Dream Bake Pvt. Ltd., , Kolkata V. DCIT, Circle - 10(1), Kolkata , Kolkata

CO 43/KOL/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5742 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 18 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-01-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 12-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: ALOKE KR GHOSH
• Keywords: Capital asset; Earning of tax free income; Deemed dividend
• Section: 143(3); 2(22)(e); 14A; 260A; 15

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L. SAINI, ACCOUNTANT MEMBER ITA NO. 2 42 / KOL / 20 18 & C.O NO.43/KOL/2018 (A/O ITA NO.242/KOL/2018) ASSESSMENT YEAR :2013-14 DCIT, CIRCLE-10(1), P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKATA-69 V/S . M/S DREAM BAKE PVT. LTD., 296, KALUKHAN ROAD, BORAL, KOLKATA-700154 [ PAN NO. AABCD 1189 R ] /APPELLANT .. / RESPONDENT/CO-OBJECTOR /BY ASSESSEE SHRI ALOKE KR. GHOSH, ADVOCATE /BY REVENUE SHRI SAURABH KUMAR, ADDL. CIT- DR /DATE OF HEARING 17-01-2019 /DATE OF PRONOUNCEMENT 31-01-2019 / O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- THIS REVENUES APPEAL AND ASSESSEES CROSS OBJECTIO N FOR ASSESSMENT YEAR 2013-14 ARISES FROM COMMISSIONER OF INCOME TAX (APPEALS)-4 KOLKATAS ORDER DATED 07.11.2017 PASSED IN CASE NO.08/CIT(A)- 4/2016-17 INVOLVING PROVISION U/S 143(3) OF THE INCOME TAX ACT, 1961; I N SHORT THE ACT. HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. THE REVENUES SOLE SUBSTANTIVE GROUND SEEKS TO R EVIVE DEEMED DIVIDEND ADDITION OF 1,25,02,162/- IN THE NATURE OF LOAN RECEIVED FROM M /S SWITZ FOODS PVT. LTD. IN WHICH ONE OF ITS DIRECTOR SHRI ARNAB BASU HOLDS ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 2 42.10% STAKE; MADE IN THE COURSE OF ASSESSMENT FRAM ED ON 01.03.2016 AND DELETION IN CIT(A)S ORDER VIDE FOLLOWING DETAILED DISCUSSION :- 6. GROUND NO. 4(A), (B) AND (C) ARE AGAINST ADDITIO N VI] S. 2(22)(E) OF RS. 1,25,02,162/ -. 6.1. THE AO HAS STATED THE FOLLOWING IN SUPPORT OF THE DISALLOWANCE: 1.1 'THE ASSESSEE RECEIVED TOTAL LOAN/ADVANCE OF RS . 1,25,02,162/- FROM M/ S SWITZ FOODS PVT. LTD. ON DIFFERENT DATES DURING THE PERIOD 01.04.2012 TO 31.03.2013. A COPY OF SUCH TRANSACTIO NS HELD BETWEEN THE ASSESSEE COMPANY AND M/ S SWITZ FOODS PVT. LTD FOR THE SAID PERIOD IS FILED BY THE ASSESSEE AND PLACED ON RECOR D. THERE WAS AN OPENING BALANCE OF LOAN FOR RS. 10,24,67,261/- AND BROUGHT FORWARDED FOR IDENTICAL PARTY ON 01.04.2012. IT IS PERTINENT TO MENTION THAT SRI ARNAB BASU, DIRECTOR AND THE KEY MANAGEMENT PERSON OF THE ASSESSEE COMPANY WAS A COMMON AND BENEFICIAL SHAREHOLDER IN BOTJ THE ASSESSEE COMPANY (THE LOAN RECIPIENT) AND LOAN PROV IDER COMPANY SWITZ FOODS PVT LTD. DURING THIS YEAR AND BEFORE CH ANGING THE HOLDINGS OF SRI ARNAB BASU IN THE SAID TWO COMPANIES AS BENE FICIAL OWNER AND HAS SUBSTANTIAL INTEREST IN THE COMPANIES, M/ S SWI TZ FOODS PVT LTD HAD PROVIDED THE MAXIMUM AND TOTAL AMOUNT OF LOAN/ ADVA NCES OF RS. 1,25,02,162/ - DURING THE YEAR ON DIFFERENT DATES. THE HOLDING OF SRI ARNAB BASU WAS 48.38% OF SHARES IN SWITZ FOODS PVT LTD DURING THE WHOLE YEAR WHILE THE HOLDING OF SRI ARNAB BASU IN D REAM BAKE PVT LTD WAS 42.10% AT THE BEGINNING OF THE YEAR AND CONTINU ES UNTIL THE DATE OF FURTHER ALLOTMENT OF TWENTY-EIGHT LACS OF NEW SHARE S ON 26.03.2013 TO THE DIFFERENT PERSONS BY WAY OF INCREASING THE AUTH ORIZED SHARE CAPITAL OF RS. 28 CRORES ONLY. WHEREAS, THE PERIOD ADVANCIN G OF TOTAL LOAN OF RS. 1,25,02,162/- BY M/S SWITZ FOODS PVT LTD TO THE ASSESSEE COMPANY M/S DREAM BAKE PVT. LTD WAS BETWEEN 01.07.2 012 TO 30.09.2012 [RS. 40,00,000/- IN THE MONTH OF JULY, 2 012 + RS. 35,02,162 IN THE MONTH OF AUGUST + RS. 50,00,000/- IN THE MON TH OF SEPTEMBER] ONLY. THUS, THE PERCENTAGE OF SHARES OF AMAB BASU I N BOTH THE LOAN PROVIDER AND LOAD RECIPIENT COMPANY WAS MORE THAN 2 0% DURING THE COURSE OF LOAN RECEIVED BY THE ASSESSEE COMPANY M/S DREAM BAKE PUT LTD. IT SHOULD NOT BE OUT OF PLACE TO MENTION THAT THE AUDITOR OF THE ASSESSEE IN HIS AUDIT REPORT VIDE SCHEDULE- IV TO C LAUSE - 18 FOR THE YEAR ENDED ON 31.03.2012 HAS NOT DECLARED ANY AMOUN T OF TRANSACTIONS ACTUALLY HELD BETWEEN SAID TWO RELATED COMPANIES UNDER THE CAPTION 'PARTICULARS OF PAYMENTS MADE TO PERSON S SPECIFIED UNDER SECTION 40S(2)(B)'. 1.2 THE ASSESSEE HAS FILED A WRITTEN CONTENTION OPP OSING THE VIEW TAKEN TO TREAT THE LOAN/ ADVANCE OF RS. 1,25,02,162/- (FORM SWITZ FOODS PVT LTD) AS DEEMED DIVIDEND AND CITED VARIOUS CASE LAWS OF DIFF ERENT HIGH COURTS. IT WAS ALSO REITERATED THAT ARNAB BASU WAS NO MORE BENEFIC IAL OWNER IN THE ASSESSEE COMPANY DUE TO LESS THAN 10% OF HOLDINGS IN THE COM PANY ON 31.03.2013. THE SAID SUBMISSION OF THE ASSESSEE HAS BEEN CONSID ERED BUT NOT ACCEPTED IN VIEW OF PROVISIONS CONTAINED IN 2(22)(E) OF THE I>T ACT, 1961 AND IN THE LIGHT OF RATIO OF JUDGEMENTS OF HON'BLE APEX COURT AND JU RISDICTIONAL HIGH COURT IN ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 3 TARULATA SHYAM VS. CIT [1977J 10S ITR 345 (SC) [IT WAS HELD THAT SECTION 2(22)(E) OF THE IT ACT 1961 IS APPLICABLE EVEN IF L OAN IS REPAID BEFORE THE END OF THE PREVIOUS YEAR. IN OTHER WORDS, THE LIABILITY IS ATTRACTED AT THE MOMENT THE LOAN IS GIVEN] AND IN CIT VS. BHAGWAT TEWARI [1976J 105 ITR 62 (CAL) [IT WAS HELD THAT EVEN BONA FIDE LOAN FOR SHORT DURATION IS TREATED AS DIVIDEND IF ALL THE CONDITIONS OF SECTION 2(22)(E ) ARE SATISFIED.] 1.3 THE ASSESSEE IN WRITING, DURING THE COURSE OF H EARING EXPLAINED THAT SWITZ FOODS PVT LTD HAVING IT PAN: AAECS1805N IS ONE OF T HE ASSOCIATE/SISTER CONCERN AND FILED THE DETAIL OF TRANSACTIONS. FURTH ER, LOAN/ ADVANCE MADE BY M/ S SWITZ FOODS PVT LTD TO THE ASSESSEE COMPANY WA S NOT ENGAGED IN THE ORDINARY BUSINESS OF LOAN PROVIDING OR MONEY LENDIN G IS A SUBSTANTIAL PART OF THE BUSINESS OF THE SAID COMPANY. FURTHER, THE BENE FICIAL OWNER SRI ARNAB BASU OF THE ASSESSEE [DREAM BAKE PVT LTD] HAS SUBST ANTIAL INTEREST ALSO IN SWITZ FOODS PVT LTD. THEREFORE, IN VIEW OF THIS, SA ID LOAN TRANSACTIONS OF RS.1,25,02,162/- FOR THE PERIOD 01.04.2012 TO 31.03 .2013 IS COMPLETELY COVERED BY THE DEFINITION OF DEEMED DIVIDEND U/S 2( 22)(E) OF IT ACT, 1961 AND THE ENTIRE AMOUNT OF RS. 1,25,02,162/- TRANSACTED T ILL THE MONTH OF SEPTEMBER, 2012 BEFORE REDUCTION OF HOLDING OF SRI ARNAB BASU NOT TO CONSIDER AS BENEFICIAL OWNER ON OR BEFORE 26.03.2013 IS BEING T REATED AS DEEMED DIVIDEND FOR THIS YEAR AND TO ADD BACK THE SAME IN THE HANDS OF THE ASSESSEE U/S 56(2)(I) OF THE IT ACT, 1961. PENAL PROCEEDINGS U/S 271 (1)(C) OF IT ACT, 1961 HAS BEEN INITIATED SEPARATELY FOR FURNISHING I NACCURATE PARTICULARS OF INCOME. ' 6.2. THE ASSESSEE HAS MADE DETAILED SUBMISSION. SOM E OF WHICH IS REPRODUCED AS BELOW: '3.2 IT IS HUMBLY SUBMITTED THAT THE APPELLANT COMP ANY MAINTAINS A RUNNING ACCOUNT IN RESPECT OF SWITZ FOODS WHEREIN T HE EXPENSES INCURRED ON REGULAR BASIS ALONG WITH BUSINESS ADVAN CES/ LOANS GIVEN BY SWITZ FOODS IS PARTLY ADJUSTED AGAINST THE DUES WHI CH LATER OWES TO THE APPELLANT ON ACCOUNT OF PURCHASE OF CAKES AND COOKI ES. COPY OF LEDGER ACCOUNTS IS ENCLOSED HEREWITH AND MARKED AS ANNEXUR E - 4. ON BARE PERUSAL OF THE SAID LEDGER IT IS APPARENT THAT THE ADVANCE GIVEN BY THE SWITZ FOODS IS TOWARDS REIMBURSEMENT OF CERTAIN EXP ENSES AND ADVANCE TOWARDS SECURING SUPPLY OF CAKES AND COOKIE S. THERE ARE NORMAL BUSINESS ADVANCES GIVEN DURING THE NORMAL CO URSE OF BUSINESS. 