ASST CIT 8(1)(2), MUMBAI vs. SHRINIWAS ANANTRAO PAWAR, MUMBAI

We have heard the parties and perused the record. The assessee is holding 85% shares in closely held company named M/s. SAP Holding &

Before the learned CIT(A), the assessee placed his reliance on the decision rendered by the Tribunal in its own case for A.Y. 2007-08 & 2008-09, wherein it was held that current year’s profit should not be included in “accumulated profit”. The assessee also submitted before the learned CIT(A) that he has been assessed u/s. 2(22)(e) of the Act in the earlier years also and accordingly contended that the amount assessed as deemed dividend in the earlier year should be excluded. It was submitted that if above said items were excluded, deemed dividend will be nil. In view of the above, the learned CIT(A) directed the Assessing Officer to verify the contentions of the assessee and follow the decision rendered by the Tribunal in assessee’s own case for A.Y. 2007-08 & 2008-09.

Learned DR submitted that reserves and surplus available with the assessee as on 31.3.2010 was ` 1559.95 lakhs and hence addition of ` 186.57 lakhs made by the Assessing Officer u/s.2(22)(e) of the Act was justified.

On the contrary, learned AR submitted that reserves and surplus balance as on 1.4.2010 consisted of revaluation of reserves of ` 1076.41 lakhs, which should not be included in “accumulated profit” for the purposes of sec. 2(22)(e) of the Act, as revaluation reserves is an amount created by revaluing the value of fixed assets and hence it is not profit accumulated out of operative results of the company.

The Learned DR, in the rejoinder, submitted that the contention of the assessee about revaluation reserves was not examined by the Assessing Officer.

We have heard the rival contentions and perused the record. We noticed that the question as to whether “revaluation reserves” would form part of “accumulated profits” or not was not examined by the Assessing Officer. Further, the Tribunal has held in assessee’s own case that accumulated profit should not include in current year’s profit. The assessee also submitted that he has been assessed u/s. 2(22)(e) of the Act in earlier years also and in our view there is merit in the contention of the assessee that the amount so assessed should be reduced from accumulated profit. We noticed that the learned CIT(A) has already restored the matter to the file of the Assessing Officer for examining the contention of the assessee with regard to reduction of deemed dividend already assessed in the hands of the assessee as well as for reduction of current year’s profit. In addition to above, in our view the Assessing Officer is also required to examine the contention of the assessee that accumulated profit should not include revaluation reserve. As pointed out by learned DR, above said contention of the assessee was not examined by the Assessing Officer while passing the assessment order. Accordingly, we restore all the issues to the file of the Assessing Officer.

Since we have restored appeal of the Revenue to the file of the Assessing Officer, the cross objection filed by the assessee does not require adjudication.

In the result, appeal filed by the Revenue is treated as allowed and cross objection filed by the assessee is dismissed.