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TMI Blog2010 (8) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... s of authorization of search were given in the name of a) M/s Riya Travels Tours (I) Pvt. Ltd., b) Mr. G.M.J. Thampy, Proprietor Riya Travels and also, Managing Director of Riya Travels Tours (I) Pvt.Ltd., c) Mrs. Gracy George, wife of Mr. G.M.J. Thampy, the assessee. There is only one addition that is made, which is in dispute before us, and that is an addition u/s 2(22)(e). There was only certain cash seizure made during the course of search. An amount of ₹ 7,43,415/- was travelers cheque and ₹ 6,56,610/- was foreign currencies and both were seized in the premises of the company M/s Riya Travels Tours (I) Pvt. Ltd. In the residential premises, cash found was ₹ 53,053/- from Mr. G.M.J. Thampy and Mrs. Gracy George. Notices u/s 153A were issued and the assessee filed returns of income for the financial years 1999-2000 to 2004-05. Thereafter scrutiny proceedings were conducted. Additions were made u/s 2(22)(e) as well as under the head Undisclosed Service Charges and also under the head Bogus Refund. The assessee carried the matter in appeal. The first appellate authority granted part relief. The assessee filed these appeals. 4. For the assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und. He submitted that admission of the ground would require verification of facts and hence has to be rejected. 7. On a careful consideration of the facts and circumstances of the case, we are of the considered opinion that the additional ground has to be admitted as it raises a purely question of law and as no new facts are required to be brought on record. The additional ground challenges the jurisdiction of the AO u/s 153A. 8. The learned counsel for the assessee Mr. Vijay Mehta first submitted the arguments on this additional ground. He argued that as nothing has been found during the course of search, which could be said to be incriminating material relatable to the assessment year 2002-03 or 2004-05 and as no assessment or re-assessment proceedings are pending before the AO and as time for issual of 143(2) notice is over, the AO had no valid jurisdiction to issue notice u/s 153A or to complete the assessment in pursuance thereof. Reliance was placed on the following decisions : a) Order of the Tribunal in the case of LMJ International Ltd. vs. DCIT 119 TTJ 214 (Kol). b) Order of the Tribunal in the case of Shri Anil Kumar Bhatia vs. ACIT and Anr. In ITA Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for all the six years and the Act provides that the AO has to assess or reassess the total income for six years, after considering all other provisions of the Act and evidence available with him on the basis of seized material as well as otherwise. He submitted that the total income as defined in section 2(45) is the total income as per section 5 computed in accordance with the provisions of the Act. Thus he submits that the assessments need not be based on seized material, since the word used is total income and the AO is bound to make an assessment, whether based on seized material or otherwise, so as to compute the total income as defined in section 2(45). He further drew support from the second proviso to section 153A and submitted that it is provided that all pending assessment proceedings shall abate. His contention is that if there is seized material and if an assessment abates, then, if the argument of the learned counsel for the assessee is accepted, the AO would be prohibited from doing the assessment. He relied on the judgment of the Hon ble Jharkhand High Court in the case of Abhay Kumar Shroff 290 ITR 114. He further submitted that there is a material change in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A, additions can be made when there is no tangible material. 10. The learned DR further relied on the decision of the Delhi Bench of the Tribunal reported in 117 ITD 74 (Del) in the case of Shivnath Roi Harnarain (India) Ltd. vs. DCIT for the proposition that there is no requirement for an assessment u/s 153A being based on any material seized in the course of search. He further relied upon another decision of the Delhi G Bench of the Tribunal in the case of Shyam Lata Kaushik 114 ITD 940 (Del) wherein it is held that the AO gets jurisdiction for making an assessment made u/s 153A, being based on any material search seized in the course of search. While accepting that there are certain decisions in favour of the assessee in the case of Anil Kumar Bhatia, of ITAT, Delhi and Anil P. Khemani, ITAT, Mumbai, he submitted that in view of the conflict of decision the matter may be referred to a Special Bench. 11. On a careful consideration of the facts and circumstances of the case, we are of the considered opinion that his being a legal ground and is on the issue of jurisdiction of the AO and as the fact whether there was material seized during the course of search or not, is ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions, the Department cannot isolate one transaction from the entire ledger account and treated that as an advance for the purpose of section 2(22)(e). 