DCIT, CHENNAI V. Flow Well Castings Pvt.Ltd., CHENNAI

ITA 1290/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64624 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-11-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 12-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JUNIOR
• Assessee Lawyers: P RAJASEKHARAN
• Keywords: Source of fund; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NOS. 1290, 1291, 1292, 1293 & 1294/MDS/2012 (ASSESSMENT YEARS : 2003-04 TO 2007-08) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(1), CHENNAI - 600 034 . (APPELLANT) V. M/S FLOW WELL CASTINGS PVT. LTD., 43, SIDCO INDUSTRIAL ESTATE, TIRUMUDIVAKKAM, CHENNAI - 600 004. PAN : AAACF6973G (RESPONDENT) APPELLANT BY : SHRI K.E.B. RENGARAJAN, JUNIOR STANDING COUNSEL RESPONDENT BY : SHRI P. RAJASEKHA RAN, CA DATE OF HEARING : 27.11.2012 DATE OF PRONOUNCEMENT : 06.12.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THESE APPEALS FILED BY THE REVENUE, ITS GRIEVA NCE IS THAT CIT(APPEALS) DELETED THE ADDITIONS MADE BY THE ASSE SSING OFFICER, APPLYING SECTION 2(22)(E) OF INCOME-TAX ACT, 1961 ( IN SHORT 'THE ACT'), CONSIDERING THE AMOUNTS RECEIVED BY THE ASSESSEE FR OM ITS SISTER I.T.A. NOS. 1290 TO 1294/MDS/12 2 CONCERN M/S FLOW WELL AUTO PRODUCTS (INDIA) PVT. LT D. AS DEEMED DIVIDEND. 2. FACTS APROPOS ARE THAT ASSESSEE, ENGAGED IN MANU FACTURING OF PRESSURE DIE CASTING COMPONENTS, HAD RECEIVED CERTA IN AMOUNTS, DURING THE RELEVANT PREVIOUS YEARS, FROM ONE M/S FL OW WELL AUTO PRODUCTS (INDIA) PVT. LTD. (FWPL). ASSESSEE-COMPAN Y AS WELL AS M/S FWPL WERE HAVING COMMON SHAREHOLDERS AND AS PER THE SHAREHOLDING PATTERN GIVEN BY THE ASSESSING OFFICER , THE FOUR INDIVIDUALS, WHO WERE HOLDING THE SHARES IN ASSESSE E-COMPANY, WERE ALSO HOLDING 83% OF SHARES IN M/S FWPL. ASSESSEE W AS PUT ON NOTICE AS TO WHY SECTION 2(22)(E) SHOULD NOT BE APP LIED FOR THE AMOUNTS RECEIVED BY IT FROM M/S FWPL. REPLY OF THE ASSESSEE WAS THAT THE AMOUNTS RECEIVED DID NOT REPRESENT ANY CAS H OR FUNDS FROM M/S FWPL. AS PER THE ASSESSEE, THE SAID COMPANY HA D PURCHASED RAW MATERIAL AND INCURRED EXPENSES FOR RAW MATERIAL ON BEHALF OF THE ASSESSEE, AS PER AN UNDERSTANDING BETWEEN THE ASSES SEE AND THE SAID COMPANY. THE SAID UNDERSTANDING WAS EMBODIED IN A MEMORANDUM OF UNDERSTANDING DATED 1.10.2002. AS PE R THE ASSESSEE, THE EXPENSES WHICH WERE INCURRED BY THE S AID COMPANY FOR AND ON BEHALF OF ASSESSEE-COMPANY, WERE RECORDED IN ASSESSEES BOOKS, THROUGH JOURNAL ENTRIES DEBITING PURCHASE AC COUNTS OR I.T.A. NOS. 1290 TO 1294/MDS/12 3 EXPENDITURE ACCOUNTS AND CREDITING THE ACCOUNTS