TaxTMI 
TaxTMI 
2010 (6) TMI 844
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....g addition of Rs. 1,44,16,367/- u/s.2(22)(e) as deemed dividend. This addition was made as the AO noticed that the assessee was Director in M/s. Mertinz Entex Industries Ltd., wherein, the assessee held 2,21,000 shares, out of 2,49,000 being total shares of M/s. Mertinez Entex Industries Ltd. He found that the assessee had made purchase and sales with M/s. Mertinez Entex Industries Ltd., and in the balance sheet of the assessee M/s. Mertinz Entex Industries Ltd., was sundry creditor to the extent of Rs. 3,24,75,522/-. Since the assessee was having shareholding of more than 10% of the voting power, the AO held that the provisions of section 2(22)(e) were attracted in the case of the assessee. After considering all the purchases, sales, opening balances etc, he computed the deemed dividend as under: "Opening balance as on 1.4.98 - Rs. 95,89,094/- Add: Purchases from company - Rs. 87,88,461/- Rs.1,83,77,555/- Less: Sales to company - Rs. 33,28,400/- Due to company on account of purchases and sales. Rs.1,50,49,555/- Balance as on 31.3.99 in name of M/s. Mertinez Entex Industries Ltd., as sundry Creditor - Rs.2,94,65,222/- Less: Due on accou....
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....td from Ludhiana Office of Rs. 1,31,12,221/- and from Mumbai office of Rs. 1,26,25,891.20 totalling to Rs. 2,57,38,112.20 was to be treated as deemed dividend of the assessee u/s.2(22)(e). 5. The CIT (A) partly allowed the assessee's appeal, inter alia, confirming the addition to the tune of Rs. 2,45,42,112/- u/s.2(22)(e). The CIT (A) after taking into consideration various letters written by the assessee, called for a Remand Report from the Assessing officer and after considering the contents of the Remand Report and the assessee's comments on the same, decided the assessee's appeal on technical ground as well as on merits. He noted that in the Remand Report, the AO had pointed out that in Form No.35, the assessee had mentioned section 264 in stead of 246A. After detailed discussion on this count from pages 20 to 26 of his order, he held that the appeal filed by the assessee in Form No.35 u/s.264 was not a valid appeal and hence, not maintainable and thus, dismissed on this point. However, without prejudice to these findings, he proceeded to decide the issue on merits. He discussed the assessee's assertions that the order passed by the Assessing Officer was in a....
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....n items of garments. There is no evidence filed by the appellant as regards to the actual delivery of goods and hence, it is not know as on what exact date the said goods were delivered. 70. further, it is noted that the appellant filed the stock statement as on 31.3.99 showing the quantity and the value of goods lying in the closing stock. The stock statement shows that the appellant (Chirag Exports) had sufficient stock with it as ordered for vide the above purchase order dtd.1.3.99 by MEIL and that the stock requested for vide the said purchase order was ready for dispatch. Under such circumstances, the appellant failed to explain as to why the appellant made the sale bill as late as on 31.7.2001. When the goods/stock were ready, why their delivery were made after more than 2 years. 71. Similarly, vide purchase order dated 26.2.1999, 3000 track suits were ordered and vide purchase order dated 1.3.99, 1000 pieces were ordered. The appellant had the closing stock of 10.720 pieces. However, even in this case, the appellant has made the sales bill on 31.7.2001 and 18.1.2002 respectively. 72. In all such circumstances, the appellant failed to explain as to why he had to hold....
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....ellant) are only business transactions and the company (MEIL) has not advanced any loan to Chirag Exports and Imports. It also mentions that M/s. Chirag Exports has given loan to MEIL, which was repaid back to the company. A reference is also made to the CA's certificate dated 27.12.2004. 78. The appellant also filed CA's certificate dated 27.12.2004 and 4.6.2007 in which the CA at Ludhiana had certified that there was a running account between Chirag Exports and MEIL, and that there were sales by Chirag to MEIL. 79. The evidences were perused through carefully. They only support that there were business transactions between the two entities. However, these documents do not establish that the moneys received, and those specifically added in the assessment order under appeal, wee sales proceeds. These payments by MEIL are isolated ones and no satisfactory explanation has been given by the appellant explaining the receipt of Rs. 2,57,38,112/- as part of sales proceeds. The evidences filed by the appellant himself as discussed above itself shows that the said amounts are actually in the nature of loans/advances and not in the nature of trading receipts." The CIT (A) f....