13. For the assessment year 2004-05 the learned counsel drew our attention to the copy of the ledger account and pointed out that the amount of ₹ 2,50,00,000/- is received on 13-09-2003, was transferred almost simultaneously back to the company on the very same day. Similar was the transaction on 15-09-2003 where the amount was transferred on the very same day. He submitted that these amounts were wrongly credited to M/s Riya Travels and that M/s Riya Travels has never utilized this amount and it has rectified the mistake by instantaneously refunding the amount to the company. Thus he submits that the addition u/s 2(22)(e) for that year cannot be made. 14. For assessment year 2005-06 he submitted that the amount of ₹ 15 lakhs received by the company from the proprietary concern on 02-06- 2004 was given back on 08-06-2004. Similarly an amount received on 17-06- 2004 of ₹ 15 lakhs was returned on 12-07-2004. M/s Riya Travels paid an amount of ₹ 10 lakhs to the company which was repaid by the company to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was involved in booking of resorts for the customers of these companies and entered into normal business transactions, as part of its day to day business activity, the financial transactions cannot be treated as loans and advances. He further relied on the decision of Mumbai A-Bench of the Tribunal in the case of N.H. Securities Ltd. 11 SOT 304 (Mum) for the proposition that where payments are made to a shareholder, through mutual, open and current account, when the payments are in the ordinary course of business, they would not come under the purview of section 2(22)(e). He further relied on the decision of Hon ble Madras High court in the case of CIT vs. Idhayam Publications Ltd. 285 ITR 221 (Mad) where it is held that when the transaction between the assessee and the Director cum share holder was not a loan transaction and when it is only a current account transaction and when no interest was being charged to the above transaction, it cannot be called a loan or deposit. He vehemently contended that there is no benefit whatsoever that has accrued to the assessee or that which is availed by the assessee in his individual capacity nor any interest is paid and thus it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in fact a current account. But at the same time, he pointed out that the CIT(Appeals) has taken care, not to include the business transactions u/s 2(22)(e). He took this Bench through the order of the AO as well as the CIT(Appeals) and relied on the same. He distinguished the decisions relied upon by the learned counsel for the assessee in the case of CIT vs. Idhayam Publications Ltd. 285 ITR 221 (Mad) and submitted that this case relates to provisions u/s 269SS and penalty u/s 271D and hence not applicable. He prayed that the orders of the authorities below be upheld. 19. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below, we hold as follows. 20. It is a well settled legal principle that a legal fiction must be given strict interpretation. The Hon ble Supreme Court in the case of Smt. Tarulata Shyam Ors. Vs. CIT 108 ITR 345 (SC) has laid down the proposition that when a deeming legal fiction, creates an artificial liability, it must be given a strict interpretation. Section 2(22)(e) reads as follows : (e) any payment by a company, not being a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2.-The expression accumulated profits in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, 1[but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place]. 2 [Explanation 3.-For the purposes of this clause,- (a) concern means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs. When the entire account is taken together, the submissions of the learned counsel for the assessee that the amount of ₹ 1,34,73,740/- is wrongly taken as a loan or an advance given by the company to the assessee, appears to be correct. The very fact that the proprietary concern has given huge amounts to the company just before 08-02-2002, gives credence to the argument of the learned counsel that this amount of ₹ 1,34,73,740/- is nothing but a return of the amounts by the company to the sole proprietary concern. In any event, this cannot be characterized either as a loan or an advance. Both the concerns are having a current account and all the financial transactions are guided by commercial expediency and exigencies of business. When the Revenue has accepted all other transactions as business transactions, there is no reason given to specifically isolate and take up this transaction as that which is not for the purpose of business. The learned DR was not able to refute the submissions of the learned counsel for