4.0 THE APPELLANT WOULD ALSO LIKE TO SUBMIT THAT DU RING THE RELEVANT ASSESSMENT YEAR BORROWED FUNDS WERE MOBILISED FROM FOLLOWING STAKEHOLDERS:- SL NO. STAKEHOLDERS AMOUNT (RS. IN CRS) REFERENCE 1 AXIS BANK 7,73,74,037/- SCHEDULE 2.3 'SECUR ED LOANS' 2 OTHER BANKS 9,56,122/- SCHEDULE 2.3 'SECURED LOANS' 3 FROM SHAREHOLDERS 12,25,31,032/- SCHEDULE 2.3 UNSECURED I LOAN ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 4 4.1 THE APPELLANT WOULD ALSO LIKE TO SUBMIT THAT AL L THE ABOVE LOANS ARE PERSONALLY GUARANTEED BY THE MR. ARNAB BASU & MRS. PRATIMA BASU. ADDITIONALLY, BOTH SWITHZ FOODS AND SNOW LION FOODS PVT. LTD. HAD GIVEN CORPORATE GUARANTEE AGAINST THOSE LOANS. THIS CLEAR LY INDICATES THE DEEPER BUSINESS INTEREST THAT SWITZ FOODS HAVE IN THE APPE LLANT COMPANY AND THAT IS VERY USUAL AS LATER IS THE MAJOR SHAREHOLDER IN THE APPELLANT COMPANY. IN FACT TILL LAST YEAR THE APPELLANT COMPANY WAS THE SUBSID IARY OF THE SWITZ FOODS AND IT IS ONLY THIS YEAR THE APPELLANT COMPANY CEASE TO BE THE SUBSIDIARY AS SHAREHOLDING OF THE SWITZ FOODS REDUCED TO 46. 76%. RELEVANT EXTRACT OF SHAREHOLDING PATTERN OF THE APPELLANT COMPANY IS EN CLOSED HEREWITH AND MARKED AS ANNEXURE - 5 FOR READY REFERENCE. 5.0 IT IS FURTHER SUBMITTED THAT THE APPELLANT COMP ANY HAS PAID INTEREST ON THE ABOVE BORROWED FUNDS RECEIVED FROM AXIS BANK & SWIT Z FOODS. DURING THE YEAR THE COMPANY. HAS PAID INTEREST OF RS. 1,65,30, 578/ - TO SWITZ FOODS WHICH IS EVIDENT FROM SCHEDULE - 2.28 RELATED TO RE LATED PARTY TRANSACTIONS DISCLOSURES OF THE FINANCIAL STATEMENT COPY OF WHIC H IS ENCLOSED AS ANNEXURE . 6 FOR READY REFERENCE. THE APPELLANT HAD ALSO DEDUC TED TAX ON SAID PAYMENT OF INTEREST U/ S 194A OF THE ACT @ 10%. COPY OF THE TDS CERTIFICATE IS ENCLOSED HEREWITH AND MARKED AS ANNEXURE - 7 . FOR READY REFERENCE. THIS CLEARLY INDICATES THAT LOAN/ADVANCE RECEIVED FROM S WITZ FOODS IS BACKED BY COMMERCIAL CONSIDERATION AND IS NOT GRATUITOUS IN N ATURE. 6.0 THE APPELLANT WOULD LIKE TO DRAW ATTENTION THAT PART OF THE LOAN GRANTED BY SWITZ FOODS IS ADJUSTED AGAINST THE DUES WHICH IT O WES TO THE APPELLANT IN RESPECT OF RECURRING COMMERCIAL TRANSACTION OF PURC HASE OF PACKAGED CAKES & COOKIES. THE APPELLANT WOULD ALSO LIKE TO DRAW ATTE NTION TO THE FACT THAT AT NO POINT OF TIME, ANY PART OF LOAN RECEIVED FROM SWITZ FOODS IS DIVERTED OR PAID TO MR. ARNAB BASU. THIS INDICATES THAT THE LOAN INITIA LLY PROVIDED BY THE SWITZ FOODS TO THE APPELLANT IS NOT BECAUSE OF INFLUENCE OR BENEFIT OF THE COMMON DIRECTOR OF THE APPELLANT COMPANY I.E MR. ARNAB BAS U RATHER IN THE HINDSIGHT OF THE LARGER BUSINESS INTEREST WHICH SWITZ FOODS HAVE IN APPELLANT COMPANY BUSINESS. 7.0 THE APPELLANT WOULD ALSO LIKE TO SUBMIT THAT TH E LOANS/ ADVANCES RECEIVED FROM SWITZ FOODS IS NOT GRATUITOUS RATHER IT WAS FO R MUTUAL BENEFIT OF BOTH THE APPELLANT COMPANY AS WELL AS SWITZ FOODS. IN ADDITI ON TO CASH INFLOW IN FORM OF INTEREST, BY PARKING ITS SURPLUS FUND WITH APPEL LANT COMPANY AT COMPETITIVE ARM'S LENGTH INTEREST RATE, SWITZ FOODS WAS ALSO AB LE TO SECURE COMMERCIAL ADVANTAGE BY ENSURING UNINTERRUPTED & ASSURED SUPPL Y OF PACKAGED CAKES & COOKIES FROM APPELLANT COMPANY IN FUTURE YEARS. SIM ILARLY, IT WAS ALSO ADVANTAGEOUS FROM APPELLANT'S VIEW POINT, AS IT WAS ABLE TO GAMER NECESSARY FINANCE TO MEET THE JUNDING GAP FOR ITS EXPANSION P ROGRAM. THE ABOVE FACT INDICATES THAT THE GRANT OF LOAN/ ADVANCES BY SWITZ FOODS TO APPELLANT COMPANY WAS NOT GRATUITOUS AND IT WAS SURELY MOTIVA TED BY COMMERCIAL CONSIDERATION. THE FUNDS SO ADVANCED TO THE APPELLA NT COMPANY DURING THE COURSE OF BUSINESS IS OUT OF BUSINESS EXIGENCIES AN D DRIVEN BY COMMERCIAL INTEREST. THEREFORE, IT IS CLEARLY ESTABLISHED THAT THERE WAS A QUID-PRO-QUO EMBEDDED IN THE CAPTIONED TRANSACTION. THUS, THE AM OUNT SO ADVANCED DOES NOT FALL WITHIN THE SPHERE OF LOANS AND ADVANCES AS REFERRED TO IN SECTION 2(22)(E) OF THE ACT. ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 5 8.1 PLAIN READING OF THE ABOVE PROVISION INDICATES THAT SECTION 2(22)(E) IS A DEEMING PROVISION. AS PER SAID PROVISION, IN CERTAI N CIRCUMSTANCES AN ADVANCE OR LOAN IS DEEMED AS DIVIDEND IN THE HANDS OF THE SHAREHOLDERS. ADVANCES AND LOANS HAVE TO BE INTERPRETED IN ITS TR UE SENSE. THE LEGAL FICTION CREATED IN SAID SECTION ONLY REFERS TO PURE ADVANCE S OR LOANS. ANY AMOUNT PAID ON ACCOUNT OF BUSINESS TRANSACTIONS BETWEEN TH E ENTITIES FALLS OUTSIDE THE AMBIT OF SAID SECTION. IN THE PRESENT CASE, THE LOA N/ ADVANCES PROVIDED BY SWITZ FOODS TO THE APPELLANT COMPANY IS OUT OF BUSI NESS EXIGENCIES, THEREFORE FALLS OUTSIDE THE PURVIEW OF SECTION 2(22)(E) OF TH E ACT. THE ABOVE INTERPRETATION OF THE DEEMING PROVISION IS IN ACCOR DANCE WITH THE CARDINAL PRINCIPLE OF INTERPRETING DEEMING PROVISION WHICH DEMANDS STRICT INTERPRETATION OF THESE PROVISIONS. RELIANCE IS PLACED UPON THE FO LLOWING JUDICIAL PRONOUNCEMENTS: - SHEKHAWATI GENERAL TRADERS LTD. -VS.- ITO (1971) 82ITR 788 (SC) - CIT -VS.- BHUPENDER SINGH ATWAL (1983) 140 ITR 92 8 (CAL.) 10.3 THE APPELLANT WOULD LIKE TO DRAW ATTENTION TOW ARDS THE DECISION OF HON'BLE KAMATAKA HIGH COURT IN THE CASE OF M/S BAGM ANE CONSTRUCTIONS PVT. LTD. -VS.- ACIT (2014) [ITA NO. 473/20131 DATED 16T H SEPTEMBER 2014 WHEREIN THE COURT WHILE INTERPRETING THE PROVISION OF SECTION 2(22)(E) HAS ADOPTED PURPOSIVE CONSTRUCTION OF THE ABOVE PROVISI ON. THE RELEVANT EXTRACT OF SAID DECISION IS REPRODUCED AS UNDER: '27. IN THIS BACKGROUND WHEN WE LOOK AT THE AFORESA ID PROVISION, IT IS CLEAR THAT ANY PAYMENT MADE BY A COMPANY BY WAY OF ADVANCE OR LOAN HAS TO BE UNDERSTOOD IN THE CONTEXT OF THE OBJECT W ITH WHICH THE SAID PROVISION IS INTRODUCED. THOUGH THE LEGISLATURE HAS INTRODUCED (ADVANCE' AS WELL AS (LOAN' WHICH ARE TWO DIFFERENT WORDS, THE MEANING OF EACH OF THOSE WORDS HAVE TO BE UNDERSTOOD IN THE CONTEXT IN WHICH THEY ARE USED.' 1 0.4 SIMILAR VIEW HAS BEEN ECHOED IN THE FOLLOWING JUDICIAL PRONOUNCEMENTS: -CIT -VS.- ANKITECH P. LTD. (2012) 340 ITR 14 (DEL ) -CIT -VS.- CREATIVE DYEING AND PRINTING P. LTD. (20 09) 318LTR 476 (DEL) -CIT -VS.