TaxTMI 
TaxTMI 
2016 (3) TMI 649
X X X X Extracts X X X X
X X X X Extracts X X X X
....end u/s 2(22)(e) in the hands of the assessee'' 3.1 The assessee Shri Ashok Singhi in ITA No. 899/JP/2014 has raised following grounds ''1. The ld. CIT(A) has erred on facts and in law in confirming the action of AO in treating the amount of Rs. 20,00,000/- received from M/s. GAD Fashions (India) Pvt. Ltd. as deemed dividend u/s 2(22)(e) in the hands of the assessee. 2. The ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 4,43,200/- by treating the amount of Rs. 20,00,000/- given by M/s. Ecotunes India (P) Ltd. to GAD Fashions (India) Pvt. Ltd. as deemed dividend u/s 2(22)(e) in the hands of the assessee'' 4.1 The issues raised by the above assessee's are common in respective appeals. However, for the sake of convenience, these appeals are being decided through a common order. 5.1 First of all, we take up the appeal of Shri Nilesh Singh (ITA No. 898/JP/2014) wherein Ground No. 1, the AO observed that the case of the assessee was reopened u/s 148 of the Act. The AO further observed that the assessee derived income from salary from M/s. GAD Fashions (India) Pvt. Ltd. and M/s. R Fashions and income from other sources. The assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the submission of the appellant. It may be noted that the AO has treated two transactions to be the deemed dividend u/s. 2(22)(e) of the I.T. Act. The one transaction is that M/s Gad Fashions India Pvt. Ltd. has advanced Rs. 20,00,000/- to the assessee. There is no dispute on the fact that the assessee was having 22.14% share holding in M/s Gad Fashions India Pvt. Ltd. during the assessment year under consideration 208-09 and therefore as per the AO the advancement of loan of Rs. 20,00,000/- was deemed dividend as per provision of section 2(22)(e) of I.T. Act. Another provision was in respect of loan of Rs. 20,00,000/- advanced by M/s. Ectotunes India Pvt. Ltd. to M/s Gad Fashions India Pvt. Ltd.. The assessee was having 26.13% share holding that in M/s. Ecotunes India Pvt. Ltd. The AO placing reliance on the decision of Hon'ble Hon'ble Jurisdictonal High Court in the case of CIT vs. Hotel Hill Top, 316 ITR 116 held that loan by M/s. Ecotunes India Pvt. Ltd. to M/s Gad Fashions India Pvt. Ltd. was in the nature of deemed dividend, to be in the hands of the directors having substantial interest in the recipient company. As the assessee was having share holding of 22.14% in M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ne and that M/s.Gad Fashions India Pvt. Ltd. Intended to made interest free advances to M/s. Manpasand Textiles Processors Pvt. Ltd. For modernization of its manufacturing plant for ensuring better printing quality. Accordingly as M/s Gad Fashions India Pvt. Ltd. Was not having immediate availability of fund therefore the company requested its director i.e. appellant to make advances to M/s. Manpasand Textiles processors Pvt. Ltd. Accordingly on behalf of M/s Gad Fashions India Pvt. Ltd. The assessee made advances of Rs. 2500000/- to M/s. Manpasand Textiles Processors Pvt. Ltd. Subsequently, M/s Gad Fashions India pvt. Ltd. Returned Rs. 20 lac to the assessee out of Rs. 25,00,000/- advanced to M/s. Manpasand Textiles Processors Pvt. Ltd. As per the assessee such transactions were essential for the business and these should not be treated as deemed dividend within the definition of sec. 2(22)(e) of IT Act. The assessee has also placed reliance on various case laws as mentioned in the written submission. However the submission of the appellant appears to be devoid of merit and not supported by any documentary evidence. First of all it may be noted that though the assessee has claimed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....payment by a company to a substantial share holder by way of advance or loan. Where payment is made for business consideration, thesame is not covered by deeming fiction of section 2 (22)(e). It being a deeming fiction needs to be construed strictly. For applicability of this section, following conditions should be satisfied:- (i) There should be a payment. (ii) Payment should be of a sum. (iii) Such payment should be byway of loan or advance. Therefore unless &Until all the above conditions are satisfied, deeming fiction would not be attracted. 