TaxTMI 
TaxTMI 
2009 (1) TMI 534
X X X X Extracts X X X X
X X X X Extracts X X X X
....d under section 2(22)(e ) of the Income-tax Act, 1961, ignoring the fact that the similar addition made earlier in respect of assessment year 2001-02 was deleted. It is also mentioned that the amount was surrendered by the assessee under unusual pressing circumstances without appreciating properly the implications thereof. It may be mentioned here that the amount of addition in respect of assessment year 2000-01 is Rs. 13 lakhs. ITA No. 4802 (Delhi)/2005 - assessment year 1999-2000 2. From the assessment order, it appears that the assessee had filed her return of income on 23-12-1999 declaring total income of Rs. 8,07,524. This return was processed under section 143(1) of the Act. During the course of assessment proceedings for assessment year 2001-02, it was noticed that she received an amount of Rs. 5 lakhs as advance from Kaks Bills Pvt. Ltd. ("Kaks" for short), in which she was one of the directors holding 19.72 per cent of the shareholding of the company. Therefore, the Assessing Officer was of the view that the aforesaid amount should have been declared as income by way of dividend under section 2(22)( e), which was not done by her. It was further found that the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n advance of Rs. 13 lakhs was given on 15-7-1999. Again, the quality of the components did not match with the specifications of the buyers. The efforts were repeated twice again on 19-11-1999 and 14-2-2000 by making advances of Rs. 3 lakhs and Rs. 13 lakhs. However, since the components were imported from China, which were cheaper but did not match the international standard, the efforts were finally given up and the advance was recovered on 6-11-2000. It may be mentioned here that the defect pointed out was that the teeth of the zips were not proper and sliders were not running smoothly. The Assessing Officer considered the facts of the case. He was not satisfied with the explanation of the assessee or the explanation furnished by Kaks. He issued summons under section 131 to the assessee and recorded her statement on oath on 23-3-2005. The relevant questions and answers have been reproduced in the assessment order. In answer to question No. 15, the assessee stated that in order to avoid the whole controversy and further litigation, she agreed to treat the loan amount as deemed dividend provided no penal action is taken under the Act. In view thereof, the sum of Rs. 25 lakhs was ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to be seen on the facts of the case as to whether the payment actually resulted in any benefit to such a shareholder, which can be classified as dividend. The assessee returned the advance within a period of two days. Therefore, it was held that it is difficult to hold that this payment could be treated as deemed dividend. Thus, the order of the learned CIT (Appeals) was upheld and the appeal of the revenue was dismissed. The case of the learned counsel was that the matter stands covered by the aforesaid order and, therefore, the same should be followed and the appeal of the revenue may be dismissed. 2.3 The learned counsel also furnished written submissions, which are in the nature of the factual position regarding receipt of confirmed order by Kaks and placing the order with the assessee. The assessee imported material by acting on the order received from Kaks, but the transaction did not materialise due to the fact that the quality of the material was not up to the standard demanded by Kaks. He also furnished the details of advances and expenditure incurred by the assessee in importing the materials against the order, in Annexure "A" to the written submissions. The relevant p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....transaction in the course of which advance was received, the amount could not be taxed as deemed dividend under section 2(22)( e) of the Act, as decided in a number of cases. 2.6 In reply, the learned DR pointed out that there is no evidence on record that the goods imported by the assessee were sub-standard. It is rather strange that the order of Ronex International remained in force for three years but was never fulfilled. It was further pointed out that the assessee had herself surrendered the amount which led to an inference that the advance was a device to divert the funds of the company for the business of the assessee, albeit for a short period. Therefore, it was agitated that the lower authorities were right in adding the amount to the income of the assessee as dividend. 3. We have considered the facts of the case and rival submissions. We find that evidence exists on record that M/s. Ronex International was habitually importing materials from Kaks. It is also a fact that this concern placed an order with the assessee for import of brass and plastic zippers as seen from pages 35 and 36 of the paper book. The Kaks was earlier carrying on the business of export of zippe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for which the fiction was created. A wider meaning cannot be given than what is stated in the fiction. Coming to the facts of the case, it was held that undisputedly the amount received was in the nature of share application money, which could not be construed as loan and, thus, the deeming provision contained in section 2(22)( e) could not be applied. Coming to the facts of our case, there is ample evidence on record that Kaks had placed orders for supply of material to the assessee. The advance was made for this transaction. Acting on the order, the materials were imported for assembly of zippers, but the sale could not be effected due to defect in the quality of the goods. Failure to effect sale will not render a commercial transaction to be a transaction of loan or advance. Therefore, the ratio of the aforesaid case supports the case of the assessee. Hon'ble Calcutta High Court had also an occasion to deal with the provisions contained in the aforesaid section in the case of Nandlal Kanoria v. CIT [1980] 122 ITR 405. The Hon'ble Court pointed out that conclusion in the matter involves finding of fact on two counts - (i) factum of the payment by the company, and (ii) motive or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee. We find that the advances made in this case are only for the purchases and the revenue has not shown that any amount was not towards the purchases. In any case, the customs duty paid and the cost of material was more than the advance received by the assessee. Therefore, the ratio of this case supports the conclusion that the amount was not in the nature of deemed dividend under section 2(22)( e). We have already mentioned that this issue has been decided in favour of the assessee by the Tribunal for assessment year 2001-02. The assessment for this year was reopened on the basis of the findings given by the Assessing Officer in his order for that year. That order does not survive in view of the decision of the Tribunal. Therefore, the order of the coordinate Bench also supports the case of the assessee. 3.2 Coming to the issue of the surrender made by the assessee, it may be mentioned that the surrender by itself is not enough to uphold an addition especially when complicated question of fact and law is involved. It is a fact that the assessee had received an advance from Kaks. This is a question of fact. However, whether the amount was dividend under section 2(22)(e ) or ....