- RAF KUMAR (2009) 318LTR 462 (DEL) 10.5 IN THE LIGHT OF ABOVE MENTIONED SUBMISSIONS, I T IS CLEAR THAT THE PROVISION OF DEEMED DIVIDEND REQUIRES PURPOSIVE CONSTRUCTION AND ACCORDINGLY, WILL BE ATTRACTED ONLY IF DIVIDEND IS PAID IN GUISE OF LOAN S OR ADVANCES. THE PROVISION WILL NOT ATTRACT IN CASE OF GENUINE LOANS OR ADVANC ES BACKED BY COMMERCIAL CONSIDERATION. IN THE PRESENT CASE LOAN WAS GIVEN B Y SWITZ FOODS TO THE APPELLANT COMPANY OUT OF ITS COMMERCIAL INTEREST AN D BUSINESS EXPEDIENCY. A PART OF THESE LOANS WERE ALSO ADJUSTED AGAINST THE OUTSTANDING DUES WHICH SWITZ FOODS OWES TO APPELLANT COMPANY ARISING OUT O F SALE OF PACKAGED CAKES AND COOKIES. THESE ARE GENUINE BUSINESS TRANSACTION UNDERTAKEN DURING NORMAL COURSE OF BUSINESS AND HENCE NOT COVERED BY PROVISION OF SECTION 2(22)(E) OF THE ACT. 11.0 LOANS OR ADVANCES RECEIVED OUT OF COMMERCIAL C ONSIDERATION FALLS OUTSIDE THE AMBIT OF PROVISION OF 'DEEMED DIVIDEND' . ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 6 11.1 AS SUBMITTED IN EARLIER PARA'S RI. E. SECTION I DEALING WITH SUBMISSION ON FACTS], THE APPELLANT WOULD LIKE TO REITERATE THAT LOAN/ ADVANCES RECEIVED BY APPELLANT COMPANY IS OUT OF COMMERCIAL CONSIDERATIO N AND NOT FOR THE SOLE BENEFIT OF COMMON SHAREHOLDER I. E. MR. ARNAB BASU. BY PROVIDING THE SAID LOAN, IN ADDITION TO EARNING OF HANDSOME INTEREST, THE LENDER COMPANY HAS ALSO BEEN ABLE TO SECURE ITS COMMERCIAL INTERESTS I N THE APPELLANT COMPANY. AND THUS THE SAID ADVANCE FALLS OUTSIDE THE PURVIEW OF DEEMED DIVIDEND AS SPECIFIED U/.S 2(22)(E) OF THE ACT. 11.2 THE APPELLANT WOULD ALSO LIKE TO PLACE RELIANC E ON THE RECENT CIRCULAR NO.19/2017 [F.NO.279/MISC./140/2015/IT], DATED 12-6 -2017 ISSUED BY CBDT ON THE VERY CAPTIONED MATTER. VIDE THE SAID CI RCULAR THE CBDT HAS DIRECTED THAT TRADE ADVANCES, WHICH ARE IN THE NATU RE OF COMMERCIAL TRANSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE WORD 'ADVANCE' IN SECTION 2(22)(E) OF THE ACT. ACCORDINGLY, HENCEFORTH, APPEA LS MAY NOT BE FILED ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND THOSE ALRE ADY FILED, IN COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESSED UPON. COPY OF THE SAID CIRCULAR IS ENCLOSED HEREWITH AND MARKED AS ANNEXUR E - 9 FOR READY REFERENCE. THEREFORE, THE APPELLANT CASE IS COVERED BY THE SAID CIRCULAR AND HENCE NO ADDITION SHOULD BE MADE ON ACCOUNT AF DEEM ED DIVIDEND. 11.3 THE APPELLANT CASE IS COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN PRADIP KUMAR MALHOTRA -VS.- CIT (2011) 338 ITR 538 (CAL.) WHEREIN IT HAS BEEN HELD THAT ONLY GRATUITOUS LOAN OR ADVANCE GIVEN BY A COMPANY TO SHAREHOLDERS WOULD COME WITHIN THE PURVIEW OF SECTI ON 2(22)(E). THE GENUINE LOAN OR ADVANCE GIVEN IN RETURN TO AN ADVANTAGE CON FERRED UPON THE COMPANY BY SUCH SHAREHOLDER WILL NOT ATTRACT THE PROVISION OF SECTION 2(22)(E) OF THE ACT. THE RELEVANT FACTS AND DECISION OF THE COURT IS SUM MARIZED AS UNDER: THE ASSESSEE HAS FURTHER SUBMITTED THE FOLLOWING: 11.S THE APPELLANT WOULD ALSO LIKE TO BRING TO YOUR KIND NOTICE THAT IN THE APPELLANT OWN CASE FOR AY 2010-11 AND IN AY 2011-12 & AY 2012-13 YOUR PREDECESSORS HAD ACCEPTED THE APPELLANT SUBMISSION AND ALLOWED THE CLAIM OF THE APPELLANT BY DELETING THE ADDITION MADE BY THE AO U/ S 2(22)(E) OF THE ACT. THEREFORE, THE APPELLANT WOULD HUMBLY SUBMIT BEFORE YOUR GOODSELF TO FOLLOW THE SAID DECISION AND GIVE RELIEF TO THE APPELLANT COMPANY. COPY OF THE SAID DECISIONS ARE ENCLOSED HEREWITH AND MARKED AS ANNEX URE - 10 COLLECTIVELY. 12.0 DEEMED DIVIDEND IS TAXABLE IN THE HANDS OF SHA REHOLDER ONLY 12.1 THE PROVISION OF SECTION 2(22)(E) OF THE ACT I S A DEEMING PROVISION. IT TREATS LOANS AND ADVANCES GIVEN BY SPECIFIED PERSON OR ENTITY TO SHAREHOLDER OR CONCERN IN WHICH THE SAID SHAREHOLDERS HAVE SUBS TANTIAL INTEREST AS DIVIDEND. IT CREATES LEGAL FICTION FOR TREATING LOA NS & ADVANCES AS DIVIDEND. IT IS A SETTLED RULE OF INTERPRETATION THAT A DEEMING PRO VISION WHICH CREATES A LEGAL FICTION SHOULD NOT BE STRETCHED AND APPLIED BEYOND THE FICTION WHICH IT SOUGHT TO CREATE. IT SHOULD NOT BE GIVEN A WIDER MEANING T HEN THAT IT PURPORTS TO DO. DIVIDEND IS TAXABLE IN THE HANDS OF A SHAREHOLDER O NLY. THE PROVISION OF SECTION 2(22)(E) DOES NOT CONTAIN ANYTHING OR DOES NOT CREATES ANY FICTION WHICH ENABLES TO TAX THE SAME IN THE HANDS OF NON-S HAREHOLDERS ALSO. ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 7 THEREFORE, EVEN IF THE LOAN GRANTED BY SWITZ FOODS TO THE APPELLANT COMPANY IS TREATED AS DEEMED DIVIDEND THE SAME SHOULD NOT B E TAXED IN THE HANDS OF APPELLANT COMPANY AS IT DOES NOT OWN ANY SHARES OF SWITZ FOODS. 12.2 THE APPELLANT WOULD LIKE TO SUBMIT THAT THERE ARE SERIES OF DECISION DELIVERED BY THE DIFFERENT BENCHES OF HIGH COURT WH ICH SUPPORTS THE ABOVE VIEW AND MAKES THE ISSUE NO LONGER A RES INTEGRA. T HE CITATIONS OF THOSE DECISIONS ARE GIVEN AS BELOW FOR READY REFERENCE: -CIT -VS.- ANKITECH P. LTD. & ORS. (2012) 340 ITR 1 4 (DEL) -CIT -VS.- UNIVERSAL MEDICARE (P) LTD. (2010) 324 I TR 263 (BOM.) -ACIT -VS.- HOTEL HILLTOP (2009) 313 ITR 116 (RAJ) -CIT VS. JIGNESH P. SHAH (ITA NO. 1970(2013 DATED 20-01-2015) -CIT V/SO IMPACT CONTAINERS PVT. LTD. (2014) 367IT R 346 (BOM) -ACIT -VS.- BHAUMIK COLOUR P. LTD (2009) 313 ITR 1 46 (MUM SB) -DHALL PROPERTIES PVT. LTD. -VS.-ITO (ITA NO. 70/KO L/2012) -DCIT -VS.- MEENAKSHI TEA CO. LTD.(1TA NO. 953/KOL /2011) THE APPELLANT WOULD LIKE TO SUBMIT THAT RECENTLY TH E HON'BLE SUPREME COURT HAS SC UPHOLDS DELHI HC RULING IN ANKITECH PVT. LTD .(SUPRA) AND BOMBAY HC RULING IN UNIVERSAL MEDICARE PVT. LTD. (SUPRA), IN A BATCH OF OVER 135 APPEALS; HCS HAD APPROVED MUMBAI ITAT SPECIAL BENCH RULING I N BHAUMIK: COLOR P. LTD. (SUPRA) TO HOLD THAT DEEMED DIVIDEND U/ S. 2(2 2)(E} WOULD BE TAXABLE ONLY IN THE HANDS OF ' REGISTERED' SHAREHOLDER AND NOT LOAN RECIPIENT. COPY OF THE SAID DECISION HAS BEEN ENCLOSED HEREWITH AND MARKED AS ANNEXURE - 11 FOR READY REFERENCE.' 6.3. FINDINGS OF CIT(A) : I HAVE PERUSED THE ASSESSMENT ORDER AND THE SUBMISS IONS OF THE LD. AR AND THE CASE LAWS RELIED BY THE LD. AR. IN VIEW OF THE CALCUTTA HIGH COURT'S JUDGMENT IN THE CASE OF PRADIP KUMAR MALHOTRA -VS.- CIT (2011) 338 ITR 538 (CAL.) ,2(22)E DOES HOT GET ATTRACTED IN THE CASE W HERE GENUINE LOANS AND ADVANCES GIVEN FOR THE ADVANTAGE OF THE LENDER. FUR THER IN VIEW OF THE BOARD CIRCULAR NO. 19, 2(22)(E) DOES NOT ATTRACTED IN THE CASE OF GENUINE BUSINESS ADVANCES. THE AS HAS PROVED IT IS HAVING REGULAR DE ALINGS WITH M/S SWITZ FOODS PVT. LIMITED, AN ASSOCIATE CONCERN. THEREFORE , IN VIEW OF THE BOARD CIRCULAR AND CALCUTTA HIGH COURT/S JUDGMENT PROVISI ONS OF 2(22)(E) DOES NOT GET ATTRACTED IN THE ASSESSEES CASE. FURTHER, HON 'BLE SUPREME COURT HAS UPHELD THE DECISIONS OF VARIOUS HIGH COURTS HOLDING THAT DEEMED DIVIDEND CAN BE TAXABLE ONLY IN THE CASE OF REGISTERED SHARE HO LDERS AND NOT IN THE HANDS OF LOAN RECIPIENT IN CIVIL APPEAL NO.3961 OF 2013. IN VIEW OF THE DECISION OF SUPREME COURT THE ADDITION IS NOT SUSTAINABLE. IN V IEW OF THE ABOVE, THESE GROUNDS ARE ALLOWED. 3. WE HAVE HEARD RIVAL CONTENTIONS. THE REVENUE VEH EMENTLY CONTENDS DURING THE COURSE OF HEARING THAT THE ASSESSING OFF ICER HAD RIGHTLY INVOKED DEEMED DIVIDEND PROVISION AS THE ASSESSEES DIRECTO R (SUPRA) HELD 42.10% STAKE IN M/S SWITZ FOODS PVT. LTD. WHO IN TURN GAVE LOAN OF THE IMPUGNED SUM. ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 8 IT EMERGES AT THE OUTSET DURING THE COURSE OF HEAR ING THAT THE SAME ISSUE HAD AROSE IN PRECEDING ASSESSMENT YEAR 2012-13 IN REVEN UES APPEAL ITA NO.1878/KOL/2016 IN ASSESSEES CASE ITSELF DECIDED ON 19.09.2018. A CO- ORDINATE BENCH THEREIN DECLINED REVENUES IDENTICAL ARGUMENTS AS FOLLOWS:- 2. THE REVENUES SOLE SUBSTANTIVE GROUND SEEKS TO REVIVE THE ASSESSING OFFICERS ACTION MAKING SEC. 2(22)(E) DEE MED DIVIDEND ADDITION OF 2,42,00,000/- IN ASSESSMENT ORDER DATED 07.02.2015. LEARNED DEPARTMENTAL REPRESENTATIVE INVITES OUR ATT ENTION TO THE CIT(A)S DETAILED DISCUSSION TO THIS EFFECT READING AS UNDER:- 5. GROUND NO.2 THIS GROUND IS DIRECTED AGAINST THE ACTION OF THE A O IN MAKING ADDITION OF 2,42,00,000/- U/S. 2(22)(E) OF THE ACT. THIS MATTE IS DISCUSSED FROM PARA 4 TO PARA 4.3 OF THE ASSESSMENT ORDER WHICH IS NOT REPEATED HERE AGAIN FOR THE PURPOSE OF AVOIDING PROLIXITY. HOWEVER, DURING THE APPELLATE PROCEEDING , THE AR OF THE APPELLANT APPRISED ME OF THE FACT THAT THE SAME ISSUE HAD BEEN ADJUDIC ATED UPON BY MY PREDECESSOR CIT(A)-4, KOLKATA EXERCISING JURISDICTION OVER THE CASE VIDE ORDER DATED 31.03.2015 IN APPEAL NO.241 OF 2014-15 FOR THE AY 2010-11 WHEREIN THE CIT(A) HAD DELETED THE ADDITION MADE ON IDENTICAL SETS OF FACTS. COPY OF T HE SAID ORDER WHICH IS SUBMITTED HAS BEEN PERUSED AND FOUND CORRECT. IT WAS FURTHER INFORMED THAT THERE WAS NO SECOND APPEAL IN THIS REGARD PREFERRED BY THE DEPAR TMENT. UNDER THE FACTS AND CIRCUMSTANCES AND FOLLOWING THE PRINCIPLES OF CONSI STENCY ON THE IMPUGNED MATTER AT HAND, I DO NOT FIND ANY PREMISE TO SUPPORT THE DECI SION OF THE AO ON THE ISSUE AND RESULTANTLY THE DECISION OF THE ERSTWHILE CIT(A) ST ANDS ENDORSED AT THIS END FOR THIS YEAR AS WELL. IN THIS RESPECT, THE DETAILED SUBMISS ION OF THE AR OF THE APPELLANT ALONG WITH A PLETHORA OF JUDICIAL DECISIONS IN THE SIMILA R MATTER IS NOT REPEATED HERE, CONSIDERED TO BE NOT NECESSARY SINCE THE CIT(A)S A PPELLATE ORDER ON THE SAME ISSUE HAS BEEN FOLLOWED TO MAINTAIN JUDICIAL CONSISTENCY. IN VIEW OF THE FOREGOING DISCUSSION, THIS GROUND OF APPEAL IS ALLOWED ON BOT H FACT AND LAW. REFERENCE MAY BE MADE TO THE SAID CIT(A)S ORDER DATED 31.03.2015 F ROM PAGE 20 TO PAGE 29 WHEREIN THE MATTER HAS BEEN EXHAUSTIVELY DEALT WITH IN FAVO UR OF THE APPELLANT. THIS GROUND THEREFORE STANDS ALLOWED. 3. MR. CHOUDHURY VEHEMENTLY CONTENDS DURING THE COU RSE OF HEARING THAT THE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACT S IN DELETING THE IMPUGNED ADDITION. HIS CASE IS THAT ASSESSEES DIRE CTOR / KEY MANAGEMENT PERSONNEL, SHRI ARNAB BASU IS THE COMMON AND BENEFICIAL SHAREHOLDERS IN BOTH THIS COMPANY (LOAN RECIPIENT) AS WELL AS LOAN PROVIDER ENTITY M/S SWITZ FOODS PVT. LTD. SINCE HAV ING MORE THAN 20% SHARE. WE SOUGHT TO KNOW AS TO WHAT TRANSPIRED ON T HE VERY ISSUE IN ASSESSMENT YEAR 2010-11. IT HAS COME ON RECORD THAT CIT(A) HAS FOLLOWED HIS FINDINGS MUTATIS MUTANDIS OF THE SAID PRECEDING ASSESSMENT YEAR IN THE IMPUGNED ASSESSMENT YEAR. TH IS CLINCHING FACT HAS GONE UNREBUTTTED FROM THE REVENUE SIDE. PAPER B OOK PAGE 2 COMPRISES OF SAID EARLIER ASSESSMENT YEAR LOWER APP ELLATE ORDER HOLDING THE ASSESSEE TO BE NEITHER THE REGISTERED NOR BENEF ICIAL SHAREHOLDER FOR INVOKING THE IMPUGNED DEEMING FICTION U/S. 2(22)(E) . THE CIT(A)S ORDER TO THIS EFFECT IN SAID EARLIER ASSESSMENT YEAR READ S AS UNDER:- ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 9 4.4 DISCUSSION, AND, APPELLATE DECISION: 4.4.1. ON THE FACTS: 4.4.1.1. PROMINENT FACTS OF THIS CASE ARE THAT EVEN PRIOR TO THE LOAN, THE APPELLANT HAS BEEN HAVING REGULAR DAY-TO-DAY BUSINESS DEALINGS WI TH SFPL. THE MANUFACTURED PRODUCTS FOR THE APPELLANT [MONGINIS CAKES, COOKI ES, BISCUITS] WERE SUPPLIED SALE TO SFPL, AS ALSO TO OTHER RETAIL CHAINS. THE ACCOUNT M AINTAINED IS A RUNNING ACCOUNT. BOTH ENTITIES ARE SEPARATE BUSINESS ENTITIES AND AR E HAVING INTER-DEPENDENT REGULAR COMMERCIAL DEALINGS. 4.1.2 COMING TO THE LOANA, THE APPELLANT WAS IN THE PROCESS OF SETTING UP A SECOND MANUFACTURING UNIT AT KANDUA FOOD PARK, SANKRAIL, H OWRAH, CAPITAL WAS REQUIRED. TO ASSIST IN THE CAPITAL REQUIREMENT, SEVERAL GROUP CO NCERNS AND INDIVIDUALS ASSISTED. THUS SFPL ADVANCED THE LOAN; AS ALSO ANOTHER GROUP CONCERN [SNOW LION] AND ALSO MR. ARNAB BASU, THIS HAS BEEN EXPLAINED IN THE PROJ ECT REPORT. THUS THE LOAN WAS BUT PART OF A LOAN CONSORTIUM. THUS THEREFORE THE L OAN BEING FOR CAPITAL REQUIREMENT, IT WAS BUT BUSINESS AND COMMERCIAL REQUIREMENT. THE LOAN IS DIRECTLY LINKED TO THE SETTING UP OF THE 2 ND MANUFACTURING UNIT. THERE IS NO CONCEIVABLE WAY FO R DIVERSION FOR THE PERSONAL BENEFIT OF MR. ARNAB BASU. 4.4.1.3 IT IS A LOAN WITH INTEREST BEING CHARGED AT ARMS LENGTH RATE. DURING THE YEAR THE INTEREST PAID IS AT 53,94,250/-. THUS, IT IS A COMMERCIAL LOAN. 4.4.1.4 THE LOAN COMMERCIALLY BENEFITTED BOTH THE P ARTIES THE APPELLANT IS SETTING UP THE 2 ND MANUFACTURING UNIT, AND SFPL IN GETTING STEADY AND INCREASE SUPPLY OF THE PRODUCTS AS ALSO INTEREST ON THE LOAN. 4.4.1.5 IN LATER YEAR, IN AY 2012-13 PART OF THE OU TSTANDING LOAN WAS CONVERTED INTO EQUITY. 4.4.1.6 THUS, ON FACTS ITSELF, THE LOAN IS A PURELY COMMERCIAL LOAN, AND, FOR BUSINESS REQUIREMENTS. THERE IS DIRECT QUID-PRO-QUO AND FUTU RE BUSINESS GROWTH TO BOTH THE PARTIES. 4.4.2. ON LEGAL PERSPECTIVE: 4.4.2.1 HAVING HELD THAT THE LOAN IS A PURELY A COM MERCIAL LOAN DIRECTLY LINKED TO THE SETTING-UP OF THE SECOND MANUFACTURING UNIT, I.E. N OT CONCEIVABLE THAT THE LOAN COULD BE DIVERTED FOR THE PERSONAL BENEFIT OF MR. ARNAB B ASU, THUS SECTION 2(22)(E) SHOULD NOT APPLY; HOWEVER, SINCE BECAUSE OF THE AMBIGUITY / MISCHIEF IN THE 2 ND LIMB OF SECTION 2(22)(E), A BRIEF DISCUSSION IS HEREUNDER. 4.4.2.2. THE ISSUE OF DEEMED DIVIDEND U/S 2(22)(E ) HAS UNDERGONE / IS UNDERGOING NUMEROUS LITIGATION IN VARIOUS COURTS BECAUSE OF THE AMBIGUOUS WORDING AND FURTHER HAVING LOST SIGHT OF THE INTENT FOR WHICH I T WAS ENACTED. 4.4.2.3 MUCH BEFORE ANYTHING ELSE, IN PLAIN SPEAK T HE BASIC ESSENCE OF DIVIDEND IS TO BE UNDERSTOOD. DIVIDEND IS DISTRIBUTION OF PROFI TS ABSOLUTELY UPON A SHAREHOLDER FOR HIS ENJOYMENT. THIS FUNDAMENTAL ASPECT IS BORNE IN THE PRECEDING CLAUSES (A) TO (D) TO SECTION 2(22) WHEREBY THE OPENING PHRASE IS ANY DISTRIBUTION TO ITS SHAREHOLDER . THUS, IT IS IMPLICIT THAT CLAUSE (E) BE ALSO READ AND INTERPRETED IN THIS SAME CONTEXT OF DISTRIBUTION TO SHAREHOLDER. 