Payments from Amitech not dividends under 2(22)(e) as commercial transactions, but Rs. 10 lakhs for share allotment upheld.

The Third Member held that payments received by the assessee from Amitech Industries Limited were not deemed dividends under Section 2(22)(e) as they were part of commercial transactions, not loans. However, the addition of Rs. 10 lakhs for share allotment was upheld under Section 2(22)(e) as the shares were allotted based on the assessee's application. The appeal was partly allowed, modifying the CIT(A)'s order accordingly.

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Issues Involved:
1. Whether the payments received by the assessee from M/s Amit Poly Yarn Ltd. (now known as M/s Amitech Ind. Ltd.) are receipts as advances against sales made during commercial transactions, thereby not attracting the provisions of Section 2(22)(e) of the Income-tax Act, 1961, or are they purely advances/loans attracting the provisions of Section 2(22)(e)Rs.
2. Whether the issue of allotment of shares for Rs. 10 lakhs should be restored to the Assessing Officer to investigate whether the allotment was a unilateral act of the company or done at the instance of the assessee to determine the applicability of Section 2(22)(e) of the Act.

Detailed Analysis:

Issue 1: Payments Received by the Assessee

The primary contention was whether the payments received by the assessee from M/s Amitech Industries Limited (AIL) were advances against sales made during commercial transactions or loans/advances attracting Section 2(22)(e) of the Income-tax Act, 1961.

- Assessee's Argument: The payments were received during the regular course of business for the sale of yarn. The assessee engaged in similar transactions in preceding and subsequent years, and these were not treated as deemed dividends under Section 2(22)(e). The transactions were part of the normal business operations and not loans or advances.
- Revenue's Argument: The assessee held more than 30% shares in AIL, which had sufficient accumulated profits. The payments were made against an existing debit balance, thus fulfilling the conditions for Section 2(22)(e) applicability.

Judgment:
The Third Member agreed with the assessee, holding that the payments were received during the course of trading transactions and not as loans or advances. The business transactions involved regular trading of yarn, with payments and receipts almost equal to the value of yarn supplied. The transactions were part of a running trading account and not in the nature of loans or advances. Hence, Section 2(22)(e) was not applicable.

Issue 2: Allotment of Shares

The dispute was whether the allotment of shares worth Rs. 10 lakhs was a unilateral act by AIL or done at the instance of the assessee, impacting the applicability of Section 2(22)(e).

- Assessee's Argument: The shares were allotted unilaterally by AIL without the assessee's application, and the assessee paid for the shares only after becoming aware of the allotment.
- Revenue's Argument: The assessee had applied for the shares, and the allotment was not unilateral. The payment was made subsequently as a repayment of the obligation, thus attracting Section 2(22)(e).

Judgment:
The Third Member found that the assessee had indeed applied for the shares, as evidenced by the written submission to the Assessing Officer. The allotment was not unilateral, and the subsequent payment was towards the share application money. The addition of Rs. 10 lakhs was correctly made under Section 2(22)(e), as the shares were allotted based on the assessee's application.

Conclusion:
- The payments of Rs. 64,43,019/- received by the assessee from AIL were not treated as deemed dividends under Section 2(22)(e) as they were part of commercial transactions.
- The addition of Rs. 10 lakhs for the allotment of shares was upheld, confirming the applicability of Section 2(22)(e) for this transaction.

Final Order:
The appeal of the assessee was partly allowed, modifying the order of the CIT(A) accordingly. The payments received were not deemed dividends, but the addition for the share allotment was sustained.

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