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TMI Blog2010 (2) TMI 1215X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT(Appeals) has erred in confirming the action of the Assessing Officer in making addition of ₹ 2,00,000/- for low households withdrawals. 3. On the facts and circumstances of the case as well as law on the subject, the Learned CIT(Appeals) has erred in partly confirming the addition of ₹ 1,00,24,329/- out of addition of ₹ 2,12,00,000/- for alleged dividend income u/s.2(22)(e) of the Act. 4. On the facts and circumstances of the case as well as law on the subject, the Learned CIT(Appeals) has erred in confirming the action of the Assessing Officer in making addition of ₹ 4,57,754/- for alleged foreign gifts received. 5. On the facts and circumstances of the case as well as law on the subject, the learned CIT(Appeals) may please be deleted. 6. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal. (B) Revenue's appeal, ITA No.2358/Ahd/2007 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in restricting the addition to ₹ 1,00,24,329/- made u/s.2(22)(e) of the I.T. Act as deemed dividend and granted relief of ₹ 1,11,75,671/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total withdrawal by family of the assessee over and above that withdrawn by the assessee himself is over ₹ 2 lacs. Considering all these facts and the fact of receipt of agricultural income also been added, no further addition is called for. We, therefore, delete the addition of ₹ 2 lacs. 6. The next ground of appeal is against addition of ₹ 4,57,754/- being gifts received by the assessee. The assessee received gift of ₹ 2,94,030/- from Shri Bhupendra G.Naik and gift of ₹ 1,63,724/- was from Mrs. Krutika G.Naik. Both gifts were received from USA. The Assessing Officer held that none of donors are related to the assessee and they are salaried class people. It is not understood as to why and how they would give gift. Before the Learned CIT(Appeals) the assessee submitted that both the donors are family friends and also belonging to same caste of the assessee. The gift was given out of love and affection. The identity and thecapacity of the donors are proved and the genuineness of the transaction is also established. Therefore, in view of the decision of Hon'ble Gujarat High Court in the case of Murlidhar Lahorimal vs. CIT 280 ITR 512 (Guj.), the add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have sufficient funds which are proved by their tax returns filed in USA. When the initial onus which lie on the assessee has been discharged and no contrary evidence is brought on record merely on presumption as to why and how the gifts were given are not relevant question and are not required to be answered by the assessee. The first question should be put to the donors as to why and how the gifts were given by them. There is nothing on record to suggest that the income was earned by the assessee which came in the form of gifts from abroad. There cannot be dispute as the identity of the donors which is proved by copies of their passport and income-tax return(s). There cannot be any dispute about the creditworthiness of the donors which is proved by their income-tax return(s) filed in USA. The genuineness of the gifts is also proved by filing necessary confirmation letter and to oblige the assessee, the donors also supplied the copies of their passport and income-tax return(s) which are considered to be confidential documents. Without proving any such evidences, as incorrect, the addition cannot be confirmed merely on preponderance of probabilities or that there is no occasion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven by way of a bank draft. The Revenue does not dispute any of these facts. The primary onus which rested with the assessee, thus, stood discharged. Thereafter, if the Revenue was not satisfied with the source of the funds in the hands of the donor, it was upto the Revenue to take appropriate action. The Tribunal fails to consider all these aspects. In fact, the donor having filed gift-tax return and assessment having been framed on the donor, is not taken into consideration by the Tribunal at all. This was a very strong factor in support of the explanation tendered by the assessee. The Tribunal, to the contrary, goes on to discuss and question as to why the donor should make a gift to the assessee; the size of the donor's family and availability or otherwise of the amount in hands of the donor; the area of the land held by the donor, etc. At best, these could be factors for the donor to be called upon to explain the source of the funds in his hands, but that could not be a ground for disbelieving a gift which had admittedly been received by the assessee as a gift and being treated as undisclosed income of the assessee. It is apparent that despite minor discrepancies, the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also negatived on the ground that the assessee cannot change the nature of transaction which was otherwise by way of loans and advances. 13. The Learned CIT(Appeals) held that the accumulated profit at the first day of the Financial Year was only ₹ 1,00,24,329/- which increased to ₹ 2,36,18,903/- by including the current year's profit as on 31/03/2004 and, hence, the profit of the current year cannot be added to accumulated profit. He, accordingly restricted the addition to ₹ 1,00,24,329/-. 14. The assessee as well as Revenue are further in appeal before us. 15. The ld. counsel for the assessee submitted that the amount received by the assessee is by way of deposit against the personal guarantee given by the assessee as a Director. The company was receiving loan from the bank and since bank insisted personal guarantee of the Director, the assessee was asked to give personal guarantee and for this purpose ECPL placed deposit. Thus, the transaction which was for the benefit of both the parties, i.e. assessee as well as ECPL. The amount being received by way of deposit cannot be considered to be loans and advances. Difference between loans and deposit has been e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o what extent. Under section 2(22)(e) is extracted hereunder:- Section 2 (22) "dividend" includes- (a)….. (b)…….