4.4.2.4 THE SHAREHOLDER IS THE ABSOLUTE OWNER OF TH E BENEFIT SO DISTRIBUTED. AND THUS IN ARRANGEMENTS WERE SUCH THAT INDIRECTLY WAS DESIG NED FOR THE PERSONAL BENEFIT / ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 10 ENJOYMENT OF THE SHAREHOLDER. THAT IS WHY THE COURT S IN VARIOUS JUDICIAL DECISIONS HAVE HELD THAT THE SECTION MUST BE IN THE CONTEXT O F THE REGISTERED SHAREHOLDER [AND NOT THE CONCERN]. SO IN THIS CONTEXT ITSELF, THE AP PELLANT COMPANY NOT BEING THE REGISTERED SHAREHOLDER, THE APPELLANT IS OUTSIDE TH E SCOPE OF SECTION 2(22)(E) THIS IS THE RATIO OF THE OFT CITED DECISION OF THE HON'BLE ITAT SPECIAL BENCH IN ACIT VS. BHAUMIK COLOUR PVT LTD [2009] 313 ITR 146 (MUM SB). ANOTHER ASPECT WHICH NEEDS TO BE KEPT IN MIND IS TH AT TAX ON DIVIDEND HAS UNDERGONE ANTIPODAL CHANGE. SINCE SEVERAL YEARS NOW THERE IS TAX PAID AT SOURCE ITSELF UPON THE DECLARING OF DIVIDEND [SECTION 115-O]; AND SUCH TAX PAID DIVIDEND IS EXCLUDE FROM TOTAL INCOME [SECTION 10(34)]. EARLIER, IT WAS NOT SO. THE TAX WAS TO BE PAID BY THE SHAREHOLDER; THUS OBVIOUSLY THERE WERE WAYS TO CIRC UMVENT, AND THUS THEN WAS THE ORIGIN OF THEE DEEMED DIVIDEND ENACTMENTS. POINT IS ULTIMATELY IT MUST BE THAT THE BENEFIT WAS FOR THE SHAREHOLDER. 4.4.2.5 THERE IS NO LEGAL BAR TO OBTAIN LOAN FROM G ROUP CONCERNS; SAVE, IT AT ALL ONLY REGARDING THE INTEREST EXPENSE QUANTUM IN CIRCUMSTA NCES U/S. 40A(2). WHEN THERE IS NO LEGAL BAR TO OBTAINING LOAN FROM GROUP CONCERN , THEN WHY SHOULD THE AMBIGUITY IN THE 2 ND LIMB OF SECTION 2(22)(E). SUCH PROVISION WOULD ST IFLE BUSINESS GROWTH. THERE IS JUST NO LOGIC OR RATIONALE. SO, TO JUST ON THE LITERAL WORDS IN THE SECTION WOU LD BE BEING GOADED TO TROD WITH BLINKERS PUT UPON. 4.4.2.6 AS HERE WE ARE DISCUSSING ON THE LEGAL ASPE CT OF SECTION 2(22)(E), AND APPLIED TO THE ENTIRE GAMUT OF THE FACTS AND CIRCUM STANCES OF THIS CASE I WOULD ALSO GO TO SAY THAT THE EXCEPTION IN ITEM (II): ANY ADV ANCE OR LOAN MADE TO A SHAREHOLDER OR THE SAID CONCERN BY A COMPANY IN THE ORDINARY CO URSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSIN ESS OF THE COMPANY, IS APPLICABLE. THE SECTION AFTER ALL IS A DEEMING FICTION SECTION, SO JOLLY-WELL IT CAN BE CALIBRATED TO THE FACTS OF THIS CASE ON THE FOLLOWING LOGIC: IN THE ORDINARY COURSE OF ITS BUSINESS: IT IS IN CONNECTION WITH THE BUSINESS OF BOTH THE LENDER AND THE BORROWER THAT THE SUM HAD B EEN ADVANCED. THERE WILL BE MUTUAL BENEFIT AND PROGRESS. THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY: THE SUM AT 7.63 CRORE IS NO MEAN SUM BY ANY STANDARD. IT IS A SUBSTANTIAL PART OF THE BUSINESS ASSETS OF THE LENDER COMPANY. THUS EVEN SO, UPON LEGAL-TECHNICO ADAPTATION, THE E XCEPTION IN TEM (II) CAN BE APPLIED. 4.4.2.7 AS REGARDS THE JUDICIAL DECISIONS RELIED UP ON BY THE LEARNED. AR, I FIND THAT THE DECISION OF THE HON'BLE DELHI HIGH COURT IN CIT VS CREATIVE DYEING AND PRINTING PVT LTD. (2009) 318 ITR 476 (DEL) IS SIMILAR TO THE FACTS OF THE APPELLANTS CASE: IT IS HEREUNDER: CTR LIBRARY OF TAX CASES COMMISSONER OF INCOME TAX VS. CREATIVE DYEING & PRI NTING (P) LTD. HIGH COURT OF DELHI A.K. SIKRI & VAIMIKI, J. MEHTA, JJ IT APPEAL NO.250 OF 2009 2 ND SEPTEMBER, 2009 (2010) 229 CTR (DEL) 250: (2009) 318 ITR 476; (2009 ) 184 TAXMAN 483 : (2009) 30 DTR LEGISLATION REFERRED TO SECTION 2(22)(E) CASE PERTAINS TO ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 11 ASST YEAR: DECISION IN FAVOUR OF ASSESSEE DIVIDEND-DEEMED DIVIDEND UNDER S. 2(22)(E)-ADVANCE FOR COMMERCIAL PURPOSE- ASSESSEE COMPANY RECEIVED FUNDS FOR EXPANSION OF PR ODUCTION CAPACITY FROM PE LTD. WHICH HAS 50 PER CENT SHAREHOLDING IN THE ASSESSEE AND HAS COMMON DIRECTORS WITH THE ASSESSEE-TRANSACTION IN QUESTION WAS A BUSINESS TRANSACTION WHICH WOULD BENEFIT BOTH ASSESSEE COMPANY AND PE LTD. ADMITTE DLY, THE AMOUNT IS TO BE ADJUSTED AGAINST THE MONEYS PAYABLE BY PE LTD., TO THE ASSESSEE COMPANY IN THE SUBSEQUENT YEARS CONTENTION OF THE REVENUE THAT S INCE PENALTY LTD. IS NOT INTO THE BUSINESS OF MONEYLENDING, THE PAYMENTS MADE BY IT T O THE ASSESSEE COMPANY WOULD BE COVERED BY S. 2(22)(E) (II) AND CONSEQUENTLY PAY MENTS EVEN FOR BUSINESS TRANSACTIONS WOULD BE DEEMED DIVIDEND IS NOT ACCEPT ABLE ONCE IT IS HELD THAT BUSINESS TRANSACTIONS DO NOT FALL WITHIN S. 2(22)(E ), THERE IS NO NEED TO GO FURTHER TO S. 2(22)(E)(II) THEREFORE, AMOUNT ADVANCED FOR TH E BUSINESS TRANSACTION BY PE LTD. TO THE ASSESSEE COMPANY DID NOT FALL WITHIN THE DEF INITION OF DEEMED DIVIDEND UNDER S. 2(22)(E) HELD : THE FINDING OF FACTS, ARRIVED AT BY THE TRIBUNAL IS THAT THE TRANSACTION IN QUESTION WAS A BUSINESS TRANSACTION AND WHICH TRANSACTION WOULD HAVE BENEFITED BOTH THE ASSESSEE COMPANY AND PE LTD. IN FACT, THE COUNSEL F OR THE APPELLANT HAS CONCEDED THAT THE AMOUNT IS IN FACT NOT A LOAN BUT ONLY AN A DVANCE BECAUSE THE AMOUNT PAID TO THE ASSESSEE COMPANY WOULD BE ADJUSTED AGAINST THE ENTITLEMENT OF MONEYS OF THE ASSESSEE COMPANY PAYABLE BY PE LTD. IN THE SUBSEQUE NT YEARS. THE CONTENTION THAT SINCE PE LTD. IS NOT INTO THE BUSINESS OF LENDING O F MONEY, THE PAYMENTS MADE BY IT TO THE ASSESSEE COMPANY WOULD BE COVERED BY S. 2(22 )(E) (II) AND CONSEQUENTLY PAYMENTS EVEN FOR BUSINESS TRANSACTIONS WOULD BE A DEEMED DIVIDEND IS NOT ACCEPTABLE. THE PROVISION OF S. 2(22)(E)(II) IS BAS ICALLY IN THE NATURE OF AN EXPLANATION. THAT CANNOT HOWEVER, HAVE BEARING ON INTERPRETATION OF THE MAIN PROVISION OF S. 2(22)(E) AND ONCE IT IS HELD THAT THE BUSINESS TRAN SACTIONS DO NOT FALL WITHIN S. 2(22)(E)(II) GIVES AN EXAMPLE ONLY OF ONE OF THE SI TUATIONS WHERE THE LOAN/ADVANCE WILL NOT BE TREATED AS A DEEMED DIVIDEND, BUT THATS ALL . THE SAME CANNOT BE EXPANDED FURTHER TO TAKE AWAY THE BASIC MEANING, INTENT AND PURPORT OF THE MAIN PART OF S. 2(22)(E). THIS INTERPRETATION IS IN ACCORDANCE WITH THE LEGISLATIVE INTENTION OF INTRODUCING S 2(22)(E). THEREFORE THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE AMOUNTS ADVANCED FOR BUSINESS TRANSACTIONS BETWEEN THE PART IES, NAMELY, THE ASSESSEE COMPANY AND PE LTD., WAS NOT SUCH TO FALL WITHIN TH E DEFINITION OF DEEMED DIVIDEND UNDER S. 2(22)(E) CIT VS. RAJ KUMAR (2009) 23 DTR (DEL) 304: (2009) 181 TAXMAN 155 (DEL) FOLLOWED. (PARAS 10 TO 12) CONCLUSION: AMOUNT ADVANCED TO THE ASSESSEE COMPANY BY ANOTHER COMPANY HAVING COMMON DIRECTORS NOT BEING A LOAN BUT AN ADVANCE FOR BUSIN ESS TRANSACTIONS WHICH IS TO BE ADJUSTED AGAINST THE MONEYS PAYABLE BY THE LATTER T O THE ASSESSEE COMPANY IN THE SUBSEQUENT YEARS, SAME DID NOT FALL WITHIN THE DEFI NITION OF DEEMED DIVIDEND UNDER S. 2(22)(E) IN FAVOUR OF: ASSESSEE CASE REFERRED TO CIT VS. AMBASSADOR TRAVELS (P) LTD (2008) 220 CTR (DEL) 475 (2008) 8 DTR (DEL) 108 (2008) 173 TAXMAN 407 (DEL) CIT VS. NAGIINDAS M KAPADIA (1989) 75 CTR (BOM) 161 : (1989) 177 ITR 393 (BOM) NAVINIT LAL C. JAVERI VS. K.K.SEN AAC (1965) 56 ITR 198 (SC) COUNSEL APPEARED: ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 12 MR. SURUCHI AGGARWAL FOR THE APPELLANT. M.P. RASTOG I WITH K.N. AHUJA FOR THE RESPONDENT JUDGMENT VALMIKI J. MEHTA, J: THIS APPEAL UNDER S. 260A OF THE IT ACT, 1961 (HERE INAFTER REFERRED TO AS THE ACT) IS PREFERRED BY THE REVENUE AGAINST THE ORDER DT. 9 TH MAY, 2008 OF THE INCOME-TAX APPELLATE TRIBUNAL (HEREINAFTER REFERRED TO AS THE TRIBUNAL) WHEREBY THE TRIBUNAL HAS HELD THAT THE PAYMENT OF AN ADVANCE FOR A COMMERCIA L PURPOSE TO THE ASSESSEE COMPANY BY ITS SISTER CONCERN M/S PEE EMPRO EXPORTS (P) LTD IS NOT DEEMED DIVIDEND UNDER