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TMI Blog2011 (6) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... K.D. RANJAN, JJ. B. Kishore for the Appellant. M.P. Rastogi for the Respondent. ORDER Rajpal Yadav, Judicial Member. The revenue is in appeal before us against the order of Learned CIT (Appeals) dated 23-4-2010 passed for assessment year 2006-07. The solitary grievance of the revenue is that learned CIT (Appeals) has erred in deleting the addition of Rs. 85,81,348 which was added by the Assessing Officer with the aid of section 2(22)(e) of the Income-tax Act, 1961 as deemed dividend. 2. The brief facts of the case are that the assessee has filed its return of income on 30-11-2006 declaring an income of Rs. 25,16,870. The assessee company at the relevant time was working as a dealer of general motors. It engaged in the business of trading and service station of the cars. On scrutiny of the account, Assessing Officer found that assessee has transaction with its sister concern i.e., M/s. Excel Cars (P.) Ltd. When the Assessing Officer probed the issue further, he found that a sum of Rs. 1,37,00,000 has been received as advance from M/s. Excel Car (P.) Ltd. According to the Assessing Officer, the assessee was holding 5,25,000 shares of face value of Rs. 10 eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance on the date of agreement and the balance was payable by 30-4-2006. Thus, according to the assessee, the amount of Rs. 1,37,00,000 was not as loan or advance rather it was towards the sales consideration of the shares of M/s. Anoop Kothari (P.) Ltd. The assessee further appraised the Learned CIT (Appeals) about the difference between the meaning of expression loan and advances. It also filed the copy of the agreement and the details of payment received by it. On the strength of Hon'ble Delhi High Court's decision rendered in the case of CIT v. Raj Kumar [2009] 318 ITR 462/181 Taxman 155 as well as in the case of CIT v. Creative Dying Printing (P.) Ltd. [2009] 318 ITR 476/184 Taxman 483 (Delhi), it was contended by the assessee that if the amount was received in the ordinary course of business from the sister concern though otherwise covered within the ambit of section 2(22)(e) of the Act then also it would not be considered as a deemed dividend. Learned CIT (Appeals) has called for a remand report from the Assessing Officer. Assessing Officer did not make elaborate comments on the material supplied by the assessee during the appellate proceedings rather he harped upon the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said agreement dated 4-5-2005 executed on stamp paper and duly notarized by Notary Public on 4-5-2005 as additional evidence under rule 46A. It is argued that the assessee company had two types of accounts with M/s. Excel Cars (P.) Ltd. one in respect of the workshop business and another in respect of the amount pertaining to the above sale as investment, although a consolidated statement was given to the Assessing Officer as required. It is argued that Shri Gagan Goyal, CA had been briefed by the appellant to produce the above details before the Assessing Officer Adverse inference was drawn by the Assessing Officer and the impugned addition was made by deeming the amount as dividend under section 2(22)(e) in an ex parte manner. It is argued that the assessee company had purchased 2,000 shares of M/s. Anoop Kothari Ltd., which is a 100 per cent subsidiary of the assessee company, in the year 2001 at the rate of Rs. 17,500 per share. The total purchase consideration in the hands of the assessee company was Rs. 3,51,75,000 including the share price and incidental expenses. The said investment is duly reflected in the balance sheet of the assessee company under the head "Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its shareholders in the form of loans. The purpose being that persons, who manage such closely held companies, should not arrange their affairs in a manner that they assist the shareholders in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholder, money in the form of an advance or loan. 5.4 In this regard, it is settled law that while ordinary loan or advance in the nature of loan can be brought under the ambit of section 2(22)(e), trade advances or advances in pursuance of some business transaction cannot be caught by the mischief of section 2(22)(e). In this regard, the Hon'ble jurisdictional High Court seeking to distinguish an ordinary 'advance' from a 'trade advance' (the former held as taxable under section 2(22)(e) and the later not), in the case of CIT v Raj Kumar [2009] 181 Taxman 155 (Delhi) held as under : If the history and purpose with which the said provisions was brought on to the statute book is kept in mind, it is clear that sub-clause (e) of section 2(22) which is pari materia with clause (e) of section 2(6A) of the Indian Income-tax Act, 1922, plainly seeks to bring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid rule in mind, the word 'advance', which appears in the company of the word 'loan' can only mean such advance which carries with it an obligation of repayment. Trade advance, which is in the nature of money transacted to give effect to a commercial transaction, would not fall within the ambit of the provision of section 2(22)(e)." [Emphasis supplied] The above principle laid down by the Hon'ble Jurisdictional High Court, which is based on various decisions of the Apex Court, that business transaction or investment which does not have the characteristic of loans/advances is outside the ambit of the provision of section 2(22)(e) of the Act is also echoed in the judgments of various other Courts and Tribunals, such as CIT v. Nagindas M. Kapadia (177 ITR 393) (Bom.), Ambassador Travels 173 Taxman 407 (Delhi), Seamist Properties Ltd. v. ITO [2005] 1 SOT 142 (Mum.), M.S. Securities Ltd. v. DCIT [2007] 11 SOT 302 (Mum.) and ITAT Delhi Bench order dated 9th May 2008 in the case of Creative Dyeing Printing (P.) Ltd. v. ITO [ITA No. 3036/Del/2005]. In this regard, it is pointed out by the ld. AR that the term 'loans and advances' has not been defined in the Income-tax Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gning the order of the Learned CIT (Appeals) submitted that assessee has not raised any such plea before the Assessing Officer during the assessment proceedings. It appears that assessee has developed this defence after the assessment proceedings. No agreement was brought to the notice of the Assessing Officer during the course of assessment proceedings. The learned counsel for the assessee on the other hand submitted that Assessing Officer has confronted the assessee vide notice dated 31-10-2008 which was to be replied by 11-11-2008. Shri Gagan Goel, CA failed to give a plausible explanation on 11-11-2008 and thereafter Assessing Officer had given one more opportunity vide show-cause notice dated 12-11-2008 fixing the date of hearing on 17-11-2008. Learned CA did not appear on this date. Assessment order has been passed on 26-11-2008, meaning thereby, that the whole exercise has been completed within 26 days. Learned CA appears to have not brought it to the notice of the management and failed to make reference about the agreement etc. During the course of hearing, we confronted the learned counsel for the assessee as to why in the statement of fact filed before the learned CIT (Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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