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....9 1024 6.3.99 1021 834124/11.3.02 1137 975000.00 1.3.99 1024 8.3.99 1022 834124/11.3.02 Correct(705600/12.3.02) 1138 975000.00 1.3.99 1024 8.3.99 1023 1660000/12.3.02 1139 990000.00 8.3.99 1026 8.3.99 1025 625629/1.3.02 603136/2.3.02 1130 1131 975000.00 8.3.99 1030 9.3.99 1027 972000/10.8.01 1115 990000.00 8.3.99 1030 9.3.99 1028 2403000/31.7.01 1112 930000.00 8.3.99 1030 9.3.99 1029 2403000/31.7.01 1112 15000.00 This payment is returned against payment receipt from Chirag Export and Import. Rs.13118881.00 Mumbai (Rs.) Purchase order dt. Paper book page Voucher of MEIL dt PB page Invoice amount and dt(Rs) PB page 1500000.00 27.5.98 1007 27.5.98 1006 95492/23.2.02 664000/5.3.02 1129 1133 1000000.00 2.6.98 1009 2.6.98 1008 598666/17.1.02 1118 200000.00 .. 8.9.98 1039 Payment returned of dt.13.5.98 .. 200000.00 .. 15.9.98 1040 Payment returned of dt.13.5.98 ....
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....erify the accounts and re-compute the dividend, if any, on the basis of transactions having the character of loans and advances other than those entered into in the ordinary course of the business of the company. Shri Goyal also referred to page 143 of PB, wherein, account of MEIL in the books of Chirag Exports and Imports for F.Y. 1998-99 is contained to demonstrate that there were opening balances of Rs. 95,09,094.18 payable by the assessee to MEIL which was mainly on account of purchase of import licences duty free. With reference to the observations of the CIT (A) regarding late supplies, he referred to pages 1011 to 1012 of PB to demonstrate that a sample payment of Rs. 9 lakhs had been received against the purchase order dated 26.2.99 of MEIL. He pointed out that against this purchase order, goods were supplied as and when required by MEIL. He submitted that detailed chart in this regard, which has been reproduced earlier, to link the various supplies made against various purchase order, the relevant papers are in the paper book. He further referred to ledger account of MEIL in his books of account contained at pages 136 to 170 of PB for various financial years to demonstrate....
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....ess premises and that of MEIL was situated in the same compound and, therefore, the date of delivery was the date of invoice. He submitted that delivery was made as per the purchase order. He further pointed out that nothing has been brought on record to dispute the sales price. He referred to submissions dt.6.6.2008 filed on 6.10.2008 and referred to page 286 onwards of the said written submissions and further referred to page 296 of the said submissions to demonstrate that there was no discrepancy in the ledger accounts. 10. Ld D.R. submitted that the relationship between the assessee and MEIL is an important factor in deciding the present issue. He submitted that the assessee held 88% shares in the company and, therefore, was substantially held the shares of the said company. With regards to the submissions of the assessee that the opening balance was on account of payment due for import licence duty free, ld D.R. submitted that these facts do not give credibility to the transactions between the assessee and MEIL. He submitted that the income was entirely different as is evident from the object clause which creates a doubt on the credibility of the transactions. He submitted ....
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....contents of the additional grounds raised by the assessee, we are of the opinion that it is purely a case of typographical mistake in Form NO.35 in mentioning the section 264 instead of 246A. Hence, we admit the additional ground being purely legal in nature and do not find much substance in the order of the CIT (A) on this count and, therefore, we set aside the order of the CIT (A) in dismissing the assessee's appeal on this count. 14. Now coming to the merits of the case, the moot point for consideration is whether the impugned transactions between the assessee and MEIL were business transactions or not. The transactions have been mainly doubted on the ground that the supplies were made approximately after two years from the date of receipt of amount against the purchase order. Ld CIT(A)'s findings in the first round of proceedings that transactions entered into in the ordinary course of the business of the company are not to be treated as loans and advances has not been challenged by the department. Therefore, enquiry was required to be made in this limited field. The assessee has compiled the details regarding supplies made against various purchase orders which have ....