S. 2(22)(E) OF THE ACT. 2. THE FACTS OF THE CASE ARE THAT THE RESPONDENT IS ENGAGED IN THE BUSINESS OF DYEING AND PRINTING OF CLOTH AND WAS ACTING AS AN ANCILLAR Y UNIT OF M/S PEE EMPRO EXPORTS (P) LTD. FOR THE LAST SEVERAL YEARS. BOTH THE ASSES SEE COMPANY AND M/S PEE EMPRO EXPORTS (P) LTD. HAVE COMMON SHAREHOLDERS/DIRECTORS MR.P.S. UPPAL. MR. P.M.S. UPPAL, MR. SURINDER UPPAL AND SO ON. THE SAID M/S P EE EMPRO EXPORTS (P) LTD. IN ORDER TO INCREASE ITS EXPORT BUSINESS AND TO COMPET E WITH THE INTERNATIONAL STANDARDS IN GARMENT EXPORTS HAD SUGGESTED MODERNIZATION AND EXPANSION OF THE PLANT AND MACHINERY OF THE ASSESSEE COMPANY FOR WHICH M/S PEE EMPRO EXPORT (P) LTD. MADE AVAILABLE A PROJECT REPORT FOR SUCH EXPANSION ON 28 TH JULY, 2000 TO THE ASSESSEE COMPANY. THE ASSESSEE COMPANY IN TURN VIDE ITS LETT ER DT. 30 TH SEPT., 2000 INFORMED M/S PEE EMPRO EXPORTS THAT FOR INCREASING SUCH CAPA CITY AS DESIRED BY M/S PEE EMPRO EXPORTS A HUGE INVESTMENT IS ENQUIRED AND SHO WED ITS INABILITY TO INVEST SUCH LARGE AMOUNT OUT OF THE PRESENT AVAILABLE FUNDS. M/ S PEE EMPRO AGREED THEN TO MAKE AVAILABLE FUNDS TO THE EXTENT OF 50 PER CENT COST B ECAUSE IT WAS NOT ONLY IN THE INTEREST OF M/S PEE EMPRO EXPORTS BUT ALSO ON ACCOU NT OF FACT THAT M/S PEE EMPRO ITSELF OWNS 50 PER CENT SHARES IN THE ASSESSEE COMP ANY. THE REST OF THE 50 PER CENT PROJECT COST WAS TO BE MADE AVAILABLE BY THE DIRECTORS MR P.S. UPPEL AND MR. P.M.S. UPPAL. 3. THE AO FOR THIS AMOUNT PAID TO THE ASSESSEE COMP ANY BY M/S PEE EMPRO EXPORTS (P) LTD. MADE AN ADDITION OF RS.3,60,18,885 IN TERM S OF S 2(22)(E) OF THE ACT AS DEEMED DIVIDEND FOR THE REASON THAT THE TWO DIRECTO RS OF THE ASSESSEE COMPANY, NAMELY, MR. P.S. UPPAL AND MR. P.M.S. UPPAL HAVING MORE THAN 20 PER CENT SHARE IN THE ASSESSEE COMPANY AND WHO ALSO HELD 27.42 PER C ENT AND 29.71 PER CENT SHARE RESPECTIVELY IN M/S PEE EMPRO EXPORTS I.E. TWO DIRE CTORS HAVE INTEREST IN THE COMPANY FROM WHOM THE AMOUNT HAS BEEN RECEIVED. 4. THE RELEVANT PART OF S 2(22)(E) IS EXTRACTED AS UNDER ANY PAYMENT BY A COMPANY NOT BEING A COMPANY IN WH ICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED OF ANY SUM (WHETHER AS REP RESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31 ST DAY OF MAY , 1986 BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PE RSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIX ED 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 SUBSTANTI AL 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 POSSESSE S ACCUMULATED PROFITS. BUT DIVIDEND DOES NOT INCLUDE (I). ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 13 (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR THE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHE RE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY 5. BEFORE US, THE LEARNED COUNSEL FOR THE APPELLANT /REVENUE HAS CONTENDED THAT THE PRESET CASE IS A CASE OF DEEMED DIVIDEND INASMUCH A S M/S PEE EMPRO EXPORTS (P) LTD. HAS GIVEN A LOAN TO THE ASSESSEE COMPANY BUT T HE LENDING COMPANY, NAMELY, M/S PEE EMPRO EXPORTS (P) LTD. IS NOT INTO THE BUSI NESS OF MONEYLENDING AS REQUIRED BY S 2(22)(E)(II). THE COUNSEL FOR THE RESPONDENT, ON THE OTHER HAND, HAS REFERRED TO TWO RECENT DIVISION BENCH JUDGMENTS OF THIS COURT R EPORTED AS CIT VS. RAJ KUMAR (2009) 23 DTR (DEL) 304 (2009) 181 TAXMANK 155 (DEL ) AND CIT VS. AMBASSADOR TRAVELS (P) LTD (2008) 220 CTR (DEL 475 (2008) 8 DT DR (DEL) 108 (2008) 173 TAXMAN 407 (DEL) TO CONTEND THAT MERELY BECAUSE A L OAN IS GIVEN BY M/S PEE EXPRO EXPORTS (P) LTD TO THE ASSESSEE COMPANY WOULD NOT M EAN THAT THE SAME WOULD BECOME A DEEMED DIVIDEND INASMUCH AS MONEYS ARE PAI D FOR TRANSACTIONS WHICH ARE BUSINESS TRANSACTIONS/COMMERCIAL TRANSACTIONS AND T HEREFORE, SUCH TRANSACTIONS CANNOT FALL UNDER THE EXPRESSION DEEMED DIVIDEND WITHIN THE PROVISION OF S. 2(22)(E) 6. BEFORE WE REFER TO THE RIVAL CONTENTIONS OF THE PARTIES, WE WOULD LIKE TO REPRODUCE THE FOLLOWING FINDINGS OF FACTS ARRIVED AT BY THE T RIBUNAL.: 7.5 IN THE PRESENT CASE THE AMOUNT PAID BY M/S PEE EMPRO EXPORTS TO THE APPELLANT-COMPANY DOES NOT BEAR THE CHARACTERISTIC OF LOANS AND ADVANCED. THE AMOUNT HAS BEEN PAID BY M/S PEE EMPRO EXPORTS I N ITS OWN INTEREST AND THAT TOO FOR THE PURPOSE OF BUSINESS BECAUSE THE UL TIMATE BENEFICIARY OF THE PROPOSED EXPANSION OF PLANT AND MACHINERY IS M/S PE E EMPRO EXPORTS ITSELF. M/S PEE EMPRO EXPORTS HAS NOT MADE THE PAYMENT TO T HE APPELLANT COMPANY FOR THE INDIVIDUAL BENEFIT OF MR. R.S. UPAL AND MR. P.M.S.UPPAL AND ON THE CONTRARY THESE TWO DIRECTORS HAVE ALSO PROVIDED FUN DS TO THE APPELLANT- COMPANY AS OWNERS OF THE COMPANY AS ALSO MADE BY M/ S PEE EMPRO EXPORTS. THE ASSESSEE UNDERTOOK EXPANSION OF ITS CAPACITY, W HICH WAS IN MUTUAL INTEREST OF ASSESSEE AS WELL PEE EMPRO EXPORTS. IF THE ASSESSEE HAS NOT UNDERTAKEN SUCH EXPANSION, NO ADVANCE COULD HAVE B EEN MADE TO IT OR THAT PEE EMPRO EXPORTS WOULD NOT HAVE DISTRIBUTED AS DIV IDEND TO ITS SHAREHOLDERS. THIS BUT FOR THE ADVANCES, THE AMOUNT OF ADVANCES COULD NOT HAVE REACHED ASSESSEE AT ALL. WE THEREFORE DELETE T HE ADDITIONS AS MADE BY THE AO AS THE AMOUNT RECEIVED BY ASSESSEE IS NOT DE EMED DIVIDEND WITHIN THE MEANING OF S 2(22)(E) OF THE ACT. THE COUNSEL FOR THE REVENUE HAS ALSO FURTHER STATED THAT IT IS NOT IN DISPUTE THAT THE MONIES WHICH HAVE BEEN ADVANCED TO THE ASSESSEE COM PANY BY M/S PEE EMPRO EXPORTS (P) LTD. HAVE NOT TO BE REPAID BUT HAVE TO BE ADJUSTED AGAINST THE DUES PAYABLE BY M/S PEE EMPRO EXPORTS (P) LTD. TO THE AS SESSEE COMPANY IN THE SUBSEQUENT YEARS FOR THE JOB WORK OF PRINTING AND D YEING WHICH IS DONE BY THE ASSESSEE COMPANY FOR M/S PEE EMPRO EXPORTS (P) LTD. 7. WE FIND THAT THE TRIBUNAL IN THE PRESENT CASE HA S VERY EXTENSIVELY DEALT WITH LEGISLATIVE INTENTION OF INTRODUCING S 2(22)(E) AND HAS REFERRED TO SUCH LEGISLATIVE INTENTION BY REFERENCE TO SUPREME COURT JUDGMENT IN THE CASE OF NAVNIT LAL C. JAVERI VS. K.K. SEN AAC (1965) 56 ITR 198 (SC) WHERE A SIM ILAR PROVISION OF THE IT ACT, 1922 I.E. S 2(6A)(E) WAS IN ISSUE BY REPRODUCING TH EE RELEVANT PARA IN NAVNEET LALS CASE (SUPRA) AS UNDER: IN DEALING WITH MR. PATHAKS ARGUMENT IN THE PRES ENT CASE, LET US RECALL THE RELEVANT FACTS. THE COMPANIES TO WHICH THE IMPUGNED SECTION APPLIES ARE COMPANIES IN WHICH AT LEAST 75 PER CENT OF THE VOTI NG POWER LIES IN THE HANDS ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 14 OF OTHER THAN THE PUBLIC AND THAT MEANS THAT THE CO MPANIES ARE CONTROLLED BY A GROUP OF PERSONS ALLIED TOGETHER AND HAVING THE S AME INTEREST. IN THE CASE OF SUCH COMPANIES, THE CONTROLLING GROUP CAN DO WHA T IT LIKES WITH THE MANAGEMENT OF THE COMPANY. ITS AFFAIRS AND ITS PRO FITS WITHIN THE LIMITS OF THE COMPANIES ACT. IT IS FOR THE GROUP TO DETERMINE WHE THER THE PROFITS MADE BY THE COMPANY SHOULD BE DISTRIBUTED AS DIVIDENDS OR N OT. THE DECLARATION OF DIVIDEND IS ENTIRELY WITHIN THE DISCRETION OF THIS GROUP. WHEN THE LEGISLATURE REALIZED THAT