TaxTMI 
TaxTMI 
2019 (1) TMI 987
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.... to any concern in which such share holder is a member or a partner and in which he has a substantial interest' is applicable in the case of assessee company. 2. That the order of Ld. Commissioner of Income Tax Appeals)-ll, Agra being erroneous in law and on facts deserves to be quashed and that of the Assessing Officer deserves to be restored." 2. Vide application dated 20.12.2017, the Department has filed additional grounds of appeal as under: "1. That the Ld. CIT(A) erred in directing the admission of additional evidence in the form of collaboration agreement to be obtained from the Bank without adjudicating whether it was legally incumbent upon the parties to file the collaboration agreement that order to avail of the credit facilities from the Bank. 2. That the Ld. CIT(A) failed to adjudicate upon whether the said "Collaboration agreement" was a material fact for adjudicating that monies were advanced in the course of business when in fact the collaboration agreement was setting up of Business of Euro safety Footwear (India) Pvt. Ltd. in earlier years and for this year it was not Roger Industries that had advanced the money but it was Euro Saf....
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.... both the companies. The assessee company has received the amount on two counts - 1) It has purchased shoes from M/s Euro Safety Footwear (I) (P) Ltd. in the Financial Year 2006-07, 2007-08 and F.Y.- 2008-09 as well. 2) The advance made by M/S Euro Safety Footwear (P) Ltd. was out of contractual obligation. 8. A tripartite collaboration agreement was entered between M/S Roger Industries Ltd., M/S Euro Safety Footwear (P) Ltd and Shri Kulbir Singh. As per the terms of agreement, M/S Euro Safety Footwear (P) Ltd. raised funds from the Bank on the basis of bank guarantee of M/S Roger Industries Ltd. and Shri Kulbir Singh. The advance made by M/S Euro Safety Footwear (P) Ltd. was out of contractual obligation. The assessee company has entered into a collaboration agreement with M/S Euro Safety Footwear (P) Ltd. and Shri Kulbir Singh. It has been mentioned in the collaboration agreement that as result of giving of bank guarantee the financial resources of M/S Roger Industries Ltd. and Shri Kulbir Singh have squeezed out and they cannot raise further finance from bank and in consideration of the same it was agreed that M/S Euro Safety Footwear (P) Ltd. shall provi....
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....hs was returned by the assessee to the company. The Assessing Officer added the sum of `20,75,000/- as deemed dividend. The Hon'ble High Court while allowing the appeal of the assessee held that for retaining the benefit of loan availed of from the bank, if decision was taken to give advance to the assessee such decision was not to give gratuitous advance to its shareholder but to protect the business interest of the company. The sum of `20,75,000/- could not be treated as deemed dividend. The Division Bench of the Hon'ble Calcutta High Court followed the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Creative Dyeing & Printing P.Ltd. reported as 318 ITR 476(Del). In the instant case also the assessee was allowed to withdraw funds from the company as per requirement for personal purposes against the personal guarantee and the collateral security given by her to facilitate her availing of credit facility of the company. It is a well settled law that loan or advance given to a shareholder by a company in which public is not substantially interested and which had accumulated profits, the amount advanced as loan to such shareholder is deemed to be ....
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....r Industries Ltd. is neither a registered share holder nor a beneficial shareholder in M/S Euro Safety Footwear (P) Ltd. No advance has been made to Shri Kulbir Singh by M/S Euro Safety Footwear (P) Ltd. In the case of 'Raj Kumar Singh & Co. vs. DCIT' 52 TTJ 221 (All), the Tribunal held that Sec 2(22)(e) can be invoked only in case of registered shareholder and not a beneficial shareholder. Shares, though belonging to the firm but registered in the name of partners, the firm cannot be made liable under Sec 2(22)(e) in respect of loans obtained from the company. 12. Similarly, In the case of 'Income Tax Officer vs. S. S. Shetty' 14 TTJ 71 (Bom), the Tribunal held that the loan advanced by a private company to HUF of which the members were directors in the company cannot be deemed as 'dividend' in the hands of HUF as HUF was not a registered shareholder. 13. In the case of assessee since the assessee is not the shareholder of the company, the advanced received from M/S Euro Safety Footwear (P) Ltd., cannot be regarded to be deemed dividend within the provisions of sec 2(22)(e) of the Income Tax Act, 1961. 14. Similar issue came up for consideration before Mumbai ITAT (....
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....ticed that there are two possible views and interpretation on this issue under consideration before us. Hon'ble Bombay High Court in the case of 'CIT vs. Universal Medicare Pvt. Ltd.' (supra), Hon'ble Rajasthan High Court in the case of 'CIT vs. Hotel Hilltop' (supra) and Hon'ble Delhi High Court in the case of 'CITvs. Ankitech (P) Ltd.' (supra) decided the issue in favour of the assessee but in subsequent judgement Hon'ble Delhi High Court in the case of CIT vs. National Travel Services' (supra) has decided the issue against the assessee and in favour of the Revenue. Under such circumstances, the Hon'ble Supreme Court in the case of 'CIT vs. Vegetable Products Limited', 88 ITR 192 (SC) has held as under: - "There is no doubt that the acceptance of one or the other interpretation sought to be placed on section 271(1) (a)(i) by the parties willful lead to some inconvenient result, but the duty of the court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision.....
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....de order dated 29.11.2016 it has been held that the transactions were on account of commercial expediency and do not attract the provisions of Sec 2(22)(e) of the Act. 20. CBDT in its Circular no. 19/2017 dated 12.06.2017 has directed "In view of the above it is a settled position that trade advances, which are in the nature of commercial transactions would not fall within the ambit the word 'advance in Section 2(22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and those already filed in Courts/Tribunals may be withdrawn and not pressed upon. 21. The next objection of the pertains to the admission of additional evidence in the form of collaboration agreement by the ld CIT(A). 22. The AO, during the course of assessment proceedings, required the assesse company to explain as why the transactions of receipt of money by it may not be treated as deemed dividend u/s 2(22)(e). To which the assesse replied that since the assesse company has purchased shoes from M/S Euro Safety Footwear (P) Ltd., there are commercial transactions and the provisions of Section 2(22)(e) are not attracted. The assesse believed that the ....
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.... impugned order passed by the Tribunal is hereby sustained along with the reasons mentioned therein. The appeal filed by the department has no merit and the same is dismissed at the admission stage". 24. Further, this Bench in the case of 'Mukesh Kumar Agarwal, Agra vs Department of Income Tax' in ITA No. 374/Agra/2010 Asst. Year: 2005-06 on 6 March, 2012 has dismissed the appeal of the revenue on similar facts. 25. The CIT(A) at page 45-46 para 11.9 hadalso asked the AO to give comments if it is found that the collaboration agreement was found to be genuine, as to why the money received by M/s Roger Industries Ltd. should not be considered as taken during the course of normal business transactions, and she failed to submit any comment on this aspect after having found the collaboration agreement to be genuine on making enquiry from the bank. 26. Thus, proper opportunity was given by the Ld. CIT(A) to the assessing officer to rebut the claim of the assessee that there was a collaboration agreement between M/s Euro Safety Footwear Private Limited and M/s Roger Industries Limited which was produced and submitted to the bank much before this transaction took place an....