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TMI Blog2011 (5) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... are in the nature of money transacted to give effect to commercial transaction would not, in our view, fall within the ambit of the provisions of section 2(22)(e) Hence, in view of the finding of the Revenue that the transaction is not a genuine advance for purchase of goods, we have to take the conclusion to the logical end and hold that, in such a view of the matter, it is also not a loan or as advance, so as to attract section 2(22)(e) Looking at the issue from any angle, if it is said that this is a trade advance given to M/s. Power Service Corporation, which had ultimately supplied machinery to the assessee, then, such an advance cannot be termed as a loan so as to bring it within the ambit of section 2(22)(e) - Therefore, we delete the addition in the hands of the assessee. - IT APPEAL NO. 2483/MUM./2011 - - - Dated:- 31-5-2011 - Order The order of the Bench was delivered by J. Sudhakar Reddy (Accountant Member).- The appeal in I. T. A. No. 2483/Mum./2011, preferred by the assessee, is directed against the order dated February 17, 2011, passed by the Commissioner (Appeals)-XXXIII, for the assessment year 2006-07, and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 1.03 crores was paid by M/s. Swati Energy and Projects P. Ltd. to Shri Manish Dedhia, which is not a prudent business act. The assessee in his submission stated that the advance was given for purchase of material of ₹ 2,01,75,535 is not correct, as Shri Manish Dedhia, admitted in his statement recorded under section 131 mentioned above that he has received purchase order of ₹ 1,03,75,734 only from M/s. Swati Energy and Projects P. Ltd. (b) The amount of advance received was immediately given as loan/deposit on the same day to M/s. Sujyoti Enterprises, by Shri Manish Dedhia, without fulfilling the so called purchase order. (c) The assessee remained silent on the capability of Shri Manish Dedhia, for executing such a huge order, as he never dealt with such business either and he does not possess the knowledge of the product. (d) Shri Manish Dedhia actually started activities in the booking purchase order in January 2006 by giving 10 per cent. advance only, but M/s. Swati Energy and Projects P. Ltd. has given more than 100 per cent. advance which is not justifiable. (e) Shri Manish Dedhia has not supplied/purchased any material against the purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s P. Ltd. Advance for the assessment year 2006-07 maintained in the books of Power Service Corp ; proprietary concern of Shri Manish Dedhia as per the additional documents filed during appellate proceedings. The transaction of ₹ 2,56,500 has been recorded as sales against an amount of ₹ 2,00,000 received on January 17, 2006, which is naturally an amount in the nature of advance against the sales business transactions of ₹ 2,56,500. Against this Swati Energy and Projects P. Ltd. advance account shows credit of ₹ 1.40 crores along with interest paid at 12 per cent., i.e., ₹ 7,31,836. Subsequently, for the assessment year 2007-08, some sales have been shown totalling to ₹ 2,12,463 and Swati Energy and Projects P. Ltd. advance account further shows an interest amount of ₹ 16,80,000 on the balance outstanding of ₹ 1,47,31,836 out of which earlier years interest of ₹ 7,31,836 has been paid. By the third assessment year, i.e., 2008-09, the account is showing the remaining interest bearing advance amount of ₹ 1,56,80,000 adjusted towards the sale bills. Suddenly, the sales have increased as shown by bill No. 4 at ₹ 47,25,928 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Validity of an addition of ₹ 1,40,00,000 as deemed dividend under section 2(22)(e); (c) Violation of principles natural justice ; and (d) Levy of interest under sections 234B, 234C of the Act. Before us, learned counsel, Mr. Pradip Kapasi, appearing on behalf of the assessee, at the outset, contends that he did not wish to press the issues-(a) Validity of reopening of assessment under section 147 ; (c) violation of natural justice ; and (d) levy of interest under sections 234B, 234C. The learned Departmental representative, on the other hand, did not object to these submissions made by learned counsel. Consequently, the aforesaid grounds are dismissed as not pressed . Learned counsel, contends that the assessee holds 33.34 per cent. of the shares in the firm M/s. Sujyoti Enterprises and that the other brothers, Mr.Shantilal B. Chheda and Shri Mavji B. Chheda, holds similar shares of 33.33 per cent. each. He submits that the issue whether the company M/s. Swati Energy and Projects P. Ltd., has accumulated profit is not in dispute. In short, he submits that except for the issue that he would raise in his argument, the other conditions laid down in sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial and, hence it cannot be said that Mr. Manish Dedhia, is a man of no means or his incapability of executing the contract. He took this Bench to the various documents such as purchase order, correspondence, bank guarantee furnished, invoices, etc., to demonstrate his case that the transaction is genuine. He submits that the apparent is to be considered as real, unless it is proved otherwise. For this proposition, he relied on the following case law : (i) CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), (ii) Kalwa Devadattam v. UOI [1963] 49 ITR (SC) 165, and (iii) CIT v. Century Building Industries P. Ltd. [2007] 293 ITR 194 (SC). On the reliance placed by the Commissioner (Appeals) on the judgment of L. Alagusundaram Chettiar [2001] 252 ITR 893 (SC), he submits that, on facts, the case is different as both employees as well as the finance director had, in that case, admitted on oath that the employees were used as conduit for the shareholders to take loans from the company. He submits that no such admission is available in this case. On the reliance placed by the Commissioner (Appeals) in Mrs. Tarulata Shyam [1977] 108 ITR 345 (SC), learned counsel distinguished the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners in M/s. Sujyoti Enterprises. He also pointed out that the claim of M/s. Power Service Corporation that Mr. Chirag K. Mehta, was an employee, was found to be false and it was established that he was not working for M/s. Power Service Corporation, during the period in which the purchase order was