMIPL was lending of money. Whereas, CIT(A) has given a categorical finding in the light of profits earned by the lender-company i.e., SVMIPL and has held that the gross receipt of the lender-company were to the tune of Rs. 7,80,69,819 out of which only Rs. 4,38,835 was accounted for interest receipt. During the course of hearing, nothing had been placed before us on behalf of the assessee to establish that the substantial part of the business of the lender-company is of lending money. In these circumstances, we agree with the finding of the CIT(A) that the assessee does not fall within any exemption clause.
10. Now the next question comes, what would be the accumulated profits to limit the advance given by the lender-company to be treated as deemed dividend. Whether, it should be the accumulated profit computed at the end of the immediately preceding year or it would be computed on the day of distribution or payment or the method adopted by the CIT(A) i.e., at the end of the previous quarter ? In this respect, we would like to examine the history of computation of accumulated profit, how it was computed in the past.
11. Before the introduction of Income-tax Act, 1961, there was an Act 1922 in which section 2(6A) dealt with the issue of accumulated profits. Though the expression "accumulated profits" was not defined in the 1922 Act at the initial stage and its meaning evolved in judicial decisions. Accumulated profit in section 2(6A) means "Heaped up, stored up or put by" it indicates an effort on the part of the person in that direction. In the case of Damodaran (supra) it was held that the words "accumulated profit" in section 2(6A) of the 1922 Act do not include "current profit" and hence profits earned by the company during the year in which loans are advanced to shareholders cannot be regarded as accumulated profits for the purpose of section 2(6A)(e) of 1922 Act. The Supreme Court approved the decisions in Girdhardas & Co. Ltd. v. CIT [1957] 31 ITR 82 (Bom.). In the case of CIT v. M.V. Murugappan [1966] 62 ITR 382 (Mad.) and P.K. Badiani’s case (supra) similar view was taken by the respective High Courts. Sub-clause (e) of section 2(6A) of 1922 Act was amended in 1956 so as to include for the purpose of that sub-clause, current profits and amended sub-clause referred to accumulated profits immediately before its liquidation whether capitalized or not. Thereafter, new Income-tax Act, 1961 was introduced substituting the old Act and relevant provisions relating to the accumulated profits in section 2(22)(e) of the Income-tax Act, 1961. In order to neutralize the decisions holding that "accumulated profits" in section 2(6A) of 1922 Act do not include current profits, the expression "accumulated profits" was defined in 1961 Act so as to include the current profits "up to the date of distri- bution or payment". Explanation 2 to section 2(22) lays down that the expression "accumulated profits" in sub-clauses (a), (b), (d ) and (e) shall include profits of the company up to the date of distribution or payment referred to in those sub-clauses and sub-clause (c) shall include all profits of the company up to the date of liquidation, but, shall not where the liquidation is consequent on 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, includes any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place. Through Explanations 1 and 2 below section 2(22)(e ) of the Income-tax Act, 1961, the expression "accumulated profits" was defined and it has been made explicitly clear that the accumulated profit 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 up to the date of liquidation. Whatever income Legislature wants to exclude, they made it clear through Explanation 1 and Explanation 2 also. In Explanation 1, it has been stated that the expression "accumulated profit" wherever it occurs in this clause shall not include capital gains arising before the 1st day of April, 1946 or after 31st day of March, 1948 and before 1st day of April, 1956 and through Explanation 2 it has also been stated in unequivocal terms that the accumulated profit for the purpose of sub-clause (c) of section 2(22), the accumulated profit shall include all profits of the company up to the date of liquidation, but, shall not include where liquidation is consequent on the compulsory acquisition and its undertaking by the Government or a Corporation owned or controlled by the Government under any law for the time being in force, includes any profits of the company prior to three successive previous years immediately preceding previous year in which such acquisition took place. For the sake of reference, we reproduce the Explanation 1 and Explanation 2 in order to understand the real meaning of accumulated profit as used for the purpose of section 2(22)( e) of the Income-tax Act.
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 up to 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).
