TaxTMI 
TaxTMI 
2018 (11) TMI 553
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....is not a company in which public are substantially interested. Since Section 2(22)(e) of the Act will be attracted, assessee was asked to explain. In this regard, the assessee filed her objection, which is as below: "I, Nutan Matpani, Proprietor of Sri Vinayaka Industries, Mukutban, Adilabad (hereinafter referred to as assessee) am engaged in the business of extraction and sale of cotton seed Oil. The raw material i.e. Cotton seed required for this purpose is purchased from M/s. Malpani Cottons Pvt. Ltd, Adilabad, in which company the assessee holds 12.42% of the shareholding. It is further to be noted that Malpani Cottons Pvt. Ltd, (hereinafter referred to as "Company") purchases cotton seed oil from the assessee. Therefore, both the assessee as well as the company has purchase as well sale transactions With each other. In other words, the assessee purchases cotton seed from the company, crushes the same for extracting cotton seed oil, which in turn is purchased by the company based on necessities of the trade. Therefore, it is submitted that there is a business relationship between the assessee and the company, with regular business transactions being entered into between th....
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....the dividend. A perusal of the transaction would show that the transactions never partook the character of loan or advance between the company and its directors having specified share holding. That the transaction relates to purchase and sale is not in doubt. This is evident from the accounts of both parties as appearing in their respective books. This is the unalterable position. The transactions are straightforward, clear and shorn of any ambiguity. The same cannot be called a device more so a colorable device to invoke the deeming provisions. It is well settled that business and commercial transactions do not fall within the ambit of section 2(22)(e). (318 ITR 476 Raj). CIT v. Nagindas M. Kapadia (1989) 177 ITR 393 (Bom). 'Loans or Advances', u/s 2(22)(e) can be applied to 'Loans' or 'Advances' simplicitor and not to those transactions carried out in course of business as such. If this purpose is kept in mind then, the word 'Advance' has to be read in conjunction with the 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 car....
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....n between the parties and as demanded by the business needs. The parties have never intended to siphon off the accumulated profits of the company by evading tax thereon. In such an event, the case does not attract the purpose for which section 2(22)(e) has been enacted. Thus a running account maintained by two concerns even if they are related concerns does not fall within the purview of section 2(22)(e) of the Act as entries therein are in the normal course of the business which cannot be treated as loans/advances contemplated by Section 2(22)(e). Reliance in this regard is also placed on the following Decisions: 1. The Honourable Delhi High Court in the case of CIT v. Raj Kumar (2009) 181 Taxmann 155 / 318 ITR 462, held that Trade advance which are in the nature of money transacted to give effect to a commercial transactions would not, in our view, fall within the ambit of the provisions of Section 2(22)(2) of the Act . 2. The Honourable Delhi High Court in the case of CIT v Ambassador Travels (P) Limited 318 ITR 376 held that It is quite clear that the assessee was a travel agency and the above two concerns that it had dealings with, that is, Mis Holiday Resort (P) L....
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....ations, where the shareholder alone benefits from the loan transaction, because if the company also benefits from the said transaction, it will take the character of a commercial transaction and hence will not qualify to be dividend. In the case of the assessee, by giving and taking financial assistance from each other, both the assessee and the company were benefited and such transactions between them were nothing but commercial transactions and dividend attributable to the shareholder is nothing to do with such business transaction. From the above discussions it can be said that sec, 2(22)(e) of the Act covers only those transactions which benefit the shareholder alone and results in no benefit to the company. On the other hand, if the transaction is mutual by which both sides are benefited, it is undoubtedly outside the purview of provisions of sec. 2(22)(e) of the Act" 5. In the case of DCIT Vs M/s Vippy industries Ltd in ITA# 140/Ind/2013, ITAT, Indore in its decision dated 19.6.2013 has held that Trade advances which are in the nature of money transacted to give effect to a commercial transaction; would not fall within the ambit of provision of section 2(22)(e) of the Act.....
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....see preferred an appeal before the CIT(A) in turn, Ld.CIT(A) has confirmed the findings of the Assessing Officer. Aggrieved with the same, assessee preferred an appeal before us, raising five grounds of appeal. Out of those five grounds of appeal, only Ground No. 1 is the effective ground and all the remaining grounds are argumentative, which needs no adjudication. "1. The learned CIT (Appeals) has erred in law and in facts and circumstances of the case in confirming the addition of RS.2,62,26,581 as deemed dividend u/s 2(22)(e) without proper appreciation of the facts and circumstances of the case and the submissions made by the appellant. 2. The learned CIT (Appeals) having noted in para 5.3 of the appellate order that, the payments for purchases made on 26.04.2013 of Rs. 35,00,000, on 29.04.2013 of Rs. 26,82,951, on 23.05.2013 of Rs. 23,02,652, on 21.12.2013 of Rs. 25,74,200, on 02.01.2014 of Rs. 11,87,375, on 09.01.2014 of Rs. 23,46,759, on 27.01.2014 of Rs. 12,12,162 and on 30.01.2014 of Rs. 11,86,989, aggregating to Rs. 1,69,93,088 is towards purchases on a bill to bill basis, has completely erred in treating the same as loans and including them in the computation of dee....
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....t. Ltd., and sells cotton seed oil to them. This aspect was also accepted by the Ld.AO and there is no dispute in the regular business of cotton seeds in which it is normal that advances are received and materials are dispatched subsequently. In this regard, he submitted a chart in the form of Paper Book which is placed at Page No. 1 of the Paper Book. As per which he has separated the purchase and payment relating to such purchases, sales and relevant receipts of sales by the assessee. The other payments which are not relating to purchase or sales are explained in the above chart. Ld.AR brought to our notice that the payments received by the assessee are subsequent to payment of same amount by the company. He submitted that it cannot be treated as a loan or advance, simply because the assessee has paid the advance to the company and received subsequently. It will not fall in the category of loans or advances, which will attract the provisions of deemed dividend. 6. Ld.DR relied on the orders of the Assessing Officer and submitted that each entry in the books of account should be substantiated. If it is in the nature of 'loan' or 'advance', it has to be treated in the same way. 7....