2016 (6) TMI 882 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - whether the amount advanced by the company M/s Cosmo Tribology (I) Private Limited was a trade advance or not? - Held that - AR during the hearing of the case, also produced original bill books of the proprietary concern of the assessee, i.e., M/s Flair Impex. On examination of the bill books, we found that the assessee has maintained separate bill books for paraffin wax and slack wax and due to that bills of the same date are not having running serial numbers. We also agree with the other contentions raised by the learned Authorized Representative of the assessee that the assessee was registered to VAT and transport expenses were borne by the purchase parties. We also find from he assessee s paper book dated 21/04/2016 that the purchases made by the company M/s Cosmo Tribology (I) Private Limited were duly mentioned in the notes to annual statement of the company for the year under consideration. In view of above facts, we are of the opinion that the transaction between the assessee and company was a commercial transaction and the payments advanced were in the nature of trade advance and in such a case respectfully following the findings of the Hon ble Jurisdictional High Court in the case of Commissioner of Income Tax Vs. Rajkumar (2009 (5) TMI 17 - DELHI HIGH COURT ), we hold that the money advanced to give effect to a commercial transaction would not fall within the ambit of the provision of section 2(22)(e) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the addition of ?26,71,222/- as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961, was justified.
2. Whether the amount received by the assessee was a trade advance or a loan/advance.

Issue-Wise Detailed Analysis:

1. Addition as Deemed Dividend:
The primary issue is the addition of ?26,71,222/- as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The assessee contended that this amount was not a loan or advance but a trade advance received against the supply of materials. The Assessing Officer (AO) observed that the amount received was in the nature of loans or advances, satisfying the conditions of section 2(22)(e). The Commissioner of Income-tax (Appeals) upheld the AO's decision, leading to the present appeal.

2. Nature of the Amount Received:
The assessee argued that the sum of ?26,71,222/- was a trade advance for the continuous supply of materials, supported by bills, and thus, the provisions of section 2(22)(e) were not applicable. The assessee emphasized that the term 'advance' in section 2(22)(e) should be read in conjunction with 'loan,' implying specific attributes such as interest payment, obligation of repayment, and tenure, which were absent in this transaction.

The Commissioner of Income-tax (Appeals) found discrepancies in the bill books and questioned the genuineness of the trade advance. The assessee countered these findings by explaining the maintenance of separate bill books for different types of wax and providing evidence of VAT registration and transport arrangements by the purchasing party.

Tribunal's Findings:
The Tribunal examined the rival submissions and the material on record, including the original bill books. It found that the assessee maintained separate bill books for paraffin wax and slack wax, justifying the non-consecutive serial numbers on bills of the same date. The Tribunal also noted that the purchases were duly reflected in the company's annual statements and that the assessee bore no transport costs as the purchasing party arranged their own transport.

The Tribunal concluded that the transaction between the assessee and the company was a commercial transaction, and the payments advanced were in the nature of trade advances. Citing the Jurisdictional High Court's decision in Commissioner of Income Tax Vs. Rajkumar, the Tribunal held that money advanced to give effect to a commercial transaction does not fall within the ambit of section 2(22)(e).

Conclusion:
The Tribunal allowed the appeal, ruling that the addition of ?26,71,222/- as deemed dividend under section 2(22)(e) was not justified. The grounds No. 1 to 4 of the appeal were allowed, while grounds No. 5 and 6 were deemed general in nature and not adjudicated upon.

Decision Pronouncement:
The decision was pronounced in the open court on 14th June, 2016. The appeal of the assessee was allowed.