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TMI Blog2009 (1) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1961, ignoring the fact that the similar addition made earlier in respect of assessment year 2001-02 was deleted. It is also mentioned that the amount was surrendered by the assessee under unusual pressing circumstances without appreciating properly the implications thereof. It may be mentioned here that the amount of addition in respect of assessment year 2000-01 is Rs. 13 lakhs. ITA No. 4802 (Delhi)/2005 - assessment year 1999-2000 2. From the assessment order, it appears that the assessee had filed her return of income on 23-12-1999 declaring total income of Rs. 8,07,524. This return was processed under section 143(1) of the Act. During the course of assessment proceedings for assessment year 2001-02, it was noticed that she received an amount of Rs. 5 lakhs as advance from Kaks Bills Pvt. Ltd. ("Kaks" for short), in which she was one of the directors holding 19.72 per cent of the shareholding of the company. Therefore, the Assessing Officer was of the view that the aforesaid amount should have been declared as income by way of dividend under section 2(22)( e), which was not done by her. It was further found that the assessee received a sum of Rs. 25 lakhs from the Kaks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99. Again, the quality of the components did not match with the specifications of the buyers. The efforts were repeated twice again on 19-11-1999 and 14-2-2000 by making advances of Rs. 3 lakhs and Rs. 13 lakhs. However, since the components were imported from China, which were cheaper but did not match the international standard, the efforts were finally given up and the advance was recovered on 6-11-2000. It may be mentioned here that the defect pointed out was that the teeth of the zips were not proper and sliders were not running smoothly. The Assessing Officer considered the facts of the case. He was not satisfied with the explanation of the assessee or the explanation furnished by Kaks. He issued summons under section 131 to the assessee and recorded her statement on oath on 23-3-2005. The relevant questions and answers have been reproduced in the assessment order. In answer to question No. 15, the assessee stated that in order to avoid the whole controversy and further litigation, she agreed to treat the loan amount as deemed dividend provided no penal action is taken under the Act. In view thereof, the sum of Rs. 25 lakhs was added to the income and penalty proceedings were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment actually resulted in any benefit to such a shareholder, which can be classified as dividend. The assessee returned the advance within a period of two days. Therefore, it was held that it is difficult to hold that this payment could be treated as deemed dividend. Thus, the order of the learned CIT (Appeals) was upheld and the appeal of the revenue was dismissed. The case of the learned counsel was that the matter stands covered by the aforesaid order and, therefore, the same should be followed and the appeal of the revenue may be dismissed. 2.3 The learned counsel also furnished written submissions, which are in the nature of the factual position regarding receipt of confirmed order by Kaks and placing the order with the assessee. The assessee imported material by acting on the order received from Kaks, but the transaction did not materialise due to the fact that the quality of the material was not up to the standard demanded by Kaks. He also furnished the details of advances and expenditure incurred by the assessee in importing the materials against the order, in Annexure "A" to the written submissions. The relevant portion of Annexure "A" is reproduced below :- Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the goods imported by the assessee were sub-standard. It is rather strange that the order of Ronex International remained in force for three years but was never fulfilled. It was further pointed out that the assessee had herself surrendered the amount which led to an inference that the advance was a device to divert the funds of the company for the business of the assessee, albeit for a short period. Therefore, it was agitated that the lower authorities were right in adding the amount to the income of the assessee as dividend. 3. We have considered the facts of the case and rival submissions. We find that evidence exists on record that M/s. Ronex International was habitually importing materials from Kaks. It is also a fact that this concern placed an order with the assessee for import of brass and plastic zippers as seen from pages 35 and 36 of the paper book. The Kaks was earlier carrying on the business of export of zippers, a line of business which was abandoned. However, in view of the aforesaid order, it placed the order with the assessee for which a resolution was passed by the Board of Directors, as required under the Companies Act. Acting on the order, the assessee impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as loan and, thus, the deeming provision contained in section 2(22)( e) could not be applied. Coming to the facts of our case, there is ample evidence on record that Kaks had placed orders for supply of material to the assessee. The advance was made for this transaction. Acting on the order, the materials were imported for assembly of zippers, but the sale could not be effected due to defect in the quality of the goods. Failure to effect sale will not render a commercial transaction to be a transaction of loan or advance. Therefore, the ratio of the aforesaid case supports the case of the assessee. Hon'ble Calcutta High Court had also an occasion to deal with the provisions contained in the aforesaid section in the case of Nandlal Kanoria v. CIT [1980] 122 ITR 405. The Hon'ble Court pointed out that conclusion in the matter involves finding of fact on two counts - (i) factum of the payment by the company, and (ii) motive or intention of the company making such payment, namely, a benefit granted to the assessee. On the facts of that case, it was pointed out that the sum of Rs. 75,000 paid by a company to Indira & Company did lead to a benefit at least to the extent of user of the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. Therefore, the ratio of this case supports the conclusion that the amount was not in the nature of deemed dividend under section 2(22)( e). We have already mentioned that this issue has been decided in favour of the assessee by the Tribunal for assessment year 2001-02. The assessment for this year was reopened on the basis of the findings given by the Assessing Officer in his order for that year. That order does not survive in view of the decision of the Tribunal. Therefore, the order of the coordinate Bench also supports the case of the assessee. 3.2 Coming to the issue of the surrender made by the assessee, it may be mentioned that the surrender by itself is not enough to uphold an addition especially when complicated question of fact and law is involved. It is a fact that the assessee had received an advance from Kaks. This is a question of fact. However, whether the amount was dividend under section 2(22)(e ) or not is a question of law. An assessee is not expected to be well versed in law when it comes to dealing with the interpretation of a deeming provision. Therefore, in such a situation, a surrender made by the assessee under mistaken impression of law cannot be the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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