(c)….. (d)…… (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent. of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but "dividend" does not include- (i) a distribution made in accordance with sub-clause (c) or subclause (d) in respect of any share issued for full cash consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve 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; 19. In the present case, the facts as stated before Assessing Officer and which are not disputed by any of the authorities are that M/s. Enviro Control Associates (I) Pvt. Ltd. is engaged in business of infrastructure "development. In course of its business, the company is required to furnish bank guarantee for various purposes to its customers like Municipal Corporation, Govt. Department, Local Authorities, Companies etc. Bank of Baroda has sanctioned bank guarantee limit of ₹ 2000 lacs for this purpose. As against this bank guarantee limit, the bank has asked for securities. Moreover, the bank also has stipulated that the bank finance be secured by personal guarantee of the directors. The company does not have enough assets that can be offered as security. If enough security cannot be furnished, bank guarantee facilities cannot be availed of and ultimately company's business suffers. The company has requested its directors/theirs relatives to offer their personal assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonal assets to the bank for security and availed guarantee limit. The amount deposited has come back to the company in the form of share capital so that further conditions stipulated by the bank are also satisfied. In such circumstances, it can be said that the amount was paid by the company in the mutual business interest i.e. of ECPL and that of the assessee also. But for the guarantee by the assessee the company could not have availed guarantee limit and but for the deposit the assessee would not have given his personal guarantee. In this way, business interest of both the parties are satisfied. Therefore, the amount cannot be considered as "advances" or "loans" simpliciter but in the ordinary course of business by the company. 20. Almost identical issue arose before ITAT Delhi Bench in the case of Creative Dyeing and Printing (P) Ltd. to which one of us (Accountant Member) was a party. The Tribunal vide its order dated 05/05/2008 held in favour of the assessee holding that advance given in the course of business by the company cannot be treated as deemed dividend u/s.2(22)(e) of the I.T. Act, 1961. The Revenue carried the matter further before Hon'ble Delhi High Court. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s otherwise, the ' amount given cannot be branded as 'advances' within the meaning of deemed dividend under section 2(22)(e). Just as per clause (ii) of section 2(22) (e), dividend is not to include advance or loan made by a company in the ordinary course of business "where the lending of money is a substantial part of the business of the company, advance in the ordinary course of carrying on business cannot be considered as 'dividend' within the meaning of section 2(22)(e). By granting advance if the business purpose of the company is served and which is not the sum, which it otherwise would have distributed as dividend, cannot be brought within the deeming provision of treating such 'advance' as deemed dividend". 20.1. The Hon'ble Delhi High Court confirmed the order and held as under: "8 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 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a controlled company, the controlling group consisting of shareholders have deliberately, decided to adopt the device of making a loan or advance-. Such an arrangement is intended to evade the application of section 23A. The loan may carry interest and the said interest may be received-by the company^but the main object underlying the loan is to avoid payment of tax" …. "11 We agree with the aforesaid observations. The finding of facts, arrived at by the Tribunal, in the present case, is that the transaction in question was a business transaction and which transaction would have benefited both the assesseecompany and M/s. Pee Empro Exports Pvt. Ltd. In fact, as stated above, the counsel for the appellant has conceded that the amount is in fact not a loan but only an advance because the amount paid to the assessee-company would be adjusted against the entitlement of moneys of the assessee-company payable by M/s. Pee Empro Exports Pvt. Ltd. in the subsequent years. 12. The counsel for the appellant has very strenuously urged that neither the Tribunal nor the judgment of this court in Rajkumar's case [2009] 318 ITR 462 (Delhi); [2009] 181 Taxman 155 deals with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, if the said background is kept in mind, it is clear that sub-clause (e) of section 2(22) of the Act, which is in parimateria with sub-clause (e) of section 2(6A) of the 1922 Act, plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies 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 shareholders, money in the form of an advance or loan. If this purpose is kept in mind then, in our view, the word 'advance' has to be read in conjunction with the word 'loan'. Usually attributes of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan : it generally carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning the term 'advance' may or may not include lending. The word 'advance' if not found in the company of or in conjunctio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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