OF M/S FWPL. THUS, AS PER THE ASSESSEE, THERE WERE NO LOAN TRANSACTION BUT ONLY BUSINESS TRANSACTIONS WITH THE SAID COMPANY. ARGUM ENT OF THE ASSESSEE WAS THAT ALL TRANSACTIONS BETWEEN TWO COMP ANIES WERE IN ACCORDANCE WITH MOU EXECUTED DURING THE COURSE OF B USINESS, AND WERE ONLY FOR THE PURPOSE OF BUSINESS. THEREFORE, ACCORDING TO IT, SECTION 2(22)(E) COULD NOT BE APPLIED ON THE AMOUNT S SHOWN AS DUE TO M/S FWPL IN ITS BOOKS. 3. HOWEVER, THE ASSESSING OFFICER WAS NOT IMPRESSED . ACCORDING TO HIM, ASSESSEE WAS DOING SUB-CONTRACT WORK FOR M/ S FWPL AND FOR THAT IT HAD RECEIVED PAYMENTS ALSO FROM THE SAID CO MPANY, AFTER DEDUCTING TAX AT SOURCE. WHEN COMPARED WITH SUCH R ECEIPTS, THE LOANS RECEIVED BY THE ASSESSEE FROM THE SAID COMPAN Y WERE SUBSTANTIALLY HIGHER. FOR PREVIOUS YEAR ENDED 31.3 .2003, THE TOTAL LOANS RECEIVED CAME TO ` 36,39,437.70, AGAINST WHICH, ASSESSEE HAD REPAID ` 6,39,437.70. ON THE OTHER HAND, RECEIPTS FROM THE SAID COMPANY FOR LABOUR CONTRACT WORK DONE BY THE ASSESS EE WAS ONLY ` 4,20,413/-. FOR PREVIOUS YEAR ENDED 31.3.2004, ASS ESSEE HAD RECEIVED A FURTHER LOAN OF ` 61,54,840/-, WHEREAS, JOB WORK RECEIPT FROM THE SAID COMPANY WAS ` 13,85,000/-. FOR PREVIOUS YEAR ENDED I.T.A. NOS. 1290 TO 1294/MDS/12 4 31.3.2005, THESE FIGURES WERE ` 43,78,340/- AND ` 34,05,561/- RESPECTIVELY. FOR PREVIOUS YEAR ENDED 31.3.2006, T HE AMOUNTS RECEIVED BY THE ASSESSEE FOR JOB WORK ARE NOT CLEAR FROM ASSESSMENT ORDER. NEVERTHELESS, AS PER THE A.O., ADVANCE RECE IVED BY THE ASSESSEE FROM M/S FWPL CAME TO ` 23,81,871/-. FOR PREVIOUS YEAR ENDED 31.3.2007, THE JOB WORK RECEIPTS WERE 9,77,70 4/-, WHEREAS, THE ADVANCES RECEIVED CAME TO ` 35 LAKHS. 4. ASSESSING OFFICER VERIFIED THE LEDGER ACCOUNTS O F ASSESSEE AND FOUND THAT IT WAS MAINTAINING TWO FOLIOS FOR M/S FW PL, ONE EXCLUSIVELY FOR JOB WORK AND THE OTHER FOR LOANS/ADVANCES. AS PER THE A.O., M/S FWPL WAS A SISTER CONCERN AND THE SHAREHOLDING PATT ERN CLEARLY CALLED FOR APPLICATION OF SECTION 2(22)(E) OF THE A CT, IN RESPECT OF ADVANCES RECEIVED BY THE ASSESSEE FROM THE SAID COM PANY, TO THE EXTENT OF ACCUMULATED PROFITS AVAILABLE WITH SUCH C OMPANY. ACCORDING TO HIM, THE PAYMENTS MADE BY THE SAID COM PANY FOR SUB- CONTRACT WORK DONE BY THE ASSESSEE, ON WHICH TDS WA S DEDUCTED BY THE SAID COMPANY, HAD NO RELEVANCE TO THE ADVANCE P ROVIDED BY THE SAID COMPANY TO THE ASSESSEE. SUCH ADVANCES WERE N EVER ADJUSTED AGAINST JOB WORK CHARGES. HENCE, THESE WERE NOTHIN G BUT LOANS/ADVANCES WHICH CALLED FOR APPLICATION OF SECT ION 2(22)(E) OF THE ACT. RELYING ON THE DECISION OF HONBLE CALCUTTA H IGH COURT