TaxTMI 
TaxTMI 
2012 (2) TMI 279
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt as upheld by the Supreme Court in the case of CIT & Others vs. Shabari Enterprises reported in 298 ITR 141 (Kar) would squarely apply and the appellant is entitled to the deduction as claimed even by applying the provisions of Sec.43B of the Act. 3. The learned Commissioner (A) ought to have refrained from upholding the determination of income under section 2(22)(e) of the Act in the hands of the appellant in respect of the advance received for providing office space. 4. The learned Commissioner (A) ought to have appreciated that the transaction was purely a business transaction or in the alternative it was for providing space for office premises and consequently cannot be held to be the advance per se for the benefit of the appellant to justify the application of Sec.2(22)(e) of the Act. 5. The learned Commissioner (A) ought to have refrained from upholding the addition only on surmises when the evidence furnished supported the appellant's claim. 6. On the facts he ought to have deleted the inclusion of the amount in the total income of the appellant under section 2(22)(e) of the Act. 7. Without prejudice, the disallowance and addition are excessive, arbitrary and unreason....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al requirement which is evident from the statement of fund flow for the period 01-04-2005 to 31-03-2006. Further, it was submitted that without working capital, the company could not carryon its business. Therefore, the expenses incurred to increase the capital of the company are required for functioning and financing of the business of the company. Just like the expenditure on the money borrowed does not affect the allowance, similarly the fact that expenses contributed to increase the capital should not make a difference in its allowability. However, the assessing officer declined to accept the submissions of the Appellant in this regard. It is submitted that judgments relied by the assessing officer are not applicable to the facts of the appellant's case. Further, the decision of the Hon'ble Supreme Court in the case of Brooke Bond India Ltd, 225ITR 798 on which reliance has been placed. by the assessing officer to come to the conclusion in the case of the Appellant is also distinguishable as the Hon'ble Supreme Court in its Judgment observed as follows: " It is no doubt true that before the appellant Assistant Commissioner as well as before the Tribunal it was submitted on beh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for the purpose of meeting the need for working funds for the assessee to carry on its business which was the case of assessee now. The learned CIT(A) pointed out that this obiter dicta has been superseded by the Hon'ble Supreme Court in the case of CIT Vs. Kodak India Co. 253 ITR 445 by holding as under : " Whichever way we look at it, the object of the assessee was to increase its share capital; whether it did so to continue to do business after the Reserve Bank directive or otherwise, the case is covered by the judgment in the case of Punjab State Industrial Development Corporation Ltd. Vs. CIT (1997) 225 ITR 792 (SC)." 8. The learned CIT(A) confirmed the action of the A.O. Aggrieved by the decision of learned CIT(A), the assessee is in appeal before us. 9. The learned counsel for the assessee reiterated the submission made before the learned CIT(A) and further submitted that the assessee was in need of working capital, therefore, the share capital was increased. So, the expenses incurred for increasing the share capital were allowable as revenue expenditure. 10. In her rival submission, the learned D.R. strongly supported the order of the learned CIT(A). 11. We have consi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....duction. The jurisdictional High Court in the case of CIT & Others Vs. Shabari Enterprises, 298 ITR 141 (Kar) has that no part of expenditure is required to be disallowed if the payments are made before the due date for filing the return. Hence, the Assessing Officer ought to have refrained from disallowing the above expenditure as belated payment of PF." 14. The learned CIT(A) after considering the submission of the assessee observed that reliance placed by the assessee in the case of CIT Vs. Shabari Enterprises 298 ITR 141 (kar) was highly misplaced. He observed that the decision was on section 43B of the Act which exclusively pertain to the Employees' Provident Fund and ESI and not employees' contribution and the relevant section was 36(1)(va) of the Act which states that certain employers were deducting amounts from the salaries of the employees towards certain welfare schemes like PF, ESI, etc. but were not crediting it to the employees' accounts even after long periods. So this section was introduced to check such malpractices, sum deducted from the salary of the employee as his contribution to any provident fund or superannuation fund or ESI or any other fund for the welfar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was the amount deposited to the credit of the Central Government account by the assessee by way of contribution to the provident fund of its employees." 19. The similar view has been taken by the Hon'ble Delhi High Court in the case of CIT Vs. P.M. Electronics Ltd. (2009) 313 ITR 161 (Del) by holding as under : "that the view taken by the Tribunal deserved to be sustained as it was no longer res integra in view of the decision of the Supreme Court. The assessee was entitled to claim the benefit under section 43B for the period particularly in view of the fact that it had contributed to provident fund before filing the return." 20. The same view has been taken by the Hon'ble Madras High Court in the case of CIT Vs. Nexus Computer P. Ltd. (2009) 313 ITR 144 (Mad) by holding as under : 'that the assessee was entitled to the benefit under section 43B as the contribution had been paid prior to the filing of the return." In the aforesaid cases, the Hon'ble High Courts have followed the judgment of the Hon'ble Supreme Court dated 7.3.2007 reported at 313 ITR (Statute) 1 wherein the Special Leave Petition against the judgment of the Hon'ble Gauhati HighCourt in the case of CIT Vs. Vina....