12. From a careful reading of these Explanations, we are of the view that there is no ambiguity in the definition of accumulated profits given in these Explanations and for the purpose of sub-clause (e), the accumulated profits include all profits of the company up to the date of distribution or payment referred to in sub-clause (e). Only capital gains arising before the 1st day of April, 1946 or after 31st day of March, 1948 and before 1st day of April, 1956 are to be excluded from the accumulated profits determined after the date of distribution or payment. Whatever judgments were referred before us, they all relates to the pre-amendment periods i.e., Income-tax Act, 1922 in which section 2(6A) deals with the accumulated profit and accumulated profit was defined through series of judgments of the Apex Court and various High Courts. But, to nullify the impact of these judgments, the amended provisions were brought in the new Act 1961 in which the expression "accumulated profit" has been defined in unequivocal terms. We have also examined the commentaries of Chaturvedi Pithisaria 5th Edition of Pages 178 and 179 in which it has been explained that provisions of section 2(6A) of the 1922 Act did not contain a definition of the term "accumulated profits" similar to one found in Explanation 2 to section 2(22) of the 1961 Act. In the 1961 Act, definition of section 2(22) is materially different on this score due to the presence therein of Explanation 2 which enacts that the expression "accumulated profit" in sub-clauses (a), ( b), (d) and (e) shall include all profits of the company up to the date of distribution or payment and in sub-clause (c) shall include all profits of the company till the date of liquidation subject to the exception provided therein. In constructing statutory provisions the first and foremost rule of construction is literally construction. All that we have to see at the very out set is what that provision say. If the provision is unambiguous and if from that provision the legislative intent is clear, we need not call into aid of the other rules for construction of statute as held by the Apex Court in the case of Hiralal v. Income Tax Officer, Bhilwara AIR 1973 SC 1034. The other rules of construction of a statute are called into aid only when the legislative intention is not clear. When the language of the statute is plain and unambiguous, that is to say, admits of but one meaning, there is no occasion for construction. The task of interpretation can hardly be said to arise in such a case as stated in the Maxwell, interpretation of the statute, 11th addition. Their Lordships of the Calcutta High Court have held that in the case of Amin Shariff v. Emperor ILR 61 Calcutta 607 that if the words of the statute are in themselves precise and unambiguous, then no more can be necessary then to expound those words in their natural and ordinary sense. The words themselves alone do, in such case, best declare the intention of the law giver.
13. In the case of Tarulata Shyam (supra) Their Lordships have held that 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 omisus the defect can be remedied only by legislation and not by judicial interpretation. The intention of the Legislature is primarily be gathered from the words used in the statute. Once it is shown that the case of the assessee comes within the letters of law, he must be taxed, however great hardship may appear to the judicial mind to be. In the light of all these judicial pronouncements, if we examine the facts of the instant case, we would find that through Explanation 2, the Legislature has defined the word "accumulated profit" in an unequivocal terms and there is no ambiguity therein. Whatever judgments are relied on, they pertain to the old provisions in which the accumulated profits were not defined and the definition of accumulated profits were developed through various judicial pronouncements. We have also carefully examined the order of the Tribunal in the case of M.B. Stock Holding (P.) Ltd. (supra) which were rendered on 27th December, 2001 in which the Tribunal has examined Explanation to section 2(22)(e) of the Act in the light of judgment of the Apex Court in the case V. Damodaran (supra), but, did not look to the object of introduction of Explanation 2 to section 2(22)(e) of the Income-tax Act and the Tribunal has drawn an inference that the Legislature has no intention to override the decision of Supreme Court in the case of V. Damodaran (supra), whereas, the facts are otherwise. In the original provisions of section 2(6A)(c) of the Income-tax Act, 1922, the accumulated profit was not defined. Its definition was developed on account of judgments of the Apex Court in the case of Damodaran and other judgments of various High Courts through which it has been clarified accumulated profits relate to the past profits and current profit cannot be included therein. If the Legislature had a same intention and they did not want to have a different meaning of accumulated profits, there would be no need to introduce the Explanation 2 to section 2(22)(e) through which they have made it abundantly clear that the expression "accumulated profit" means shall include all profits of the company up to the date of distribution or payment referred to in sub-clauses (a), (b ), (d) and (e) and in sub-clause (c) shall include profit of the company up to the date of liquidation.
