TaxTMI 
TaxTMI 
2011 (6) TMI 200
X X X X Extracts X X X X
X X X X Extracts X X X X
.... concern i.e., M/s. Excel Cars (P.) Ltd. When the Assessing Officer probed the issue further, he found that a sum of Rs. 1,37,00,000 has been received as advance from M/s. Excel Car (P.) Ltd. According to the Assessing Officer, the assessee was holding 5,25,000 shares of face value of Rs. 10 each of M/s. Excel Cars (P.) Ltd., in terms of percentage, it is 26.64 per cent of the total shares. Similarly, M/s. Excel Cars (P.) Ltd., is holding 4,54,500 shares of the assessee company having face value of Rs. 10 each. In terms of percentage, it comes out to 25.82 per cent. Assessing Officer further noticed that both the companies are holding shares of each other more than 10 per cent. The assessee is a recipient company and public are not substantially interested in the assessee company within the meaning of section 2(18) of the Act. Thus, section 2(22)(e) is attracted on this advance received by the assessee. He confronted the assessee as to why section 2(22)(e) is not applied on this transaction and why it should not be construed as a deemed dividend. Shri Gagan Goel, CA appeared before the Assessing Officer and failed to give any explanation. Assessing Officer has worked out the amount....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Act then also it would not be considered as a deemed dividend. Learned CIT (Appeals) has called for a remand report from the Assessing Officer. Assessing Officer did not make elaborate comments on the material supplied by the assessee during the appellate proceedings rather he harped upon the findings of the Assessing Officer given in the assessment order as well as submitted that assessee had agreed for the addition. He made a reference to the letter dated 4-8-2009. The assessee has rebutted this allegation of the Assessing Officer. He submitted the copy of the letter dated 4-8-2009 and contended that this letter nowhere discloses that assessee has agreed for the addition. Learned CIT (Appeals) has gone through the contentions of the assessee and deleted the addition. The elaborate findings made by the Learned CIT (Appeals) on the strength of learned jurisdictional Hon'ble High Court's decision read as under : "5. I have carefully considered the assessment order, remand report and the submissions made by the learned AR. As per the facts of this case, the appellant company had received amounts totalling Rs. 1,37,00,000 during this year as advance from its sister concern, M/s. Ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the year 2001 at the rate of Rs. 17,500 per share. The total purchase consideration in the hands of the assessee company was Rs. 3,51,75,000 including the share price and incidental expenses. The said investment is duly reflected in the balance sheet of the assessee company under the head "Investments". It is argued that the above shares were agreed to be sold to M/s. Excel Cars (P.) Ltd., at the rate of Rs. 25,000 per share as per mutual agreement having regard to the market value of the property owned by M/s. Anoop Kothari (P.) Ltd. It is argued that due to subsequent failure on the part of the buyer to fulfil its part of the obligation as per the agreement dated 4-5-2005, the agreed transfer of shares did not take place. It is argued that the assessee company should not be penalized for the failure of the Chartered Accountant to appear on the said date which resulted in adverse inference in the ex parte order passed by the Assessing Officer. 5.2 As regards, the additional evidence filed by the ld. AR, I find that the Assessing Officer has not raised any objection against the same in his remand report. Considering the same, since the assessee was prevented from producing th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....155 (Delhi) held as under : If the history and purpose with which the said provisions was brought on to the statute book is kept in mind, it is clear that sub-clause (e) of section 2(22) which is pari materia with clause (e) of section 2(6A) of the Indian Income-tax Act, 1922, plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons, who manage such closely held companies, should not arrange their affairs in a manner that they assist the shareholders in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan. If this purpose is kept in mind, then the word 'advance' has to be read in conjunction with word 'loan'. Usually attributes of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan : it generally carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning, the term 'advance' mayor may not include lending. The word 'adva....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st Properties Ltd. v. ITO [2005] 1 SOT 142 (Mum.), M.S. Securities Ltd. v. DCIT [2007] 11 SOT 302 (Mum.) and ITAT Delhi Bench order dated 9th May 2008 in the case of Creative Dyeing & Printing (P.) Ltd. v. ITO [ITA No. 3036/Del/2005]. In this regard, it is pointed out by the ld. AR that the term 'loans and advances' has not been defined in the Income-tax Act and hence the term has to be understood in the normal commercial sense as interpreted by the courts from time to time. It was pointed out that in the case of Baidya Nath Plastic Industries Pvt. Ltd. v. K.L. Anand (230 ITR 522), the Hon'ble Delhi High Court held that in the case of loan, it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement. Similarly in the case of CIT v. Bajpur Co-operative Sugar Factory Ltd. (177 ITR 469), the Hon'ble Supreme Court stated that for the purpose of loan, there must be a relationship of borrower and lender in the given transaction and if there is no relationship of borrower or lender, then the amount received cannot be considered as loan. The appellant further stated that the expression 'loans and advances' has also been used in section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 26-11-2008, meaning thereby, that the whole exercise has been completed within 26 days. Learned CA appears to have not brought it to the notice of the management and failed to make reference about the agreement etc. During the course of hearing, we confronted the learned counsel for the assessee as to why in the statement of fact filed before the learned CIT (Appeals), it was not brought on record. The learned counsel for the assessee was unable to explain this situation but he pointed out that in the ground of appeal, it was specifically pleaded that the amount was not received as a loan or advance simplicitor. He submitted that assessee has filed application for permission to lead additional evidence. It was filed during the pendency of appeal and all the documents were brought on record. Learned First Appellate Authority called for a remand report and thereafter deleted the additions. He relied upon the decisions of Hon'ble Delhi High Court in the case of Creative Dying & Printing (P.) Ltd. (supra) as well as in the case of Raj Kumar (supra). 5. We have duly considered the rival contentions and gone through the record carefully. As far as the assessee and the sister concern....