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TMI Blog2016 (3) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... d No. 1 of the assessee is allowed. We find from the record that when transaction between M/s. GAD Fashions India Pvt. Ltd. and M/s. Ecotune India Ltd. is not in the nature of loan or advance as envisaged u/s 2(22)(e) of the Act then it does not arise to make any further addition in the hands of the assessee. - Decided in favour of assessee - ITA No. 898/JP/2014, ITA No. 899/JP/2014 - - - Dated:- 12-2-2016 - SHRI T.R. MEENA,AM SHRI LALIET KUMAR, JM For The Assessee : Shri P.C. Parwal , CA For The Revenue : Mrs. Neena Jeph, JCIT -DR ORDER PER T.R. MEENA, AM:- Both these assessee's have filed respective appeals against separate orders of the ld. CIT(A)-III, Jaipur dated 18-11-2014 for the assessment year 2008-09. 2.1 The assessee Shri Nilesh Singhi in ITA No. 898/JP/2014 has raised following grounds 1. The ld. CIT(A) has erred on facts and in law in confirming the action of AO in treating the amount of ₹ 20,00,000/- received from M/s. GAD Fashions (India) Pvt. Ltd. as deemed dividend u/s 2(22)(e) in the hands of the assessee. 2. The ld. CIT(A) has erred on facts and in law in confirming the addition of ₹ 4,42,800/- by trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on such dividend, the company declaring income will pay dividend tax u/s 115O. If a loan or advance is given which is deemed as dividend u/s 2(22)(e) then such loan or advance is taxable u/s 56 as Dividend in the hands of the recipient. It is established that all the conditions as laid down u/s 2(22)(e) are satisfied in case of the assessee to treat the loans and advances by M/s. GAD Fashions (India) Pvt. Ltd. to the assessee and loans by M/s. Ecotunes India (P) Ltd. to M/s. GAD Fashions (India) Pvt. Ltd. as deemed dividend in his hands. The Hon'ble Bombay High Court in the case by following decision of Hon'ble Jurisdictional High Court in the case of M/s. Hotel Hilltop , 313 ITR 116 wherein it has been held that the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individual or whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the company to such concern Accordingly, the AO made an addition of ₹ 20.00 lacs u/s 2(22)( e) of the Act. 5.2 Being aggrieved by the order of the AO, the assessee preferred first appeal before the ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions were covered u/s. 2(22)(e) and the above mentioned essential conditions were fulfilled or not is to be examined accordingly. First of all the issue as to whether the loan of ₹ 20,00,000/- made by M/s Gad Fashions India Pvt. Ltd. to the assessee was deemed dividend or not is to be examined. It may be noted that there is no dispute on the fact that M/s Gad Fashions India Pvt. Ltd. has made payment of ₹ 20,00,000/- to the a as also the fact that the assessee was having beneficial owner and shareholding of 22.14% shares in M/s Gad Fashions India Pvt. Ltd.. It is also fact that as per the auditor s report as also in the books of accounts such amount of ₹ 20,00,000/- advanced by M/s Gad Fashions India Pvt. Ltd. is shown as loan/ advance. M/s Gad Fashions India Pvt. Ltd. is also a company in which public are not substantially interested. The above facts will indicate that such payment of ₹ 20,00,000/- was definitely covered under the provisions of section 2(22)(e) of I.T. Act. However, the appellant case is that such transaction of ₹ 20,00,000/- was not exactly the loan and advance transaction but it was a transaction related to the business in as mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Processors Pvt. Ltd. Was selected for making such interest free advances. There is no documentary evidence in support of the submission that interest free advances on behalf of M/s. Gad Fashions India Pvt. Ltd. Will be initially made by the assessee and subsequently M/s Gad Fashions India Pvt. Ltd. Will return the amount to the assessee. Similarly there is nothing on record which may indicate as to how M/s. Gad Fashions India Pvt. Ltd was to be benefited by way of regular printing work from this concern. The above facts will indicate that the loan transactions between assessee and M/s Manpasand Textiles Processors Pvt. Ltd. As also with M/s Gad Fashions India pvt. Ltd. Are prima facie independent and it cannot be said that such loan transactions were related to the business interest of M/s. Gad Fashions India Pvt. Ltd. is stated to be with M/s. Manpasand Textiles Processors Pvt. Ltd. whereas loan is being advanced to the assessee by M/s. Gad Fashions India Pvt. Ltd. Keeping in view the above mentioned facts it is held that the A.O. has rightly taxed such amount of ₹ 2000000/- as deemed dividend in the hands of the assessee. 