14. In fact, in order to neutralize the aforesaid decision of the Apex Court holding that accumulated profits in section 2(6A) of the 1922 Act do not include "current profits", the expression "accumulated profits" was defined in 1961 Act through Explanation 2 to section 2(22)(e) so as to include profit up to the date of distribution or payment. We, therefore, of the view that much assistance cannot be drawn from this Order of the Tribunal in favour of the assessee. Once the Legislature has defined the words ‘accumulated profit’, no other meaning of accumulated profits can be inferred or interpreted. In the instant case, though the Revenue is required to compute the accumulated profits up to the date of distribution or payment, but, they have computed up to the end of the last quarter of this previous year which is less than the accumulated profits computed on the date of the distribution or the payment. But, these facts are not clear from the record. We, therefore, restore the matter to the file of the Assessing Officer with a direction to re-compute the accumulated profits up to the date of distribution or payment and if it is found to be lesser than the accumulated profits adopted by the Assessing Officer, then, it should be taken into account for the purpose of deemed dividend income as per section 2(22)(e) of the Act. Otherwise, the Order of the Assessing Officer would be upheld.
15. Ground No. 2 relates to the unexplained cash credits of Rs. 1,76,40,000 and in this regard, it is noticed from the orders of the lower authorities that Assessing Officer has introduced the cash credit in the shape of loan from 470 parties for which the maximum amount outstanding at any time during the years works out to be Rs. 21,94,89,158. The assessee was asked to file the confirmations for loans taken by the assessee with GIR Nos. In response to that, assessee has furnished the confirmations out of which it was found that 151 parties are not assessed to tax. The assessee was accordingly asked to furnish the bank statements, source of loan/acceptance wherever GIR Nos. is not furnished. During the course of assessment proceedings it was stated on behalf of the assessee that it is very difficult for the assessee to furnish these details and request the department to issue commissions/summons as applicable. Further, vide letter dated 3-1-2000 it was stated on behalf of the assessee that assessee was in possession of part confirmations from the Bhavnagar parties. Some confirmations were furnished before the Assessing Officer. It was also furnished to the Assessing Officer vide letter dated 1-2-2000 that assessee-company has completely stopped the business activity of the Bhavnagar and the local parties are not responding nor extending any co-operation. The Assessing Officer was therefore requested to summon the parties. In view of the request made by the assessee, commission under section 131(1)(d) was issued to the ADI (Inv.) to verify the identity, genuineness and creditworthiness of 151 parties. Subsequently, the Dy. Director of Investigation, Bhavnagar, has issued summons under section 131 to all the 151 parties and they have been asked to furnish their bank accounts, bills, vouchers and return of incomes. Thereafter, the Assessing Officer received the report of the ADI (Inv.), Bhavnagar on 15-2-2000 in which he has stated that 50 parties of Bhavnagar could not be traced and the letter sent by Registered Post with Acknowledgement. Due have been received back with a remark "not found" or "Incomplete address". This report was confronted to the assessee and the assessee was asked to furnish the reply on 24-2-2000. In response thereto, assessee wrote a letter to brokers through whom the amounts were arranged. Thereafter, vide letter dated 24th March, 2000, assessee made a request to the Assessing Officer that the summons were not served to certain parties because they have shifted their addresses and he furnished their correct addresses. This explanation of the assessee was not accepted by the Assessing Officer and he treated the amount of Rs. 1,32,05,000 credited in the name of aforesaid 50 parties. 17 parties from the Bhavnagar were failed to appear in response to summons and the Assessing Officer has also added a sum of Rs. 25,94,000 received from these parties to the income of the assessee as unexplained cash credit. Likewise, an amount of Rs. 3,50,000 introduced in the name of three parties were added under section 68 of the Income-tax Act as the assessee could not prove the genuineness of the transactions and their creditworthiness. Accordingly, the addition of Rs. 1,86,40,000 was made under section 68 of the Income-tax Act before the Assessing Officer. This addition was reduced by Rs. 10 lakhs by rectification under section 154 of the Income-tax Act.
