2021 (1) TMI 827 - AT - Income Tax

Tax Tribunal: Trade advance not deemed dividend (22)(e)

The Tribunal upheld the decision of the Ld. CIT(A) that the advance of Rs. 10.10 crores received by M/s. Suman Jeweller from M/s. Rohit Jeweller Pvt. Ltd. ... Deemed dividend addition u/s 2(22) - advances to sister concerns - HELD THAT:- AR has taken the pain to demonstrate before us that these are regular sale and purchase of goods between both the sister concerns and this amount of ₹ 10.10 cr. given by M/s. Rohit Jeweller Pvt. Ltd. to M/s. Suman Jeweller Pvt. Ltd. was in the nature of trade advance and cannot be termed as advance as envisaged u/s. 2(22)(e) of the Act. Relying on the ratio-decidendi decision of the Hon'ble Delhi High Court in CIT Vs. Creative Dyeing & Printing [2009 (9) TMI 43 - DELHI HIGH COURT] and the ratio of the decision of Hon'ble Punjab & Haryana High Court in CIT Vs. Amrik Singh [2015 (2) TMI 731 - PUNJAB AND HARYANA HIGH COURT] we find that on the facts discussed by the Ld. CIT(A), and noted by us, we agree that the advance given by M/s. Rohit Jeweller to M/s. Suman Jeweller is trade advance in the normal course of business/commercial activity which happened due to business expediency and so the facts of the assessee's case falls in the exemption given in the CBDT circular No. 19/2017 (supra) and the ratio of case law discussed therein. - Decided against revenue. Issues Involved:1. Whether the advance of Rs. 10.10 crores received by M/s. Suman Jeweller from M/s. Rohit Jeweller Pvt. Ltd. falls under the ambit of Section 2(22)(e) of the Income-tax Act, 1961.2. Applicability of CBDT Circular No. 19/2017 dated 12.06.2017 to the case.Issue-wise Detailed Analysis:1. Whether the advance of Rs. 10.10 crores received by M/s. Suman Jeweller from M/s. Rohit Jeweller Pvt. Ltd. falls under the ambit of Section 2(22)(e) of the Income-tax Act, 1961:The main grievance of the revenue was against the action of the Ld. CIT(A) in allowing the grounds of appeal raised by the assessee against the addition of Rs. 10.10 crores made by the AO under Section 2(22)(e) of the Income-tax Act, 1961. The AO noted that M/s. Suman Jeweller had received an advance of Rs. 10.10 crores from M/s. Rohit Jeweller Pvt. Ltd. and added the entire amount as taxable in the hands of the assessee under Section 2(22)(e) of the Act. The AO's contention was that the amount received was not in the nature of a normal business transaction and hence should be treated as a deemed dividend.2. Applicability of CBDT Circular No. 19/2017 dated 12.06.2017 to the case:The Ld. CIT(A) allowed the appeal of the assessee by taking into consideration the CBDT Circular No. 19/2017 dated 12.06.2017, which exempts certain trade advances from being classified as deemed dividends under Section 2(22)(e) of the Act. The Ld. CIT(A) noted that the advance of Rs. 10.10 crores was received for business purposes and was later adjusted against the actual sale of gold ornaments and partly repaid subsequently, proving that it was a business transaction carried out in the normal course of business. The Ld. CIT(A) concluded that the transaction did not attract the provisions of Section 2(22)(e) of the Act.The Tribunal agreed with the findings of the Ld. CIT(A), noting that the advance was a trade advance in the nature of a commercial transaction between the two sister concerns due to business expediency. The Tribunal observed that both M/s. Suman Jeweller and M/s. Rohit Jeweller Pvt. Ltd. had operated from the same premises earlier and had common display of their stocks. During the relevant assessment year, M/s. Suman Jeweller shifted to a different location, leading to the splitting of stock between the two premises. The Tribunal noted that the money received from M/s. Rohit Jeweller Pvt. Ltd. was used by M/s. Suman Jeweller to pay sundry creditors for goods purchased, indicating a normal business transaction.The Tribunal also took note of the fact that M/s. Rohit Jeweller Pvt. Ltd. wanted to explore overseas markets using stocks of casting lightweight gold jewellery obtained from M/s. Suman Jeweller. The advance was given to part finance the stock to be maintained by M/s. Suman Jeweller. The Tribunal observed that the overseas business venture did not turn out to be fruitful, and the stock had to be sold in the domestic market at a low-profit margin to repay the trade advances. The Tribunal found that the transactions between the sister concerns were commercial in nature and the advance was a trade advance, not a loan or advance as envisaged under Section 2(22)(e) of the Act.The Tribunal concluded that the facts of the case fell within the exemption provided in CBDT Circular No. 19/2017 and the ratio of the decisions in CIT vs. Creative Dyeing & Printing Pvt. Ltd. and CIT vs. Amrik Singh. Therefore, the Tribunal found no infirmity in the order passed by the Ld. CIT(A) and dismissed the revenue's appeal.Conclusion:The Tribunal upheld the decision of the Ld. CIT(A) that the advance of Rs. 10.10 crores received by M/s. Suman Jeweller from M/s. Rohit Jeweller Pvt. Ltd. was a trade advance in the nature of a commercial transaction and did not attract the provisions of Section 2(22)(e) of the Income-tax Act, 1961. The appeal of the revenue was dismissed.