5.3 Now the assessee is before us pray ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Vs. DCIT 79 ITD 547 (Trib.) (Del.) it was held that loan means a lending; delivery by one party to and receipt by another party of sum of moneys upon agreement, express or implied, to repay with or without interest. For a loan there must be a lender, a borrower, a thing loaned for use, as well as a contract between the parties for the return of the thing loaned. A loan contracted no doubt creates a debt, but there may be a debt without contracting a loan. In a loan the mind and intention of the two parties, the lender and the borrower must be ad idem. The expression advance means something which is due to a person, but which is paid to him ahead of time when it is due to be paid. In the Dictionary of Accounts by Eric L. Kohler (5thEdn.), the expression advance was defined as payment of cash or the transfer of goods for which accountmust be rendered by the recipient at some later date. Loan and advances could only be considered deemed dividend for the purpose of section 2(22)(e). It is, therefore, sine qua non, to ascertain the correct nature of the payments. In this case the assessee company received application money for the allotment of shares. There is nothing on re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to M/s Manpasand Textiles Processors Pvt. Ltd. on 08.03.2007 (A.Y. 2007-08) without intereston behalf of M/s Gad Fashions India Private Limited as the company was not having immediate liquid fund to give advance directly to Manpasand Textile Processors Private Limited with the understanding that as and when assessee require the fund, the same would be paid by it. Copy of the account of M/s Manpasand Textile Processors Private Limited in the books of the assessee is at P.B.2. (iii) In the year under consideration M/s Gad Fashion India Private Limited required temporarly more funds for its business and therefore assessee as a temporary accommodation provided ₹ 50 lacs to the company in the month of December 2007. This amount was paid back by the company to the assessee on 06-02-2008. Thereafter when the assessee was in need of the fund, the company paid ₹ 20,00,000/- to the assessee on 11-02-2008 in as much as assessee has already paid ₹ 25,00,000/- to Manpasand Textile Processors Private Limited on 08-03-2007. This amount was also given back by the assessee to the company on 31-03-2008. Copy of the account of assessee in the books of M/s Gad Fashions India Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd.) (Trib.) (5) Sri Satchindananad S. PanditVs. ITO 19 SOT 213 (Trib.) (Mum.) In view of the above the amount of ₹ 20 lacs provided by Gad Fashion India Private Limited to the assessee on 06-02-2008 can t be treated as a loan or advance given to the assessee and consequently section 2(22)(e) is not attracted and therefore AO be directed to delete the addition made by him. 5.4 During the course hearing, the ld. DR relied on the orders of the authorities below. 5.5 We have heard the rival contentions and perused the materials available on record. We find from the record that assessee derives salary income from M/s. Gad Fashions (India) Pvt. Ltd. and remuneration interest income from M/s. Gad Fashions (India) Pvt. Ltd. and M/s. R. Fashions. The assessee holds 22.14% shares of M/s. Gad Fashions (India) Pvt. Ltd. and 26.13% shares of M/s. Ecotunes India (P) Ltd. However, the AO observed during assessment proceedings that advance of ₹ 20.00lacs was given to the assessee by M/s. Gad Fashions (India) Pvt. Ltd. as the assessee is having shareholding of more than 10% in the said company and thus the transaction is covered under the definition of deemed divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent and running account being of temporary nature. However, such submission is also devoid of any merit in as much as the transaction was prima facie covered under the definition sec. 2(22)(e) of IT Act. It is also fact that total loan of ₹ 2000000/- has been advanced by M/s. Ecotunes India Ltd. to M/s. Gad Fashions India Pvt. Ltd. therefore the total amount of ₹ 2000000/- is to be treated as deemed dividend and not the net amount of ₹ 1000000/-. It is also fact that the Hon ble Rajasthan High Court in the case of CIT Vs. Hotel Hill top (supra) has held that the deemed dividend is to be taxed in share holders case should be in the ration of their share holding as the beneficial ownership was to the extent of the share holding. The appellant was having Share holding of 22.14% in M/s Gad Fashions India Pvt. Ltd. and therefore the deemed dividend to be taxed in the hands of the appellant would be ₹ 442800/- (22.14% of ₹ 2000000/-). Accordingly addition to the extent of ₹ 442800/- is confirmed out of total addition of ₹ 666666/-. The appellant gets relief of ₹ 223866/- 6.3 Now the assessee is before us praying with following writt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontentions and perused the materials available on record. The issues as raised by the assessee Shri Nilesh Singh in its appeal for the assessment year 2008-09 are similar to the issues of appeal of Shri Ashok Singhi for the assessment year 2008-09 wherein the order of the ld. CIT(A) was reversed. However, we find that Ashok Singhi had advanced a sum of ₹ 25.00 lacs to M/s. Manpasad Textile Processors (P) Ltd. on behalf of M/s. GAD Fashions (India) Pvt. Ltd. for which printing work had been done by M/s. Manpasad Textile Processors (P) Ltd. M/s. GAD Fashions (India) Pvt. Ltd. had repaid ₹ 25.00 lacs to the assessee who is also shareholder in both the companies. The ld. CIT(A) was not justified in holding that M/s. GAD Fashions (India) Pvt. Ltd. was cash rich company as the assessee paid ₹ 20.00 lacs to M/s. Manpasad Textile Processors (P) Ltd. It is the business decision of M/s. GAD Fashions (India) Pvt. Ltd. that it would get the printing work done either from M/s. Manpasad Textile Processors (P) Ltd. or others. The Department does not have jurisdiction to put the leg into shoes of the assessee as to how the assessee conducts his business. The relevant evidences we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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