Provisions of ‘Deemed Dividend’ would attract all the Profits up to the date of Payment Irrespective

The Mumbai Bench of Income Tax Appellate Tribunal has held that provisions of ‘Deemed Dividend’ would attract all the profits up to the date of payment irrespective of assessment year.

The assessee, Sanjay Subhashchand Gupta is an individual and was carrying out the sub- broking activity in share and security market along with the investment in property and giving it on rent.

During the course of assessment Assessing Officer observed that two closely held company, gives loan to the assessee and the assessee was holding not less than 10% shares in both the companies. The Assessing Officer after verifying balance sheet of both the Companies passed order under section 143(3) of the Act treating the amount of Rs. 3,62,366 as deemed dividend under section 2(22)(e) of the Act, in the hands of the assessee and disallowed the same. The CIT (A) upheld the addition made under section 2(22)(e) of the Act as deemed dividend. Aggrieved assessee filed appeal before the Tribunal.

The appellant submitted that deemed dividend will be attracted where profit has been accumulated in the immediately preceding year and the current year profit accumulation will not attract deemed dividend.

The Tribunal observed that the basic conditions of section 2(22)(e) of the Act are satisfied and such payment for the purpose of section 2(22)(e) of the Act should be to the extent to which the company possesses accumulated profits. According to explanation 2 to section 2(22) of the Act, all the profits of the company up to the date of distribution or payment under section 2(22)(e) of the Act shall be considered as accumulated profits. Thus, the provision of Explanation to section 2(22) of the Act does not distinguish between the profit accumulated in the immediately preceding year and the current year profit, and takes within its ambit all the profits up to the date of payment.

The Coram of Mr. Prashant Maharishi, Accountant Member and Mr. Sandeep Singh Karhail, Judicial Member has held that “we do not find any infirmity in the order passed by the CIT(A) affirming the addition on account of deemed dividend”.