THOUGH MONEY WAS REASONABLY AVAILABLE WITH THE COMPANY IN THE FORM OF PROFITS, THOSE IN CHARGE OF THE COMPANY DEL IBERATELY REFUSED TO DISTRIBUTE IT AS DIVIDENDS TO THE SHAREHOLDERS, BUT ADOPTED THE DEVICE OF ADVANCING THE SAID ACCUMULATED PROFITS BY WAY OF LO AN OR ADVANCE TO ONE OF ITS SHAREHOLDERS IT WAS PLAIN THAT THE OBJECT OF SU CH A LOAN OR ADVANCE WAS TO EVADE THE PAYMENT OF TAX ON ACCUMULATED PROFITS UND ER S 23. IT WILL BE REMEMBERED THAT AN ADVANCE OR LOAN WHICH FALLS WITH IN THE MISCHIEF OF THE IMPUGNED SECTION IS ADVANCE OR LOAN MADE BY A COMPA NY WHICH DOES NOT NORMALLY DEAL IN MONEYLENDING, AND IT IS MADE WITH THE FULL KNOWLEDGE OF THE PROVISION CONTAINED IN THE IMPUGNED SECTION. THE OB JECT OF KEEPING ACCUMULATED PROFITS WITHOUT DISTRIBUTING THEM OBVIO USLY IS TO TAKE THE BENEFIT OF THE LOWER RATE OF SUPER TAX PRESCRIBED FOR COMPA NIES. THIS OBJECT WAS DEFEATED BY S. 23A WHICH PROVIDES THAT IN THE CASE OF UNDISTRIBUTED PROFITS, TAX WOULD BE LEVIED ON THE SHAREHOLDERS ON THE BASI S THAT THE ACCUMULATED PROFITS WILL BE DEEMED TO HAVE BEEN DISTRIBUTED AGA INST THE SIMILARLY 12 (1B) PROVIDES THAT IF A CONTROLLED COMPANY ADOPTS THE DE VICE OF MAKING A LOAN OR ADVANCE TO ONE OF ITS SHAREHOLDERS SUCH SHAREHOLDER S WILL BE DEEMED TO HAVE RECEIVED THE SAID AMOUNT OUT OF THE ACCUMULATED PRO FITS AND WOULD BE LIABLE TO PAY TAX ON THE BASIS THAT HE HAS RECEIVED THE SA ID LOAN BY WAY OF DIVIDEND. IT IS CLEAR THAT, WHEN SUCH A DEVICE IS ADOPTED BY A CONTROLLED COMPANY, THE CONTROLLING GROUP CONSISTING OF SHAREHOLDERS HAVE D ELIBERATELY, DECIDED TO ADOPT THE DEVICE OF MAKING A LOAN OR ADVANCE. SUCH AN ARRANGEMENT IS INTENDED TO EVADE THE APPLICATION OF S 23A. THE LOA N MAY CARRY INTEREST AND THE SAID INTEREST MAY BE RECEIVED BY THE COMPANY, B UT THE MAIN OBJECT UNDERLYING THE LOAN IS TO AVOID PAYMENT OF TAX. 8. THE TRIBUNAL HAS ALSO REFERRED TO THE JUDGMENT O F THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. NAGINDAS M KAPADIA (1989) 75 CTR (B OM) 161: (1989) 177 ITR 393 (BOM) IN WHICH IT WAS HELD THAT BUSINESS TRANSACTIO NS ARE OUTSIDE THE PURVIEW OF S. 2(22)(E) OF THE AT. IN THE SAID CASE, THE COMPANY I N WHICH KAPADIA WAS HAVING SUBSTANTIAL INTEREST HAD PAID VARIOUS AMOUNTS TO KA PADIA. THE TRIBUNAL HAD FOUND THAT KAPADIA HAD BUSINESS TRANSACTIONS WITH THE COM PANY AND ON VERIFICATION OF THE ACCOUNTS, THE TRIBUNAL DELETED THE AMOUNTS WHICH WE RE RELATING TO THE BUSINESS TRANSACTIONS AND WHICH FINDING WAS UPHELD BY THE HI GH COURT. 9. IN THE PRESENT CASE THE TRIBUNAL ON CONSIDERING DECISIONS IN VARIOUS CASES HELD AS UNDER: FROM THE RATIO LAID DOWN IN ABOVE CASES AND ON THE BASIS OF JUDICIAL INTERPRETATION OF WORDS, LOANS OR ADVANCE , IT CAN BE HELD THAT S. 2(22)(E) CAN BE APPLIED TO LOAN OR ADVANCES SIMPLICITOR AND NOT TO THOSE TRANSACTIONS CARRIED OUT IN COURSE OF BUSINESS AS S UCH. IN THE COURSE OF CARRYING ON BUSINESS TRANSACTION BETWEEN A COMPANY AND A STOCKHOLDER, THE COMPANY MAY BE REQUIRED TO GIVE ADVANCE IN MUTUAL I NTEREST. THERE IS NO LEGAL BAR IN HAVING SUCH TRANSACTION. WHAT IS TO BE ASCERTAINED IS WHAT IS THE PURPOSE OF SUCH ADVANCE. IF THE AMOUNT IS GIVEN AS ADVANCE SIMPLICITOR OR AS SUCH PER SE WITHOUT ANY FURTHER OBLIGATION BEHINDS RECEIVING SUCH ADVANCES, MAY BE TREATED AS DEEMED DIVIDEND , BUT IF IT IS OTHERWISE, THE AMOUNT GIVEN CANNOT BE BRANDED AS ADVANCES WITHIN THE MEANING OF DEEMED DIVIDEND ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 15 UNDER S. 2(22)(E). JUST AS PER CL. (II) OF S. 2(22) (E), DIVIDEND IS NOT TO INCLUDE ADVANCE OR LOAN MADE BY A COMPANY IN THE ORDINARY C OURSE OF BUSINESS WHERE THE LENDING OF MONEY IS SUBSTANTIAL PART OF T HE BUSINESS OF THE COMPANY ADVANCE IN THE ORDINARY COURSE OF CARRYING ON BUSIN ESS CANNOT BE CONSIDERED AS DIVIDEND WITHIN THE MEANING OF S. 2(22)(E). BY GRANTING AD VANCE IF THE BUSINESS PURPOSE OF THE COMPANY IS SERVED AND WHICH IS NOT THE SUM, WHICH IT OTHERWISE WOULD HAVE DISTRIBUTED AS DIVIDEND, CANNO T BE BROUGHT WITHIN THE DEEMING PROVISION OF TREATING SUCH ADVANCE AS DEE MED DIVIDEND. 10. WE AGREE WITH THE AFORESAID OBSERVATIONS. THE FINDING OF FACTS, ARRIVED AT BY THE TRIBUNAL IN THE PRESENT CASE IS THAT THE TRANSACTIO N IN QUESTION WAS A BUSINESS TRANSACTION AND WHICH TRANSACTION WOULD HAVE BENEFI TED BOTH THE ASSESSEE COMPANY AND M/S PEE EMPRO EXPORTS (P) LT. IN FACT, AS STATE D ABOVE, THE COUNSEL FOR THE APPELLANT HAS CONCEDED THAT THE AMOUNT IS IN FACT N OT A LOAN BUT ONLY AN ADVANCE BECAUSE THE AMOUNT PAID TO THE ASSESSEE COMPANY WOU LD BE ADJUSTED AGAINST THE ENTITLEMENT OF MONEYS OF THE ASSESSEE COMPANY PAYAB LE BY M/S PEE EMPRO EXPORTS (P) LTD IN THE SUBSEQUENT YEARS. 11. THE COUNSEL FOR THE APPELLANT HAS VERY STRENUOU SLY URGED THAT NEITHER THE TRIBUNAL NOR THE JUDGMENT OF THIS COURT IN RAJ KUMARS CASE (SUPRA) DEALS WITH THE PART OF THE DEFINITION OF DEEMED DIVIDEND UNDER S. 2(22)(E) WHI CH STATES THAT DEEMED DIVIDEND DOES NOT INCLUDE AN ADVANCE OR LOAN MADE TO A SHARE HOLDER BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS WHERE THE LENDING O F MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY [S.2(22)(E) (II)] I.E., THE RE IS NO DEEMED DIVIDEND ONLY IF THE LENDING OF MONEYS IS BY A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MONEYLENDING. DILATING FURTHER THE COUNSEL OF THE A PPELLANT CONTENDED THAT SINCE M/S PEE EMPRO EXPORTS (P)) LTD. IS NOT INTO THE BUSINES S OF LENDING OF MONEY, THE PAYMENTS MADE BY IT TO THE ASSESSEE COMPANY WOULD T HEREFORE BE COVERED BY S.2(22)(E)(II) AND CONSEQUENTLY PAYMENTS EVEN FOR B USINESS 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 S.2( 22)(E)(II) IS BASICALLY IN THE NATURE OF AN EXPLANATION. THAT CANNOT HOWEVER, HAVE BEARIN G ON INTERPRETATION OF THE MAIN PROVISION OF S. 2(22)(E) AND ONCE IT IS HELD THAT T HE BUSINESS TRANSACTIONS DO NOT FALL WITHIN S. 2(22)(E) GIVES AN EXAMPLE ONLY OF ONE OF THE SITUATIONS WHERE THE LOAN/ADVANCE WILL NOT BE TREATED AS A DEEMED DIVIDE ND, BUT THAT[S ALL. THE SAME CANNOT BE EXPANDED FURTHER TO TAKE AWAY THE BASIC M EANING, INTENT AND PURPORT OF THE MAIN PART OF S. 2(22)(E). WE FEEL THAT THIS INTERPR ETATION OF OURS IS IN ACCORDANCE WITH THE LEGISLATIVE INTENTION OF INTRODUCING S. 2(22)(E ) AND WHICH HAS BEEN EXTENSIVELY DEALT WITH BY THIS CURT IN THE JUDGMENT IN RAJ KUMA RS CASE (SUPRA). THIS COURT IN RAJ KUMARS CASE (SUPRA) EXTENSIVELY REFERRED TO THE RE PORT OF THE TAXATION ENQUIRY COMMISSION AND THE SPEECH OF THE FINANCE MINISTER I N THE BUDGET WHILE INTRODUCING THE FINANCE BILL. ULTIMATELY, THIS COURT IN THE SAI D JUDGMENT HELD AS UNDER: 10.3. A BARE READING OF THE RECOMMENDATIONS OF THE COMMISSION AND THE SPEECH OF THE THEN FINANCE MINISTER WOULD SHOW THAT THE PURPOSE OF INSERTION OF CL. (E) TO S. 2(6A) IN THE 1922 ACT WAS TO BRING WITHIN THE TAX NET MONIES PAID BY CLOSELY HELD COMPANIES TOO THEIR PRINCIPAL SHAREHOLDERS IN THE GUISE OF LOANS AND ADVANCES TO AVOID PAYMENT OF TAX. 10.4 THEREFORE, IF THE SAID BACKGROUND IS KEPT IN M IND, IT IS CLEAR THAT SUB-CL.