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TMI Blog2016 (2) TMI 497X X X X Extracts X X X X X X X X Extracts X X X X ..... s having 25% share in profit and loss in the said firm. The AO noted that during the year, i.e. on 31-03-2008 Shri Chhatrapati Press has received a sum of Rs. 2 crores by cheque from M/s. PPPL. Further details were called for and on examining the same it came out that Shri Chhatrapati Press received a sum of Rs. 2 crores vide eight cheques each of Rs. 25 lakhs on 31/03/2008. On the same day i.e. on 31/03/2008, Shri Chhatrapati Press transferred Rs. 2 crores to the capital account of its four partners viz. Shri G G Jadhav (HUF) (Rs. 75 lakhs), Mrs. G P Jadhav (Rs. 55 lakhs), Shri P G Jadhav (HUF)(Rs. 15 lakhs) and the assessee Shri Yogesh Jadhav (Rs. 55 lakhs). All these four partners held equal share of 25% in Shri Chhatrapati press. Then, as per the ledger of share application money in the books of M/s. PPPL, it was found that on the same day i.e. on 31/03/2008 identical amounts were received by cheque from these four persons as share application money. The amount of share application money was Rs. 75 lakhs from Shri G G Jadhav (HUF), Rs. 55 lakhs from Mrs. G P Jadhav, Rs. 15 lakhs from Shri P G Jadhav (HUF) and Rs. 55 lakhs from the assessee, Shri Yogesh Jadhav. All the cheques, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the assessee has substantial interest, i.e. his share of profit therein is 25 per cent. iv) The payment is given in the form of advance and as per the entries made in the books of accounts it is classified as advance. v) PPPL, Kolhapur has sufficient accumulated profit which exceeds the advance given." 8. As regards the contention of the assessee that the advance was given by the company to the firm as the firm required the money for expansion of its business, the AO noted that the money received by the firm Shri Chhatrapati Press was not utilized by it for expanding its business but it was immediately transferred to the partners on the same day who in turn transferred it to the company as share application money. This clearly shows that the advance amount is not in the nature of business or commercial transaction and there was no business compulsion or business expediency to advance the same. 9. As regards the argument of the assessee that the cheques were encashed after 31-03-2008 and therefore relate to A.Y. 2009-10, the AO noted that it is not the case of the assessee that the cheques issued on 31-03-2008 were cancelled and fresh cheques were issued for encashing on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005-06 to 2009-10. Referring to thesaid table he submitted that the bills for printing labour charges raised by Shri Chhatrapati Press against PPPL are substantial, i.e. Rs. 3.50 crores for F.Y. 2005-06, Rs. 4.12 crores for A.Y. 2006-07, Rs. 4.38 crores for F.Y. 2007-08, Rs. 4.76 crores for A.Y. 2008-09 and Rs. 5.28 crores for F.Y. 2009-10. He submitted that the payment of Rs. 2 Crore was made on 31-03-2008 by 8 cheques which were encashed on 11-06-2008. There is no repayment of the amount by Shri Chhatrapati Pres but the same was adjusted against the bills raised. He submitted that there is no liability to repay and the payment was adjusted from the bills. Therefore, it is a commercial transaction and a commercial transaction is outside the purview of provisions of section 2(22)(e) of the I.T. Act. 15. Referring to the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Rajkumar reported in 318 ITR 462 he submitted that the Hon'ble High Court in the said decision has held that the word "advance" which appears in the company of the word "loan" in section 2(22)(e) could only mean such advance which carries with it an obligation of repayment. Trade advance which is in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction of the bank for disbursement of the loan of Rs. 10 crores. For the above proposition the Ld. Counsel for the assessee drew the attention of the Bench to pages 278 to 282 of the paper book. He drew the attention of the Bench to schedule 2 of the balance sheet which gives the details of Reserves and Surplus for the year ended 31-30-2008 and submitted that after the profit for the current year amounting to Rs. 2.66 crores the total profit and loss account of PPPL for the year ended 31-03- 2008 was Rs. 4.29 crores. There was a revaluation reserve on account of Vashi premises amounting to Rs. 7.71 crores. Thus, due to increase in share capital for obtaining of loan from the bank the company has gained substantially. 20. In his alternate contention the Ld. Counsel for the assessee drew the attention of the Bench to the details of shareholding percentage and proportionate free reserves as on 31-03-2008 which is as under : 21. He submitted that when there are many shareholders then in that case only proportionate amount can be added u/s.2(22)(e) and not the whole amount. Referring to the decision of the Pune Bench of the Tribunal in the case of Kewal kumar Jain Vs. ACIT report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of Rs. 2 crores was received by Shri Chhatrapati Press from the company PPPL and in turn has been transferred to the capital account of the partners on the same day, therefore, the AO, applying the provisions of section 2(22)(e) of the Act made addition of Rs. 2 croees in the hands of the assessee. The arguments of the assessee that it is a commercial transaction and therefore the provisions of section 2(22)(e) are not applicable and that the cheques were encashed in A.Y. 2009- 10 and therefore no addition can be made during this year