TaxTMI 
TaxTMI 
2014 (3) TMI 19
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....s.60,70,000/- towards deemed dividend u/s.2(22)(e) of the IT Act. The AO observed that the assessee is in the business of sale and purchase of cotton and cotton sheet and the assessee is having mixed account with M/s. Shree Vallabhalaxmi Cotton Pvt. Limited having purchase account, sale account and sharafi account. This ledger account shows total transaction of Rs.4,09,29,442/- wherein assessee had shown purchase of Rs.3,03,41,817/- and sales of Rs.39,05,695/-M/s. Sri Vallabhalaxmi Cotton Pvt. Ltd. had advanced Rs.66,81,930/- to the assessee. The AO gave reasonable opportunity of being heard as to why advances of Rs.66,81,930/- should not be assessed as deemed dividend u/s.2(22)(e) of the IT Act. The assessee furnished the reply on 20.12.2011. The assessee only claimed before the AO that these transactions were for business purposes as assessee purchased goods of Rs.3,03,41,817/- and sold goods for Rs.39,05,695/- which was resulted into credit balance of Rs.2,64,33,003/-. After considering the assessee reply, the AO held that assessee made purchase of Rs.3,03,41,817/- and paid cheque of Rs.1,65,000/- and received cheque of Rs.1,05,87,625/- against sale of Rs.39,05,695/- vide letter....
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....ily relied upon the Ld. A.R. In this case the Hon'ble court had held that the advances received by the firm cannot be treated as deemed dividend as these advances were received on behalf and for the benefit of the partners. This is not the case here. The advances received by the appellant firm was for the benefit of the firm and not for the benefit of the partners. This way the ratio of this case will not be applicable in the case of the appellant. The other cases relied upon by the appellant were also delivered on different facts and accordingly I hold that ratio of these case laws will also not help the appellant. 3.5 The appellant has also contended that these advances have been received in the normal course of business. I am also not inclined to agree with this contention. Perusal of the account of M/s. Shree Vallabhalaxmi Cotton Pvt. Ltd. in the books of the appellant reveals that the appellant is purchasing and selling cotton to this concern. In my considered view the payments made against purchases or payments received against sales from M/s. Shree Vallabhalaxmi Cotton Pvt. Ltd. can be said to be in the regular course of business and as per the provisions of sec.2(22)(e),....
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....,9307- u/s.2(22)(e) of the I.T. Act. Since the addition has been made as per the provisions of sec.2(22)(e), it will be pertinent to discuss these provisions in detail. Provisions of sec.2(22)(e) are attracted if the following conditions are fulfilled:- i) Payment should be made by a closely held company. ii)The payments received should be in the nature of loans and advances. iii)The payment should be made to a shareholder who holds not less than 10% of voting power in the payer company. Or Payment is made to any concern in which such shareholder is a member or a partner in which he has substantial interest(beneficially entitled to not less than 20% of the income of such concern). iv)Deemed dividend can be taxed to the extent of accumulated profits of the payer closely held company. v)The loans and advances should not be received in the regular course of business. 3.8 The above mentioned conditions in the case of loans and advances received by the appellant from M/s. Shree Vallabhalaxmi Cotton Pvt. Ltd. are fulfilled. In the instant case, the payments has been made by Shree Vallabhalaxmi Cotton Pvt. Ltd. which is undoubtedly a closely held company. The payme....
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....ad). As per this definition, the payments received by the appellant are advances as the same were received by it ahead of time when it is due to be paid. This way the terminology used in section namely 'any payment, by way of advance or loan' is having a wide purport and it covers almost every advance which has been received by the appellant. In this case the fact of receiving advance by the appellant is clearly established by account of M/s. Shree Vallabhalaxmi Cotton Pvt. Ltd. in the books of the appellant and instances of such receipt of advances is summarized in Annexure to this order As discussed above the advances received by the appellant to the extent of Rs 60,70,000/- are hit by the provisions of section 2(22)(e) of the IT. Act. Once any advance received by the appellant fulfills the conditions as laid down in the deeming provisions of section 2(22)(e) of the IT.Act, the same has to be taken to it's logical ends and there should not be any hesitation in giving full effect to these provisions. Reliance in this regard is placed on Builders Association of India v/s. Union of India (1989) 73 STC 370 (S.C.). In view of above facts, I hold that advances received by the appell....
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....ands of the company is concern in which such share holder is member or partner as substantial interest which was delivered by considering the Hon'ble Gujarat High Court decision in the case of CIT vs. Daisy Packers Pvt. Ltd., Tax Appeal No.212 of 2010 and Special Bench decision in case of Bhaumik Colour Pvt. Ltd. He further relied upon the decisions of Hon'ble Delhi High Court in the case of CIT vs. National Travel Services, (2011) 14 taxmann.com 14 (Delhi) and CIT Vs. Standipack Pvt. Ltd., (2012) 20 taxmann. Com 19 (Del) and also relied upon the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Navinbhai N. Patel, (2013) 35 taxman.com, 312 (Guj), wherein requirement of Section 2(22) is that loans or advances must be made by a company to its shareholder who are beneficial owner of the share. 5. At the outset, learned DR supported the order of learned CIT(A) and relied upon the decision of Hon'ble Delhi High Court in the case of CIT vs. Bharti Overseas Trading Co. (2012), 21 taxmann. com 543 (Del.), in Tax Appeal No.401/2011, order dated 29th February, 2012 wherein company advances money to firm but partners were the shareholders and having holding more than 10% of sh....
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....directing the Assessing Officer to delete the addition of Rs.8,72,071/- made on account of interest chargeable on loans given to sister concern. 3. The Ld. Commissioner of Income Tax(A) has erred in law and on facts in directing the Assessing Officer to delete the addition of Rs.37,43,814/- made on account of bogus purchases." 7. The first ground of appeal has been decided by us in assessee's appeal. The CIT(A) has arrived on correct calculation on the basis of copy of account. The same findings are applicable here. No separate adjudication is required. 8. The second ground of appeal is against deleting the addition of Rs.8,72,071 made on account of interest chargeable on loans given to sister concern. The AO observed that assessee had debit balance of Rs.1,04,25,744/-. The assessee had explained before the AO that it is a mix account sometime it has debit balance and some other time it has credit balance. After considering the assessee's reply, the AO calculated interest on day to day basis on debit balance which was worked out at Rs.8,72,071/- and same was added back in the interest of the income. 9. Being aggrieved by the order of the Assessing Officer, the assessee ....
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....st purchase of Rs.3,03,41,817/-, the balance would be of Rs.3,01,76,817/- (3,03,41,817/- - 1,65,000/-). However, the assessee had shown credit in balance at Rs.2,64,33,003/-; therefore, the difference between transaction made and credit as shown of Rs.37,43,814/- is treated as bogus purchase by the AO and added back income of the assessee. 13. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the learned CIT(A) who has allowed the appeal by observing as under: "5.2 I have carefully considered the rival submissions. It is seen that the appellant has shown credit balance in the account of M/s. Shree Vallabhalaxmi Cotton Pvt. Ltd. as on 31/3/2009 at Rs. 2,64,33,003/-. The same figure is reflected in the balance sheet also. This way there is no discrepancy in declaration of credit balance in the account of M/s. Shree Vallabhalaxmi Cotton Pvt. Ltd. In fact the working done by the A.O is erroneous as the transactions undertaken vide cheque has not been considered while working the credit balance in the account of M/s. Shree Vallabhalaxmi Cotton Pvt. Ltd. It is worthwhile to mention here that transactions done through cheques has been trea....