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TMI Blog2015 (4) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... - Decided in favour of assessee. Allotment of shares - whether benefit accrued to the assessee on allotment of shares attracts provisions of section 2(22)(e) - Held that:- When in the books of account the assessee has also credited the AIL and debited to the investment account for the allotment of the shares, it cannot be claimed by the assessee at the stage of the ITAT for the first time that the shares were allotted unilaterally by AIL. The assessee is a substantial shareholder in AIL and it is improbable to believe that the company would allot the shares to the assessee without her knowledge. Moreover, the assessee has not objected to the allotment of shares by the company, on the other hand, made the payment in the month of December. The learned counsel for the assessee has not given any evidence to support his contention that the shares were allotted by the company to the assessee unilaterally without her knowledge and the reply furnished before the Assessing Officer was factually incorrect. In view of the above question No.2 is answered in favour of the Revenue and hold that the addition of ₹ 10 lakhs was correctly made under Section 2(22)(e) in respect of debit entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on between M/s Shweta Enterprises and AIL at pages 4, 5 6 of his order and thereafter had also given the summary of account. For the sake of brevity, we are reproducing herein below only the summary of the account given at page 6 of the assessment order:- Opening Balance 3,577,222.19 (A) Purchase Yarn (Total) 6,358,624.00 (B) Sale Yarn 4,549,616.68 (C) Payment to Garden Silk Mills Ltd. for benefit of Shweta Entp. 3,692,547.00 (D) Payment to S. Tax authorities for benefit of Shweta Entp. 98,472.00 (E) Payment towards share capital 1,000,000.00 (F) Payment by cheque and credit in bank of Shweta Entp. 2,652,000.00 (G) Other Debits 690.13 (H) Payments received from Shweta Entp. By chequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the allotment of shares to the assessee is concerned, learned Judicial Member proposed to set aside the matter to the file of the Assessing Officer while learned Accountant Member proposed to sustain the addition. Therefore, question No.2 is referred to the undersigned being Third Member. Regarding question No.1 :- 7. At the time of hearing before me, it is stated by the learned counsel that the assessee is carrying on the business in the regular course for purchase and sale of yarn. In the preceding year as well as in the subsequent year, the assessee sold the yarn to AIL and also others and similarly, the assessee purchased the yarn from AIL and others. Similar business is carried on by the assessee from preceding years and in none of the earlier years, the payment received from AIL was treated as deemed dividend under Section 2(22)(e). That the genuineness of the yarn business being carried on by the assessee is not disputed by the Revenue and the income from yarn business as disclosed in the assessee's profit loss account has been accepted. That the sale of yarn and receipt from AIL was during the normal course of the carrying on of the business. That from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a part of its day-to-day business activities. The financial transactions in any circumstances could not be treated as loans or advances. Hence, section 2(22)(e) was not applicable. 10. In the case of Raj Kumar (supra), the assessee received advance to execute the job work entrusted to the assessee. The Assessing Officer concluded that the money received by the assessee was deemed dividend within the meaning of provision of Section 2(22)(e). The CIT(A) reversed the order of the Assessing Officer. The Tribunal sustained the decision of the CIT(A). On appeal, Hon'ble Delhi High Court held :- that the trade advances given to the assessee by C could not be treated as deemed dividend under section 2(22)(e). 11. Similar view is expressed by Hon'ble Delhi High Court in the case of Creative Dyeing and Printing (P.) Ltd. (supra), wherein their Lordships held :- dismissing the appeal, that the amounts advanced for business transaction between the assessee-company and P did not fall within the definition of deemed dividend under section 2(22)(e). 12. Thus, in all the three decisions, Hon'ble Delhi High Court has held that the amount received during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, its affairs and its profits. It is for this group to decide whether the profits should be distributed or not. The declaration of dividends is entirely within the discretion of this group. Therefore, the Legislature realized that though funds were available with the company in the form of profits, the controlling group refused to distribute accumulated profits as dividends to the shareholders but adopted the device of advancing the said profits by way of loan to one of its shareholders to avoid payment of tax on accumulated profits. This was the main reason for enacting section 2(22)(e). 15. From the above, it is evident that in both the cases before the Hon'ble Apex Court, the money was not paid during the course of a trading transaction but it was undisputedly paid by way of loan or advance. Therefore, on these facts, Hon'ble Apex Court held Section 2(22)(e) to be applicable. In the case under consideration before me, the main contention of the learned counsel is that the amount received by the assessee was not by way of loan or advance but the amount was received against the supply of the yarn. Therefore, on facts, the above decisions of Hon'ble Apex Court wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the assessee was almost equal to the yarn supplied by AIL to the assessee. On these facts, it can clearly be held that all the amounts received by the assessee from AIL were towards the trading transactions of the yarn i.e. the yarn supplied by the assessee to AIL. Similarly, all the payments made by the assessee to AIL were also towards the supply of the yarn by AIL to the assessee. The Assessing Officer as well as learned DR appearing before me pointed out that there was an opening debit balance in the account of the assessee amounting to ₹ 35,77,222/- and therefore, the supply of the yarn/payment made by the assessee to AIL should be adjusted against the opening debit balance in the account of the assessee. I am unable to agree with this contention of the Revenue because every year is an independent year and moreover, fundamental question is whether the financial transaction between the assessee and AIL is in the nature of transaction of loan or advance or the transaction is in the course of trading business of yarn. After looking into the entire series of transactions, I have no hesitation to hold that there were regular trading transactions of yarn between the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Judicial Member has simply set aside the matter to the file of the Assessing Officer for verification whether the allotment of shares was unilateral or not. He has already observed that if the shares were allotted with the application of the assessee, then the addition is to be sustained under Section 2(22)(e). Thus, there is no loss to the Revenue if the matter is set aside to the file of the Assessing Officer for the purpose of verification. He, therefore, submitted that the order of the learned Judicial Member should be approved. 