the assessee that the sole proprietary concern between 02-02-2002 and 08-02-2002 had given an amount of ₹ 5.75 crores to the company and the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and this was repaid by the company on 08-06-2004. Similarly an amount of ₹ 15 lakhs was once again advanced by the sole proprietary concern on 17-06-2004 and this was repaid by the private limited company to Riya Travels on 12-07-2004. Similarly an amount taken by the company on 19-11-2004 from the proprietary concern, amounting to ₹ 10 lakhs was returned to the proprietary concern on 22-02- 2004. Thus on these facts, by no stretch of imagination, these transactions can be treated as loans or advances covered u/s 2(22)(e). This leaves us with only two transactions of 17-11-2004 and 18-11-2004 amounting to ₹ 2.75 crores and ₹ 4.25 crores respectively. Here also the amount received by the proprietary concern M/s Riya Travels, was instantaneously, on the same day transferred back to the company. The explanation is that the company is a member of the International Air Travels Association (IATA) and as per the terms and conditions, the assessee was required to provide bank guarantee to IATA. The guarantee amount was calculated by taking the total turnover as reduced by the amount of paid up share capital and reserves. It is well known that, higher amount of bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rohit Pulp Paper Mills Ltd. vs. CCE AIR 1991 SC 754 and State of Bombay vs. Hospital Mazdoor Sabha AIR 1960 SC 610. 10.7 Importantly, the broad principles which emerge from the judgment of the Supreme Court with regard to the applicability of the said rule of construction are briefly as follows : (i) does the term in issue have more than one meaning attributed to it i.e., based on the setting or the context one could apply the narrower or wider meaning; (ii) are words or terms used found in a group totally dissimilar or is there a common thread running through them; (iii) the purpose behind insertion of the term. 10.8 Let s examine as to whether based on the aforesaid tests the said rule of construction noscitur a sociis ought to be applied in the instant case. (i) the term advance has undoubtedly more than one meaning depending on the context in which it is used; (ii) both the terms, that is, advance or loan are related to the accumulated profits of the company; (iii) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Patiram Jain (supra) held that : It has also been accepted by the respondents that the transactions made between the two sister concerns were under exceptional circumstances to accommodate the emergency needs of the sister concern for a very short and temporary period. As such, it did not amount to a loan or deposit as defined under Section 269SS of the Income-tax Act. In this case law, it is held that accommodation of transaction to meet emergency needs cannot be called loans. Once it is not a loan, it cannot be an advance which is in the nature of a loan. The Cochin Bench of the Tribunal in Muthoot M. George Bankers vs. ACIT (1994) 47 TTJ (cochin) 435 held as under : Against the background, we examine the transactions between the sister concerns and the assessee There are transfer of funds from and to the sister concerns. There is no evidence to show that money was loaned or kept deposited for a fixed period or repayable on demand. Further, the sister concerns and the assessee are owned by the same family group of people with a common managing partner with centralised accounts under the same roof. Transfer of funds has taken place in a whimsical man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the purview of section 2(22)(e). 29. Applying the propositions laid down in these case laws for the facts of the case, we accept the arguments of the learned counsel for the assessee that the transactions between these sister concerns are business transactions and are guided by commercial expediency and requirements of business and are mere diversion of funds and are neither a loan or advance as contemplated u/s 2(22)(e). Thus this ground of the assessee is allowed. 30. Coming to the case laws cited by the learned DR in the case of Smt. Tarulata Shyam Ors., the Hon ble Supreme Court had held that while interpreting a statute there is no scope for importing into the statute words which are not there. As already stated, the Hon ble Court has held that there should be strict interpretation of the relevant provisions. In this case the issue whether a particular financial transaction between the two concerns, can be considered as a loan or an advance, was not the subject matter of consideration by the Hon ble Supreme Court. In fact there was no dispute on the fact that the amount received by the shareholder was a loan. In the case on hand the dispute is that the financial tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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