X X X X Extracts X X X X
X X X X Extracts X X X X
....antial interest i.e. the share holder is entitled to 20% of the income of such concern. The Assessing Officer was of view that the provision of section 2(22)(e) treats loans granted by a closely held company to any of its shareholders in the same manner as it treats dividends distributed by it to them. According to the Assessing Officer, the assessee-company is a company in which there is a group of members controlling its affairs and possessing a block of majority shares and since there were accumulated profits in the company, this group if it chooses, can have distribution arranged of such profits to its shareholders in which event the shareholders would not be liable to pay tax. And in order to avoid such a liability may grant a loan. The Assessing Officer was of the view that when such a loan was advanced to a shareholder who had a substantial interest in the company, the only inference was that the loan was a made-up affair and the department in such a case has every reason for treating such loan as dividend. The Assessing Officer pointed out that the common share holder Mr. U.K. Menon held more than 10% share in the lending company and was having substantial share holder in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Act. In fact, this amount has been received by the appellant company to provide office space in its building premises which is under construction to one M/s. Primetex Apparels India Pvt. Ltd. which is also a garment sourcing and quality assurance company. Hence, the transaction was during the normal course of business and cannot be described as loan or advances which forms a distinct category of financial transaction. Hence, the provisions of section 2(22)(e) of the Act are not attracted. Thus, the finding of the Assessing Officer that the amount represented loan or advance is incorrect as the payment has also not resulted inany individual benefit to any beneficial owners of shares. This is evident from the Memorandum of Understanding between the appellant and M/s. Primetex Apparels India Pvt. Ltd. The appellant relies on the following judgments : a) CIT Vs. Sivasubramaniam (1998) 231 ITR 655 (Mad) b) CIT Vs. Ambassador Travels (P) Ltd (2008) 173 Taxman 407 (Del) c) Mukundray K. Shah Vs. CIT (2005) 277 ITR 128 (Cal) The Hon'ble Madras High Court in the case of CIT Vs. V.S. Sivasubramaniam (231 ITR 656) has held that any advance made to the shareholder by a company in ordin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ggrieved by the decision of learned CIT(A), the assessee is in appeal before us. 27. The learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the amount in question was neither a loan nor an advance to attract the provisions of section 2(22)(e) of the Act because the amount had been received by the assessee to provide office space in its building premises which was under construction to one M/s. Primetex Apparels India Pvt. Ltd. which was also a garment sourcing and quality assurance company. Hence the transaction was during the normal course of business and could not be described as loan or advance which forms a distinct category of financial transaction. Hence, the provisions of section 2(22)(e) of the Act were not attracted. Reliance was placed on the following decisions : i) ACIT Vs. Bhaumik Colour P. Ltd. (2009) 313 ITR (AT) 146 (Mum) (SB) ii) CIT Vs. Hotel Hilltop (2009) 313 ITR 116 (Raj) iii) CIT Vs. Ambassador Travels P. Ltd. (2009) 318 ITR 376 (Del) iv) 328 ITR 1 (St) (SC) [CIT Vs. Vinay Cement Ltd. 284 ITR 619 (Gau)] 28. In her rival submission, the learned Departmental Representative strongly suppo....