16. Against the addition of Rs. 1,76,40,000 assessee preferred an appeal before the CIT(A) with the submissions that all the payments were received through account payee cheques and out of the aforesaid parties, 26 parties were assessed to tax and as such the credit relating to 26 parties amounting to Rs. 89,54,000 should not be treated to be the unexplained cash credit. The Assessing Officer has only proceeded to make enquiries with regard to 151 parties, out of 470 creditors. It was further contended before the Assessing Officer that the enquiry was conducted at the fag end of the year and the assessee was not given sufficient time to file confirmations of the creditors. The contention of the assessee were not appreciated by the CIT(A) and he confirmed the additions.
17. Now, the assessee is before us and invited our attention to the assessment order and the enquiries conducted by the DDI, Bhavnagar, with the submissions that when the report was confronted to the assessee, the assessee sought time from the Assessing Officer to furnish the confirmations etc. of the creditors. Since the assessment was going to be time-barred, the Assessing Officer concluded the enquiry and made the additions. From careful perusal of the orders of the lower authorities, we find that the assessee was not given sufficient time to prove these cash credits as the enquiry with regard to the cash creditors was initiated in January or February when the assessment is going to be time-barred on 31st March. Since most of the creditors belong to Bhavnagar, assessee should have been given sufficient time to produce the confirmations or any other evidence in order to prove the genuineness of the credits and creditworthiness of the creditors. Since the issue was not properly investigated by the Assessing Officer in the light of explanations of the assessee, we are of the view that this issue requires a fresh adjudication. We, therefore, set aside the order of the Commissioner (Appeals) in this regard and restore the matter to the file of the Assessing Officer to re-adjudicate the issue afresh after affording a proper opportunity of being heard to the assessee.
18. Ground No. 3(c) relates to disallowance of interest of this unexplained cash credit. Since the issue of unexplained cash credit has been restored to the Assessing Officer for re-adjudication, this ground becomes infructuous. The Assessing Officer, is however, at liberty to adjudicate the issue of interest along with this issue of unexplained cash credit.
19. Appeal No. 1089/Mum./2002 : This appeal by the assessee is preferred against the order of the CIT(A) passed under section 154 of the Income-tax Act on a solitary ground that the CIT(A) has erred in fact and in law in confirming the order under section 154 dated 5th June, 2000 of the Assessing Officer rejecting the claim of the assessee that addition on account of three parties had to be restricted to Rs. 2,55,000 against an amount of Rs. 13,60,000 wrongly added by him despite the fact that said addition was erroneous and based on incorrect information furnished in tax audit report under section 44AB in Form No. 3(cd) along with the return of income which was later on corrected by the Auditor vide his letter dated 19th June, 2000 wherein it had been clarified that the said mistake in tax audit report was on account of typographical error. During the course of hearing, both the parties have agreed to the proposition that if the issue of cash credit is restored back to the file of the Assessing Officer for re-adjudication, the impugned issue may also be re-examined by the Assessing Officer along with other issue of unexplained cash credit. Since, we have already set aside the issue of unexplained cash credit and restored it to the file of the Assessing Officer for re-adjudication, this issue is also restored back to the file of the Assessing Officer for re-adjudication, after affording a proper opportunity of being heard to the assessee. Accordingly, the order of the CIT(A) is set aside and the matter is restored to the file of Assessing Officer to re-adjudicate it in terms indicated above.
20. In the result, Appeal No. 1088/Mum./2002 is partly allowed for statistical purposes.
21. In the result, Appeal No. 1089/Mum./2002 is allowed for statistical purposes.
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section 2(22)(e) of the Income-tax Act, 1961.section 2(22)(e) of the Income-tax Act.