given to it by M/s. Swati Energy and Projects P. Ltd. He points out that it is unnatural for M/s. Swati Energy and Projects P. Ltd., to have placed the order for supply of equipment through one of its employees instead of placing order directly with the supplier. He refers to paragraph 7.2 of the Commissioner (Appeals)'s order and submits that due to circuitous entries, the advance reflected as advance for supply of material were actually a loan given to Mr. Manish Dedhia. He referred to the contradictory stand taken by the assessee, the first being that this is an advance for purchase of machinery and in alternative stand that the cycle of fund flow is completed and the same was done to increase credit limit from the Punjab National Bank and so it is out of commercial expediency and outside the ambit of section 2(22)(e) of the Act. He points out that the Commissioner (Appeals) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2(22)(e)-The companies to which section 2(22)(e) applies are (up to April 1, 1983), inter alia, companies in which majority (more than 50 per cent) of the voting power lies in the hands of persons other than the public, etc., and that means that the companies are controlled by a group of persons allied together and having the same interest. It is for this group to determine whether the profits made by the company should be distributed as dividends or not. When the Legislature realised that though money was reasonably available with the company in the form of profits, those in charge of the company deliberately refused to distribute it as dividends to the shareholders, but adopted the device of advancing the said accumulated profits by way of loan or advance was to evade the payment of tax on accumulated profits. It was with intention of curing such an similar mischiefs that these provisions were enacted (see Navnit Lal C. Javeri v. K. K. Sen, AAC [1965] 56 ITR 198 (SC), 207-8 (SC)). (iii) Looking at the transaction from this angle, it is clear that there is no diversion of dividend or in fact any funds from the company as on the same day, the very same amount of ₹ 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business. Amounts were exchanged between the parties and there is no finding that a particular transaction is a loan transaction. When there is an attempt to bring to tax a particular amount, the burden of proof lies on the Revenue to prove that the same is income as contemplated under the Act. In this case the Revenue has not discharged its burden that a particular amount received by M/s. Riya Travels, a proprietary concern, is a loan or advance. On the other hand, the assessee has laid evidence to prove that this is neither a loan nor an advance. These findings of us are based on the proposition laid down in case laws, which will be discussed in this order. 25. On facts we find that on June 2, 2004, the proprietary concern had given an amount of ₹ 15 lakhs to the company and this was repaid by the company on June 8, 2004. Similarly an amount of ₹ 15 lakhs was once again advanced by the sole proprietary concern on June 17, 2004 and this was repaid by the private limited company to Riya Travels on July 12, 2004. Similarly an amount taken by the company on November 19, 2004 from the proprietary concern amounting to ₹ 10 lakhs was returned to the proprietary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (page 473 of 31 ITR) : '10.5 If this purpose is kept in mind then, in our view, 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 carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning the term 'advance' may or may not include lending. The word 'advance' if not found in the company of or in conjunction with a word 'loan' may or may not include the obligation of repayment. If it does, then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term 'advance'. The rule of construction to our minds which answers this conundrum is noscitur a sociis. The said rule has been explained both by the Privy Council in the case of Angus Robertson v. George Day [1879] 5 AC 63 (PC) by observing 'it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them' and our Supreme Court in the cases of Ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me back to it on the same day and the intention of the parties, as gathered from facts does not reflect that, it was to advance or loan or a deposit. Hence, in view of the finding of the Revenue that the transaction is not a genuine advance for purchase of goods, we have to take the conclusion to the logical end and hold that, in such a view of the matter, it is also not a loan or as advance, so as to attract section 2(22)(e). (v) Coming to the issue whether the advance given to M/s. Power Service Corporation, a proprietary concern of Mr. Manish Dedhia, it can be noticed that the year-wise turnover of M/s. Power Service Corporation is as follows : (Rs.) 2005-06 2,56,500 2006-07 2,12,463 2007-08 3,14,17,338 2008-09 1,78,34,311 2009-10 1,80,25,578 2010-11 1,37,16,896 We also find that Mr. Manish Dedhia, is a partner in Sheetal Agencies, which has the following turnover : Sheetal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame day to the company, it cannot be said that a loan still exists. We have to take the transaction to the logical conclusion. If, on the other hand, it is said that this is a trade advance given to M/s. Power Service Corporation, which had ultimately supplied machinery to the assessee, then, such an advance cannot be termed as a loan so as to bring it within the ambit of section 2(22)(e). (vii) Coming to the case law, in our opinion, the judgments relied upon by the Revenue are not relevant to the facts of the case, as there is no repayment of a loan and also there is no loan at all, which is used by the shareholders or the firm M/s. Sujyoti Enterprises. (viii) Keeping view of the aforesaid discussions, we delete the addition in the hands of the assessee. In the result, the assessee's appeal is allowed in part. Now, coming to the appeal in I. T. A. No. 6319/Mum./2009, M/s. Sujyoti Enterprises, the only grievance of the assessee is against the findings of the Commissioner (Appeals) on the issue whether the transaction with M/s. Power Service Corporation is genuine or not. In view of our findings in Mr. Pravin Bhimshi Chhada, in I. T. A. No. 2483/ Mum./2011, vide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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