2. In order to cover any amount within the provisions of section 2(22)(e) of the I.T. Act, 1961, it is necessary that the amount involved should either be "loan or advance". (i) The word "advance" has not been defined. However, in case of CIT Vs. Raj Kumar 318 ITR 462 (Del.) (HC), it was held that applying the Rule of "Noscitur a Sociis" which means that the words in an Act of Parliament is to be constructed with reference to the words found in immediate connection with them, the word "advance" has to be read in conjunction with the word "loan". Usually attributes of a loan are that (i) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eflected as such in the Balance Sheet. Accounts were prepared perfectly in accordance with the norms set out under the Companies Act, 1956. These were filed with the Registrar of Companies. The chief ingredient of s. 2(22)(e) is that one should be shareholder on the date the loan was advanced to him. Where such ingredient is not established, the advance could not be taken as deemed dividend under s. 2(22)(e). It is settled rule of interpretation of a fiction that the court should ascertain for what purpose the fiction is created and after ascertaining the purpose, the court has to assume all facts which are incidental to give effect to that fiction. It will not be given a wider meaning than what it purports to do. Law dealing with fiction relates to that breach of jurisprudence which should be narrowly watched, zealously regarded and never to be pressed beyond its true limits. Taking into consideration the entire conspectus of the case, the receipt from H Ltd. was in the nature of share application money. It cannot be construed loan or advance. As such, the case of the assessee falls beyond the ken of s. 2(22)(e). 3.. In the present case the transaction between assessee an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2008 which was repaid back by the company on 11-11-2008. (iv) It may be noted Gad fashions India Private Limited have regular transactions with Manpasand Processors Private Limited. In the year under consideration M/s Manpasand Textile Processors Private Limited has carried out printing Job work of Rs. 40,05,278/- and at the year end Rs. 28,05,567/- was payable by Gad Fashions India Private Limited to Manpasand Textile Processors Private Limited (P.B.3-10.). Thus a substantial amount was payable by Gad Fashions India Private Limited to Manpasand Textile Processors Private Limited against the printing job work whereas Rs. 25,00,000/- is provided as advance by the assessee to Manpasand Textile Processors Private Limited. All these facts shows that Gad Fashions India Private Limited in course of business, on occasions, remains short of funds and therefore in business interest assessee provided advance to Manpasad Textile Processors Private Limited and atthe same time Gad Fashions India Private Limited withheld the amount payable to Manpasand Textile Processors Private Limited against the printing Job. 4. In these facts and circumstances of the case, only because on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and made the addition which was confirmed by the ld. CIT(A). The Bench observed from the record that the transaction is not in the nature of loan or advance but it is only a reimbursement of amount paid by the assessee to M/s. Manpasnd Textile Processors (P) Ltd. on behalf of M/s. Gad Fashions (India) (P) Ltd. It is further observed that the amount of Rs. 20.00 lacs so received by the assessee from M/s. Gad Fashions India Pvt. Ltd. was with reference to the advance given by the assessee to M/s. Manpasad Textile Processors (P) Ltd. considering the business interest. It is further observed that the transaction between assessee and M/s. Gad Fashions India Pvt. Ltd. is a mutual, open, current and running account which is not a loan or advance as envisaged u/s 2(22)(e). In view of the above facts and circumstances of the, case the orders of the lower authorities are reversed and Ground No. 1 of the assessee is allowed. 6.1 Now we take up Ground No. 2 of the assessee wherein the AO noticed that there were three common shareholders in both the companies and all of them are facing same action under the Act for the year under consideration. The AO observed in such background ground of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es Private Limited is at P.B.11. From the copy of the account it can be noted that the transaction between Gad Fashions India Private Limited and Ecotune India Private Limited is in the nature of mutual, open, current and running account and not a loan or advance as envisaged u/s 2(22)(e) in as much as Ecotune India Private Limited has provided funds to Gad Fashions India Private Limited on temporary basis to meet its requirement. Such mutual, open, current and running account are not loans or advances as discussed in ground no. above and therefore section 2(22)(e) is not attracted to such transaction. It is pointed out that during the year only a net amount of Rs. 10,00,000/- was provided by Ecotune India Private Limited to Gad Fashions India Private Limited as evident from the copy of the account enclosed above. Therefore addition made by the AO considering the amount of deemed divided at Rs. 20 lacs is incorrect. '' 6.4 The ld. DR relied on the order of the ld. CIT(A) 6.5 We have heard the rival contentions and perused the materials available on record. We find from the record that when transaction between M/s. GAD Fashions India Pvt. Ltd. and M/s. Ecotune India Ltd. is no....