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TMI Blog2018 (10) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment year disclosing income of D9,97,440/-. During the course of assessment proceedings, ld. Assessing Officer found that assessee had received money from M/s.ISML which was claimed as trading advance. Ld. Assessing Officer examined the details produced in this regard. According to the ld. Assessing Officer, assessee had invested in the shares of M/s. ISML on 02.12.2011, and on 18.01.2012 it was allotted 250000 shares in M/s.ISML. Thus, as per the ld. Assessing Officer, assessee was a beneficial owner of the shares in M/s.ISML with a holding in excess of 20% of equity shares in the latter, from that date. On examination of the Balance Sheet of M/s.ISML, ld. Assessing Officer found that it had ''Reserve and Surplus'' of D50,35,17,860/- as on 31.03.2012. Ld. Assessing Officer calculated the advances received by the assessee from M/s. ISML and pegged it at D35,82,27,603/- for the period 19.01.2012 to 31.03.2012. Assessee was put on notice why Section 2(22) (e) of the Income Tax Act, 1961 (in short ''the Act'') should not be applied and why the advances received by it from M/s.ISML should not be treated as deemed dividend in its hands. Assessee thereupon submitted to the ld. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Assessee had acquired 20% stake in M/s.ISML, and was registered as it's shareholder on 23.01.2012. In other words, assessee became a shareholder having more than 20% interest only on 23.01.2012. (viii) Assessee had an agreement dated 10.12.2011 with M/s.ISML, by virtue of which assessee was receiving funds from M/s.ISML against supply of rough castings. (ix) Customers of M/s.ISML consisted among others M/s. Hero Honda Limited and the orders were set to increase manifold due to the split of Hero Honda Ltd into two separate companies namely Hero Motocorp Limited and Honda Motorcycle and Scooters India Private Limited. (x) Assessee had continuing trading relations with M/s.ISML and the ledger page of the assessee in the books of the M/s.ISML reflected such continuing transactions. (xi) Sum of D20 Crores out of the aggregate amounts received by the assessee from M/s.ISML was before it became a shareholder of M/s.ISML on 23.01.2012. (xii) Payments received were set-off against supplies made to M/s.ISML. 5. In support of its contention that trading advances were outside the preview of Section 2(22) (e) of the Act, assessee relied on a number of judgments of various High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lal (supra) relied on by the ld. Assessing Officer for fastening the tax liability on the assessee, ld. Commissioner of Income Tax (Appeals) observed that the said case was on distribution of dividend, other than in the form of money, like delivery of property or right having monetary value. He also distinguished the judgment of Hon'ble Apex Court in the case of Tarulata Shyam (supra) noting that in the said case borrowed loans were repaid before the end of the relevant assessment year. 8. Thereafter ld. Commissioner of Income Tax (Appeals) did an examination of the accounts of the assessee in the books of M/s.ISML and came to a finding that there was an adjustment of D20,99,81,436/- against trade advances received by the assessee from ISML. Further, as per the ld. Commissioner of Income Tax (Appeals), aggregate amount received by the assessee from M/s. ISML during the period it held beneficial ownership in its shares was D22,64,11,246/- only. Nevertheless, ld. Commissioner of Income Tax (Appeals) found that a sum of D2,69,89,513/- represented money paid by M/s.ISML on behalf of the assessee towards latter's statutory duties, TDS and wages. Thus, according to him, out of the aggre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, according to him, ld. Commissioner of Income Tax (Appeals) fell in error in sustaining the addition to the extent of D2,69,89,513/- ignoring the close interlacing, interdependence and interconnection between the two companies. When the entire production capacity of the company was to cater to M/s.ISML, as per ld. Authorised Representative, payment of statutory duties, TDS and wages made by M/s.ISML on behalf of the assessee, could not be considered as a benefit derived by the assessee company, coming within the preview of Section 2(22) (e) of the Act. Relying on CBDT Circular No.19/2017, dated 12.06.2017, ld. Authorised Representative submitted that advances made by a company to sister concern against dues for job work would not fall within the definition of deemed dividend u/s.2(22) (e) of the Act. 11. Per contra, the ld. Departmental Representative strongly assailing the order of the ld. Commissioner of Income Tax (Appeals), on the relief given to the assessee, submitted that advances received by the assessee from M/s.ISML were much more than the value of raw materials supplied by the assessee to M/s.ISML. According to him, advances received were not commensurate with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965 ; (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off ; (iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956) ; (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company)''. 13. Meaning of term ''advance'' as it appear in the above Section was a matter of interpretation considered by Hon'ble Delhi High Court in the case of Raj Kumar(supra). Their lordships applied the prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deemed dividend under section 2(22) (e) of the Act. (CIT vs. Creative Dyeing & Printing Pvt. Ltd. l , Delhi High Court). ii. Advance was made by a company to its shareholder to install plant and machinery at the shareholder's premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. (CIT vs Amrik Singh, P&H High Court). iii. A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilised gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister concern was a business transaction arising in the normal course of business between two concerns and the transaction did not attract section 2(22) (e) of the Act. (CIT, Agra vs Atul Engineering Udyog, Allahabad High Court) 3. In view of the above it is, a settled position that trade advances, which are in the nature of commercial trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was a trading account and the transactions were purely commercial in nature. Money received by the assessee from M/s.ISML was not in the nature of any advance which had the trappings of a ''loan'', which alone could bring it within the ambit of Section 2(22) (e) of the Act. Ld. Assessing Officer had only considered the amounts given by M/s. ISML to the assessee and omitted to consider the entries relating to the value of materials supplied by the assessee to M/s.ISML and the real nature of the transactions assessee had with M/s.ISML. It may be true that during the period 23.01.2012 to 31.03.2012 advances received by the assessee was in excess of the value of the materials supplied by it. But transactions between assessee and ISML had started much earlier to 20.12.2011 and we have already pointed a large number of instances when the balance in the name of the assessee was negative. In our opinion, ld. Assessing Officer fell in error in taking an isolated view and considering only a part of the transactions ignoring the transactions prior to 23.01.2012, which together clearly indicated that account was in the nature of a running trade account. 17. Coming to the addition of D2,69, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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