IN THE I.T.A. NOS. 1290 TO 1294/MDS/12 5 CASE OF TARULATA SHYAM V. CIT (82 ITR 485) AND THAT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF K.M.S. LAK SHMANA AIYAR V. ADDL. ITO (40 ITR 469), A.O. HELD THAT THE ADVANCES RECEIVED BY THE ASSESSEE FROM THE SAID COMPANY FOR THE RELEVANT PRE VIOUS YEARS WERE ASSESSABLE UNDER SECTION 2(22)(E) OF THE ACT. ASSE SSMENTS WERE COMPLETED ACCORDINGLY. 5. IN ITS APPEALS BEFORE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT M/S FWPL WAS THE PARENT COMPANY OF THE ASS ESSEE. THE SAID PARENT COMPANY WAS STARTED IN MADRAS EXPORT PR OCESSING ZONE (MEPZ) AND ITS BUSINESS WAS TO EXPORT AUTOMOTIVE WA TER PUMPS TO VARIOUS MARKETS IN AUSTRALIA, EUROPE AND UNITED STA TES. FOR THE PURPOSE OF MANUFACTURING THESE AUTOMOTIVE WATER PUM PS, DIE-CASTED COMPONENTS WERE REQUIRED AND THE SAID COMPANY COULD NOT DIRECTLY MANUFACTURE THEM SINCE IT WAS LOCATED IN MADRAS EXP ORT PROCESSING ZONE (MEPZ), WHICH WAS A POLLUTION FREE AREA. SINC E DIE-CASTING PROCESS WOULD RESULT IN SOME AMOUNT OF POLLUTION, I T WAS NOT POSSIBLE TO HAVE A DIE-CASTING UNIT IN MEPZ AREA. HENCE, SH AREHOLDERS OF THE PARENT COMPANY DECIDED TO FLOAT ANOTHER COMPANY AND ASSESSEE- COMPANY WAS FORMED WITH THE SOLE INTENTION OF SUPPL YING DIE-CASTED COMPONENTS TO M/S FWPL. A MOU ALSO ENTERED BETWEEN ASSESSEE- COMPANY AND PARENT COMPANY IN THIS REGARD. AS PER THE ASSESSEE, I.T.A. NOS. 1290 TO 1294/MDS/12 6 ITS ONLY SOURCE OF FUNDS WERE THE AMOUNTS RECEIVED FROM PARENT COMPANY AND THE TWO COMPANIES WERE DOING BUSINESS I N TANDEM. THE TRANSACTIONS WERE PURELY BUSINESS TRANSACTIONS. AS PER THE ASSESSEE, FOR ASSESSMENT YEAR 2008-09, IN A SCRUTIN Y ASSESSMENT COMPLETED, THERE WERE NO SUCH ADDITION FOR DEEMED D IVIDEND. THUS ACCORDING TO ASSESSEE, FUNDS RECEIVED FROM PARENT C OMPANY WERE ALL IN THE NATURE OF TRADE ADVANCE AND NOT IN THE NATUR E OF A LOAN TO WHICH SECTION 2(22)(E) COULD BE APPLIED. 6. CIT(APPEALS) WAS SUBSTANTIALLY APPRECIATIVE OF T HESE CONTENTIONS. ACCORDING TO HIM, SECTION 2(22)(E) CO ULD BE APPLIED EVEN IN CASES WHERE PAYMENTS OF ADVANCES OR LOANS W ERE MADE TO A PERSON, WHO WAS A BENEFICIAL OWNER OF SHARES HOLDIN G NOT LESS THAN 10% OF VOTING POWER IN THE COMPANY WHICH HAD GIVEN SUCH ADVANCES. HOWEVER, AS PER CIT(APPEALS), TRADE ADVANCES OF THE TYPE PROVIDED BY M/S FWPL TO THE ASSESSEE WERE NOTHING BUT COMMER CIAL TRANSACTIONS WHICH DID NOT FALL WITHIN THE AMBIT OF SECTION 2(22)(E) OF THE ACT. RELYING ON THE DECISION OF DELHI HIGH COU RT IN THE CASE OF CIT V. RAJ KUMAR (318 ITR 462), CIT(APPEALS) HELD T HAT ADVANCES RECEIVED IN THE NORMAL COURSE OF BUSINESS OF THE AS SESSEE FELL OUTSIDE THE SCOPE OF SECTION 2(22)(E) OF THE ACT. IN THIS VIEW OF THE MATTER, HE I.T.A. NOS. 1290 TO 1294/MDS/12 7 WAS OF OPINION THAT RIGOURS OF SECTION 2(22)(E) WER E NOT ATTRACTED. ADDITIONS MADE FOR ALL THE YEARS WERE DELETED. 7. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER CIT(APPEALS), SUBMITTED THAT ASSESSMENT ORDER FOR A SSESSMENT YEAR 2003-04 WAS REPRESENTATIVE FOR ALL THE YEARS. SAID ASSESSMENT ORDER HAD TWO ANNEXURES ATTACHED TO IT. THE FIRST ANNEXU RE, ACCORDING TO HIM, WAS A COPY OF THE LEDGER ACCOUNT OF M/S FLOW W ELL AUTO PRODUCTS (INDIA) PVT. LTD. IN THE BOOKS OF THE ASSE SSEE FOR THE ADVANCES. SECOND ONE WAS COPY OF THE LEDGER ACCOUN T OF THE SAME COMPANY FOR JOB WORK. ACCORDING TO HIM, IT WAS CLE AR FROM THESE TWO SEPARATE LEDGER ACCOUNTS MAINTAINED BY THE ASSESSEE THAT FORMER ONE WAS NOTHING BUT ADVANCES RECEIVED AND THE LATTE R ALONE WAS THE ACCOUNT FOR THE JOB WORK CHARGES. ACCORDING TO HIM , ASSESSEE ITSELF HAD DIVIDED THE TRANSACTIONS INTO TWO. ONE WAS IN THE NATURE OF TRADE TRANSACTION, WHEREAS, OTHER ONE WAS LOANS OR ADVANC ES. ASSESSEE HAVING ITSELF DIVIDED THE TRANSACTIONS INTO TWO, CO ULD NOT TURN BACK AND SAY THAT LOANS WERE NOTHING BUT PART OF BUSINESS TR ANSACTION BETWEEN ASSESSEE AND M/S FWPL. ACCORDING TO HIM, THE TRANS ACTION FOR JOB WORK WERE VERY NEGLIGIBLE WHEN COMPARED TO ADVANCES RECEIVED BY THE ASSESSEE. THE SHAREHOLDING PATTERN LEFT NO ROO M FOR DOUBT THAT THE SHAREHOLDERS OF BOTH THE COMPANIES WERE HAVING SUBSTANTIAL I.T.A. NOS. 1290 TO 1294/MDS/12 8 COMMON HOLDINGS, RENDERING THE LOANS RECEIVED BY TH E ASSESSEE SUSCEPTIBLE TO APPLICATION OF SECTION 2(22)(E) OF T HE ACT. ACCORDING TO HIM, SUCH ADVANCES HAD TO BE CONSIDERED ONLY AS DEE MED DIVIDEND IN THE HANDS OF THE ASSESSEE, SINCE WITHOUT DOUBT, THE PARENT COMPANY WAS HAVING SUBSTANTIAL ACCUMULATED RESERVES. RELIA NCE WAS PLACED ON THE DECISIONS OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF SHYAMA CHARAN GUPTA V. CIT (337 ITR 511), HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT V. P.K. ABUBUCKER (25 9 ITR 507), THAT OF HONBLE APEX COURT IN THE CASE OF TARULATA SHYAM V. CIT (108 ITR 345) AND THAT OF DELHI BENCH OF THIS TRIBUNAL IN TH E CASE OF ACIT V. AJAY JADEJA (2010) 5 ITR (TRIB) 233 AND THAT OF MUM BAI BENCH OF THIS TRIBUNAL IN THE CASE OF RAJESH P. VED V. ACIT (2010 ) 1 ITR (TRIB) 275. AS FOR THE RELIANCE PLACED BY THE CIT(APPEALS ) ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF RAJ KUMA R (SUPRA), LEARNED D.R. SUBMITTED THAT THE MONEY RECEIVED BY THE ASSES SEE THERE, WAS