(E) OF S. 2(22) OF THE ACT, WHICH IS PARI MATERIAL WIT H CL. (E) OF S. 2(6A) OF THE 1922 ACT, PLAINLY SEEKS TO BRING WITHIN THE TAX NET ACCU MULATED PROFITS WHICH ARE DISTRIBUTED BY CLOSELY-HELD COMPANIES TO ITS SHAREH OLDERS IN THE FORM OF LOANS. THE PURPOSE BEING THAT PERSONS WHO MANAGE SUCH CLOS ELY-HELD COMPANIES SHOULD NOT ARRANGE THEIR AFFAIRS IN A MANNER THAT T HEY ASSIST THE SHAREHOLDERS IN AVOIDING THE PAYMENT OF TAXES BY HAVING THESE CO MPANIES PAY OR DISTRIBUTE, ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 16 WHAT WOULD LEGITIMATELY BE DIVIDEND IN THE HANDS OF THE SHAREHOLDERS, MONEY IN THE FORM OF AN ADVANCE OR LOAN. 10.5 IF THIS PURPOSE IS KEPT IN MIND THEN IN OUR VI EW, THE WORD ADVANCE HAS TO BE READ IT CONJUNCTION WITH THE WORD LOAN . USUALLY ATTRIBUTERS OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDING COUPLED WI TH 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 CONJUNCTION WITH A WORD LOAN MAY OR MAY NOT INCLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES NOT THEN IT WOULD BE A LOAN. THUS, ARISES THE CONUNDRUM AS TO WHAT MEANING ONE WOULD ATTRIBUT E TO THE TERM ADVANCE. THE RULE OF CONSTRUCTION TO OUR MINDS WHICH ANSWERS THIS CONUNDRUM IS NOSCITURE A SOCIIS. THE SAID RULE HAS BEEN EXPLAINE D BOTH BY THE PRIVY COUNCIL IN THE CASE OF ANGUS ROBERTSON VS. GEORGE DAY (1879 ) 5 AC 63 BY OBSERVING IT IS A LEGITIMATE RULE OF CONSTRUCTION TO CONSTRUE WORDS IN AN ACT OF PARLIAMENT WITH REFERENCE TO WORDS FOUND IN IMMEDIATE CONNECTI ON WITH THEM AND OUR SUPREME COURT IN THE CASE OF ROHIT PULP & PAPEAR MI LLS LTD. VS. CCE AIR 1991 SC 754 AND STATE OF BOMBAY VS. HOSPITAL MAZDOO R SABHA AIR 1960 SC 610. 12. THEREFORE, WE HOLD THAT THE TRIBUNAL WAS CORREC T IN HOLDING THAT THE MOUNTS ADVANCED FOR BUSINESS TRANSACTION BETWEEN THE PARTI ES, NAMELY, THE ASSESSEE COMPANY AND M/S PEE EMPRO EXPORTS (P) LTD. WAS NOT SUCH TO FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND UNDER S. 2(22)(E). TH E PRESENT APPEAL IS THEREFORE DISMISSED. ******** (C) WOLTERS KLUWER (INDIA) PVT LTD. THE REVENUE HAD FILED SLP BEFORE THE HON'BLE SUPREM E COURT AGAINST THIS JUDGMENT, WHICH HAS BEEN DISMISSED. 10 INCOME TAX REPORTS (STATUTES) [VOL.328 DEDUCTION ONLY ON ACTUAL PAYMENTS CONTRIBUTIONS TO PROVIDENT FUND AND EMPLOYEES STATE INSURANCE 10-7-2010: THEIR LORDSHIPS S.H. KAPADIA C.J.IL K.S. RADHAKRISHNAN AND SWATANTER KUMAR JJ. DISMISSED THE DEPARTMENTS SPEC IAL LEAVE PETITION AGAINST JUDGMENT DATED JULY 3, 2009 OF THE KARNATAK A HIGH COURT IN I.T.A. NO.939 OF 2008 WHEREBY THE HIGH COURT FOLLOWING 298 ITR 141 HELD THAT THE CONTRIBUTIONS TO THE PROVIDENT FUND AND EMPLOYEES S TATE INSURANCE WERE ALLOWABLE HAVING BEEN MADE BEFORE THE DUE DATE FOR FILING THE RETURN : CIT V. MYSORE PAPER MILLS LTD. : S.L.P. (CIVIL) NO. 20231 OF 2010. DEEMED DIVIDEND AMOUNT ADVANCED IN COURSE OF BUSINESS 7-7-2010 : THEIR LORDSHIPS S. H. KAPADIA C.J.I., K. S. RADHAAAAKRISHNAN AND SWATANTER KUMARJJ. DISMISSED THE DEPARTMENTS S PECIAL LEAVE PETITION AGAINST JUDGMENT DATED SEPTEMBER 22, 2009 OF THE DELHI HIGH COURT IN I.T.A. NO. 250 OF 2009 REPORTED IN 318 ITR 476 WHER EBY THE HIGH COURT HELD THAT THE AMOUNTS ADVANCED FOR BUSINESS TRANSACTION TO TH E ASSESSEE COMPANY BY THE COMPANY P DID NOT FALL WITHIN THE DEFINITION OF DEE MED DIVIDEND UNDER SECTION 2(22)(E): CIT V. CREATIVE DYEING AND PRINTING (P) L TD: S.L.P (CIVIL) NO. 18197 OF 2010 4.4.2.8 ALSO IN A RECENT JUDGMENT OF THE HON'BLE KA RNATAKA HIGH COURT IN M/S BAGMANE CONSTRUCTIONS PVT LTD VS. CIT IN ITA NO.473 /2013 IN JUDGMENT DATED 16.11.2014, THE HON'BLE HIGH COURT HAS SIMILARLY HE LD THAT LOAN OR ADVANCE GIVEN TO A ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 17 SHAREHOLDER OR TO ANY SISTER CONCERN AS A CONSIDERA TION FOR THE GOODS OR FOR PURCHASE OF A CAPITAL ASSET, CANNOT BE TREATED AS DEEMED DIV IDEND U/S. 2(22)-(E). IN THIS CASE, THE FACTS WERE EVEN MORE DIRECT THE COMPANY HAD ADVANCED LOAN DIRECTLY TO THE SHAREHOLDER FOR PURCHASE OF CAPITAL ASSET [LAND: TO COMPLY WITH CERTAIN LAND TRANSFER RESTRICTIONS] TO BE USED BY THE COMPA NY. THE HON'BLE HIGH COURT HELD THAT THE ADVANCE WAS NOT FOR THE PERSONAL BENEFIT O F THE SHAREHOLDER. SO SECTION 2(22)(E) WAS NOT APPLICABLE. 4.4.2.9 THUS, ALSO FROM LEGAL PERSPECTIVE, THE PROV ISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE TO THE FACTS OF THIS APPELLANTS CASE. 4.4.3 THUS, GROUND OF APPEAL NO.1 IS HEREBY ALLOWED . 4. THE REGISTRY HAS INFORMED THAT REVENUE HAS NOT P REFERRED ANY APPEAL IN ASSESSMENT YEAR 2010-11 AGAINST THE ABOVE EXTRAC TED CIT(A)S ORDER FOLLOWED IN THE IMPUGNED ASSESSMENT YEAR. THE INSTA NT ISSUE HAS ATTAINED FINALITY THEREFORE IN TAXPAYERS FAVOUR SI NCE THE REVENUE HAS ITSELF ACCEPTED CORRECTNESS OF THE CIT(A)S ORDER D ELETING THE VERY ADDITION IN EARLIER ASSESSMENT YEAR. WE THUS REJECT ITS SOLE SUBSTANTIVE GRIEVANCE AS WELL AS MAIN APPEAL. THERE IS NO DISTINCTION ON FACTS OR LAW POINTED OUT AT THE REVENUES BEHEST. WE THEREFORE ADOPT THE ABOVE DETAILED REASONING MUTATIS MUTANDIS TO CONFIRM THE CIT(A)S FINDINGS DELETING THE IMPUGNED DEEMED DIVIDEND ADDITION AS PER JUDICIAL CONSISTENCY PRINCIPLE. THE REVENUE FAILS I N ITS FORMER SUBSTANTIVE GROUND. 4. THE REVENUES LATTER SUBSTANTIVE GROUND SEEKS TO REVIVE SEC. 14A R.W.S RULE 8D DISALLOWANCE OF 19,81,219/- MADE IN THE COURSE OF ASSESSMENT AND DELETED IN LOWER APPELLATE PROCEEDINGS. SUFFICE TO SAY, THE ASSESSEE HAS SNOT DERIVED ANY EXEMPT INCOME IN THE IMPUGNED ASSESSMEN T YEAR. HON'BLE JURISDICTIONAL HIGH COURTS DECISION IN CIT VS. M/S ASHIKA GLOBAL SECURITIES LTD. ITAT 100 OF 2014 GA NO.2122 OF 2014 DECIDED ON 11.06.2018 HOLDS THAT SECTION 14A R.WS. 8D RULE DISALLOWANCE PROVISION DO ES NOT APPLY IN ABSENCE OF ANY EXEMPT INCOME DERIVED IN THE RELEVANT PREVIO US YEAR. THE CIT(A) HAS FOLLOWED THE VERY LEGAL POSITION WHILE ACCEPTING AS SESSEES ARGUMENTS. THE REVENUES INSTANT LAST SUBSTANTIVE GROUND ALSO FAIL S ACCORDINGLY. THE REVENUE FAILS IN ITS APPEAL ITA NO.242/KOL/2018. ITA NO.242 & CO 43/KOL/2018 A.Y.2013- 14 DCIT CIR-10(1), KOL VS. M/S DREAM BAKE PVT. L TD. PAGE 18 5. THE ASSESSEES CROSS OBJECTION 43/KOL/2018 SUPPO RTIVE OF CIT(A)S ORDER DELETING THE ABOVE TWO ADDITION(S) IS RENDERE D INFRUCTUOUS. 6. THIS REVENUES APPEAL ITA NO.242/KOL/2018 IS DIS MISSED AND ASSESSEES CROSS OBJECTION 43/KOL/2018 IS DISMISSED AS RENDERED INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT 31 /01/2019 SD/- SD/- ( ) () ) (DR.A.L. SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP, SR.P.S *- 31 / 01 /201 9 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-M/S DREAM BAKE PVT. LTD. 296, KALUKHAN RO AD, BORAL, KOLKATA-154 2. /REVENUE-DCIT, CIR-10(1), P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKATA-69 3. 5 6 / CONCERNED CIT KOLKATA 4. 6- / CIT (A) KOLKATA 5. 9 ))5, 5, / DR, ITAT, KOLKATA 6. > / GUARD FILE. BY ORDER/ , /TRUE COPY/ / 5,