were rejected by the AO. We find in appeal the Ld.CIT(A) also upheld the addition made by the AO. 25. It is the case of the Ld. Counsel for the assessee that the amount of Rs. 2 crores received from PPPL by the partnership firm. Shri Chhatrapati Press has been adjusted against the bills for printing labour charges and the money has never been returned. Therefore, the same is neither a loan nor an advance within the meaning of provisions of section 2(22)(e) of the I.T. Act. Further, the transaction relates to A.Y. 2009-10. It is also the submission of the Ld. Counsel for the assessee that although the cheques were issued on 31-03- 2008, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the dues payable by P to the assessee-company in subsequent years for the job work of printing and dyeing to be done by the assessee for P. The Assessing Officer held that the amount paid to the assessee-company was a deemed dividend u/s.2(22)(e) of the I.T. Act, 1961. The Tribunal held that it was an advance for a commercial purpose to the assessee company by its sister concern P and not a deemed dividend u/s.2(22)(e) of the Act. On further appeal by the Revenue the Hon'ble High Court dismissed the appeal filed by the Revenue by observing as under : "We find that the Tribunal in the present case has very extensively dealt with the legislative intention of introducing section 2(22)(e) and has referred to such legislative intention by reference to the Supreme Court judgment in the case of Navnit Lal C. Jhaveri v. K. K. Sen, AAC [1965] 56 ITR 198 where a similar provision of the Indian Income-tax Act, 1922, i.e., section 2(6A)(e) was in issue by reproducing the relevant para in Navnit Lal' s case as under (page 207) : " In dealing with Mr. Pathak' s argument in the present case, let us recall the relevant facts. The companies to which the impugned section applies a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the company ; but the main object underlying the loan is to avoid payment of tax" . The Tribunal has also referred to the judgment of the Bombay High Court in the case of CIT v. Nagin Das M. Kapadia [1989] 177 ITR 393 (Bom) in which it was held that business transactions are outside the purview of section 2(22)(e) of the Act. In the said case, the company in which Kapadia was having substantial interest had paid various amounts to Kapadia. The Tribunal had found that Kapadia had business transactions with the company and on verification of the accounts, the Tribunal deleted the amounts which were relating to the business transactions and which finding was upheld by the High Court. In the present case, the Tribunal on considering decisions in various cases held as under : " From the ratio laid down in the above cases and on the basis of judicial interpretation of the words, ` loans' or ` advances' , it can be held that section 2(22)(e) can be applied to ` loans' or ` advances' simpliciter and not to those transactions carried out in the course of business as such. In the course of carrying on business transaction between a company and a stockholder, the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that since M/s. Pee Empro Exports Pvt. Ltd. is not into the business of lending of money, the payments made by it to the assessee-company would, therefore, be covered by section 2(22)(e)(ii) and consequently payments even for the business transactions would be a deemed dividend. We do not agree. The Tribunal has dealt with this aspect as reproduced in para (9) above. The provision of section 2(22)(e)(ii) is basically in the nature of an explanation. That cannot, however, have a bearing on interpretation of the main provision of section 2(22)(e) and once it is held that the business transactions do not fall within section 2(22)(e), we need not go further to section 2(22)(e)(ii). The provision of section 2(22)(e)(ii) gives an example only of one of the situations where the loan/advance will not be treated as a deemed dividend, but that is all. The same cannot be expanded further to take away the basic meaning, intent and purport of the main part of section 2(22)(e). We feel that this interpretation of ours is in accordance with the legislative intention of introducing section 2(22)(e) and which has been extensively dealt with by this court in the judgment in Rajkumar' s case [200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to words found in immediate connection with them' and our Supreme Court in the case of Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise, AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610." Therefore, we hold that the Tribunal was correct in holding that the amounts advanced for business transaction between the parties, namely, the assessee-company and M/s. Pee Empro Exports Pvt. Ltd. was not such to fall within the definition of deemed dividend under section 2(22)(e). The present appeal is, therefore, dismissed." 28. We find SLP filed by the Revenue against the above decision of the Hon'ble Delhi High Court has been dismissed by the Hon'ble Supreme Court in CIT Vs. Creative Dyeing and Printing (P) Ltd. in SLP (C) No.1819 of 2010 order dated 07-07-2010. The various other decisions relied on by the Ld. Counsel for the assessee also support the case of the assessee. Since there is continuous and substantial business transaction between PPPL and Shri Chhatrapati Press and considering the fact that the amount of Rs. 2 crores has been adjusted against the bills for printing labour charges, therefore, in view of the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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