PURELY IN THE NATURE OF TRADE ADVANCE. HERE, ON TH E OTHER HAND, IT WAS CLEAR THAT THE MONEY WHICH WAS SUBJECT TO THE APPLI CATION OF SECTION 2(22)(E) OF THE ACT, WAS NOT PART OF ANY TRADE ADVA NCE AT ALL. 8. PER CONTRA, LEARNED A.R. SUBMITTED THAT THE TRAN SACTIONS BETWEEN ASSESSEE AND M/S FWPL, WHICH WAS ITS PARENT COMPANY, WERE ONLY COMMERCIALLY EXPEDIENT BUSINESS TRANSACTI ONS. THEY WERE I.T.A. NOS. 1290 TO 1294/MDS/12 9 NOT LOANS OR ADVANCES PER SE. ASSESSEE-COMPANY ITS ELF WAS ESTABLISHED FOR THE PURPOSE OF SUPPLYING DIE-CASTED COMPONENTS TO ITS PARENT COMPANY DUE TO CONSTRAINTS FACED BY THE PARE NT COMPANY. HENCE, SOURCE OF FUNDS OF THE ASSESSEE WAS PARENT C OMPANY. IT WAS NOTHING BUT BUSINESS INTEREST OF THE PARENT COMPANY TO FINANCE THE ASSESSEE AND THE MONEY GIVEN TO THE ASSESSEE-COMPAN Y FOR CARRYING ON ITS BUSINESS, WHICH WAS OF COMMON INTEREST, COUL D NOT BE CONSIDERED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E ) OF THE ACT. RELIANCE WAS PLACED ON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V. SMT. G. SREEVIDYA I N I.T.A. NO. 1270/MDS/2011 DATED 28 TH JUNE, 2012. LEARNED A.R. ALSO PLACED A COPY OF THE MEMORANDUM OF UNDERSTANDING BETWEEN ASS ESSEE AND ITS PARENT COMPANY, WHICH ACCORDING TO THEM, CLEARL Y INDICATED THAT THE TRANSACTIONS WERE IN THE COURSE OF BUSINESS AND NOT ANY ADVANCE OR LOAN. 9. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. IN THE FIRST PLACE WHAT WE FIND IS THAT ASSESSEE-CO MPANY ITSELF WAS NOT HOLDING ANY SHARE AT ALL IN M/S FWPL. IT MIGHT BE TRUE THAT THE SHAREHOLDERS OF M/S FWPL WERE ALSO HOLDING SHARES I N ASSESSEE- COMPANY. THERE IS ALSO NO FINDING BY THE ASSESSING OFFICER THAT THE AMOUNTS PROVIDED BY M/S FWPL TO THE ASSESSEE, WHETH ER AS TRADE I.T.A. NOS. 1290 TO 1294/MDS/12 10 ADVANCE OR OTHERWISE, WAS EVER WITHDRAWN BY ANY SHA REHOLDERS. CASE OF THE ASSESSEE IS THAT THE FUNDS RECEIVED FRO M M/S FWPL WAS ITS ONLY SOURCE AND SUCH MONEY WAS UTILIZED ONLY FO R THE PURPOSE OF CATERING TO THE TRADE REQUIREMENT OF ITS PARENT COM PANY, NAMELY, FLOW WELL AUTO PRODUCTS (INDIA) PVT. LTD. (FWPL). AVERM ENT OF THE ASSESSEE THAT IT WAS SUPPLYING DIE-CASTED COMPONENT S TO ITS PARENT COMPANY DUE TO POLLUTION CONSTRAINTS FACED BY THE S AID PARENT COMPANY IN MEPZ RIGHT FROM ITS INCEPTION, HAS NOT B EEN COUNTERED OR REBUTTED BY THE REVENUE. THUS, WHEN ASSESSEE ITSEL F WAS ESTABLISHED FOR CATERING TO THE REQUIREMENT OF ITS PARENT COMPANY AND WHEN IT WAS IN COMMON BUSINESS INTEREST, WE CANNOT SAY THAT MONEY PROVIDED BY THE PARENT COMPANY WAS IN THE NATURE OF PURE LOAN OR ADVANCE. AS ALREADY MENTIONED