19. Learned DR, on the other hand, referred to the assessee's reply filed before the Assessing Officer which is reproduced in the assessment order. He pointed out that in the reply, the assessee's counsel has stated before the Assessing Officer that the assessee had applied for the allotment of one lakh equity shares of ₹ 10 each of the company, payment for which was made subsequently. He, therefore, submitted that when the assessee himself has clarified before the Assessing Officer that the shares were allotted on the basis of assessee's application, now, there is no justification for setting aside the matter to the file of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, the Revenue has to bring something on record to establish that shares were allotted to the assessee by the Company on a request and after allotment of shares assessee was communicated in this regard. If the Revenue is able to establish that it is not a unilateral act, but the shares were allotted at the instance of the assessee, the allotment of shares by crediting the capital account and debiting the trading account certainly benefit to the assessee which attracts provisions of section 2(22)(e) of the Act. But in the absence of any evidence, it is very difficult for us to hold so. We are, therefore, of the view that this issue requires fresh adjudication by the Assessing Officer. We accordingly set aside the order of the ld. CIT(A) on this issue to the file of the Assessing Officer for making necessary verification in this regard after affording an opportunity of being heard to the assessee. 22. However, learned Accountant Member proposed to sustain the addition with the following finding:- '40. Having heard parties with reference to the material on record and precedents cited at bar, I find no merit in the contentions and the plea raised by the appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime of allotment of shares to her on 29.5.2006. In any event, there could be no application by the appellant in December 2006 for any allotment of the shares that stood allotted to her on 29.5.2006. The appellant is not shown to have objected to the aforesaid allotment made on 29.5.2006 to her nor challenged the correctness or the validity of the decision taken in the meeting of the Board of Directors, whereas statutory return of share allotment before the Registrar of Companies was also filed by AIL. The correctness of accounts of the Company has also been accepted by the appellant. Being a substantial shareholder thereof, the appellant has also not proceeded against the Company for mismanagement of the affairs by the Company or any of its officials. In fact the substance of the matter is that the share allotment has gone to the benefit of the assessee and debit made by AIL to her account is a loan to her on which provisions of section 2(22)(e) of the Act have correctly been applied.' 23. From a perusal of the proposed order by both the Members, it is evident that both the learned Members agreed that if the allotment of shares by AIL to the assessee is on the basis of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account the assessee has also credited the AIL and debited to the investment account for the allotment of the shares, it cannot be claimed by the assessee at the stage of the ITAT for the first time that the shares were allotted unilaterally by AIL. The assessee is a substantial shareholder in AIL and it is improbable to believe that the company would allot the shares to the assessee without her knowledge. Moreover, the assessee has not objected to the allotment of shares by the company, on the other hand, made the payment in the month of December. During the course of hearing before me, a specific query was raised to the learned counsel for the assessee that on what basis he is contending that the shares were allotted by AIL unilaterally, especially when in the written submissions before the Assessing Officer, the assessee's counsel mentioned that the assessee applied for the shares. In response, the learned counsel for the assessee could not give any documentary evidence in support of his contention but simply mentioned that the assessee's counsel who appeared before the Assessing Officer incorrectly mentioned that the assessee applied for the shares. I am unable to accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not attracted to these payments or the aforesaid payments are purely an advance/loan made to the assessee, attracting the provisions of section 2(22)(e) of the Act? (2) Whether the issue of allotment of shares for ₹ 10 lakhs can be restored to the Assessing Officer to investigate the fact as to whether the allotment of shares was unilateral act of the company i.e. M/s Amitech Ind. Ltd. or the allotment was done at the instance of the assessee in order to determine the applicability of provisions of section 2(22)(e) of the Act to the benefit accrued to the assessee on allotment of shares or addition of 10 lakhs can be confirmed by holding that benefit accrued to the assessee on allotment of shares attracts provisions of section 2(22)(e) of the Act on the basis of material available on record? 2. The first question was answered in favour of the assessee by the Third Member by holding that the payments received by the assessee from M/s Amitech Industries Limited are receipts against sale made during the course of commercial transactions, therefore, provisions of section 2(22)(e) of the Act is not applicable. 3. The second question was answered against the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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