BY US, THERE IS NO C ASE FOR THE REVENUE THAT THE MONEY PROVIDED BY THE PARENT COMPA NY TO THE ASSESSEE WAS MISUSED OR WAS WITHDRAWN BY THE SHAREH OLDERS OR ANY BENEFIT WAS RECEIVED BY THE SHAREHOLDERS. NO DOUBT , ASSESSEE- COMPANY WAS MAINTAINING TWO ACCOUNTS IN ITS BOOKS O F ACCOUNTS. ONE FOR JOB WORK CHARGES AND OTHER FOR THE AMOUNTS RECEIVED FROM M/S FWPL. JUST BECAUSE TWO ACCOUNTS WERE MAINTAINE D WOULD NOT MEAN THAT THE TRANSACTIONS WERE NOT IN THE COURSE O F ORDINARY BUSINESS. A LOOK AT THE LEDGER ACCOUNT OF M/S FLOW WELL AUTO I.T.A. NOS. 1290 TO 1294/MDS/12 11 PRODUCTS (INDIA) PVT. LTD. (FWPL) IN THE BOOKS OF T HE ASSESSEE APPENDED TO THE ASSESSMENT ORDER, CLEARLY SHOWS THA T A LARGE NUMBER OF ENTRIES THEREIN WERE ON ACCOUNT OF PURCHA SE OF ITEMS FOR ASSESSEE-COMPANY BY M/S FWPL, ON BEHALF OF ASSESSEE , FOR WHICH CREDITS WERE GIVEN TO THEM. THESE COULD NOT BE CON SIDERED IN ANY MANNER AS LOANS OR ADVANCES BUT ONLY TRANSACTIONS I N THE COURSE OF NORMAL BUSINESS. SECTION 2(22)(E) OF THE ACT IS RE PRODUCED HEREUNDER:- 2(22)(E) ANY PAYMENT BY A COMPANY, NOT BEING A COM PANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF A NY 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 AD VANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFIC IAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F 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 H E HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFE RRED TO AS THE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEH ALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULA TED PROFITS. BUT 'DIVIDEND' DOES NOT INCLUDE (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLAU SE (C) OR SUB- CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSIDERATION, WHERE THE HOLDER OF THE SHARE IS NOT ENTITLED IN TH E EVENT OF LIQUIDATION TO PARTICIPATE IN THE SURPLUS ASSETS ; [(IA) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CL AUSE (C) OR SUB- CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS ATTRIB UTABLE TO THE CAPITALISED PROFITS OF THE COMPANY REPRESENTING BON US SHARES ALLOTTED TO ITS EQUITY SHAREHOLDERS AFTER THE 31ST DAY OF MARCH, 1964, [AND BEFORE THE 1ST DAY OF APRIL, 1965] ;] I.T.A. NOS. 1290 TO 1294/MDS/12 12 (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 O FF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PR EVIOUSLY 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 PR OVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956 (1 OF 1956) ; (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERG ER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERG ED COMPANY (WHETHER OR NOT THERE IS A REDUCTION OF CAPITAL IN THE DEMERGED COMPANY). THE ABOVE SECTION CERTAINLY BRINGS INTO ITS FOLD AD VANCES OR LOANS RECEIVED BY A SHAREHOLDER, PROVIDED SUCH A SHAREHOL DER IS A BENEFICIAL OWNER OF THE SHARES AND IS BENEFITTED FR OM SUCH LOANS/ ADVANCES. AS ALREADY MENTIONED BY US, THERE IS NO C ASE FOR THE REVENUE THAT ANY BENEFIT OUT OF THESE ADVANCES WERE ENJOYED BY THE SHAREHOLDERS OF EITHER ASSESSEE-COMPANY OR THAT OF PARENT COMPANY. SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V. BHAUMIK COLOUR (P.) LTD. (118 ITD 1) HAS CLEARLY HELD THAT SECTION 2(22)(E) COULD BE APPLIED ONLY TO A PERSON, WHO WAS BOTH BENEFICIAL A S WELL AS REGISTERED SHAREHOLDER. THIS VIEW TAKEN BY SPECIAL BENCH OF THIS TRIBUNAL STANDS UPHELD BY HONBLE BOMBAY HIGH COURT BY VIRTUE OF I.T.A. NOS. 1290 TO 1294/MDS/12 13 THE DECISION IN THE CASE OF CIT V. UNIVERSAL MEDICA RE (P.) LTD. (324 ITR 263) AND ALSO BY HONBLE DELHI HIGH COURT IN TH E CASE OF CIT V. ANKITECH (P.) LTD. (340 ITR 14). IN OUR OPINION, T HE VIEW OF THE CIT(APPEALS) THAT THE TRANSACTIONS BETWEEN THE ASSE SSEE AND M/S FWPL WERE NOTHING BUT IN THE NATURE OF COMMERCIAL T RADE TRANSACTION ENTERED BETWEEN TWO SISTER CONCERNS IN PURSUANCE OF BUSINESS INTEREST, WAS ALSO JUSTIFIED CONSIDERING THE NATURE OF SUCH TRANSACTION. WE ARE THEREFORE OF THE OPINION THAT ASSESSEE-COMPA NY COULD NOT HAVE BEEN FASTENED WITH A LIABILITY FOR DEEMED DIVI DEND UNDER SECTION 2(22)(E) OF THE ACT. 10. BEFORE PARTING, IT WILL BE INAPPROPRIATE IF WE DO NOT DEAL WITH DECISIONS RELIED ON BY THE LEARNED D.R. IN THE CAS E OF P.K. ABUBUCKER (SUPRA), DECIDED BY THE HONBLE JURISDICT IONAL HIGH COURT, THE ADVANCES WERE GIVEN TO THE MANAGING DIRECTOR FO R CONSTRUCTION OF BUILDING. IN THE CASE OF SHYAMA CHARAN GUPTA DECID ED BY HONBLE ALLAHABAD HIGH COURT (SUPRA), THE ADVANCES WERE AGA IN TO THE MANAGING DIRECTOR AND THESE WERE TO BE ADJUSTED AGA INST COMMISSION ON PROFITS. IN THE CASE OF TARULATA SHY AM DECIDED BY HONBLE APEX COURT (SUPRA), IT WAS PURE LOAN/ADVANC E TO A SHAREHOLDER. IN THE CASE OF AJAY JADEJA DECIDED BY DELHI BENCH OF THIS TRIBUNAL (SUPRA), THE MONEY WAS RECEIVED BY A SHAREHOLDER, WHO I.T.A. NOS. 1290 TO 1294/MDS/12 14 WAS A SPORTSMAN AND IN THE CASE OF RAJESH P. VED, D ECIDED BY MUMBAI BENCH OF THIS TRIBUNAL (SUPRA), THE AMOUNTS WERE CREDITED IN THE LOAN ACCOUNT OF AN INDIVIDUAL, WHO WAS A DIRECT OR IN THE COMPANY. NONE OF THESE CASES WILL HELP REVENUES CASE HERE. WE ARE, THEREFORE, OF THE OPINION THAT CIT(APPEALS) WAS JUS TIFIED IN DELETING THE ADDITIONS MADE UNDER SECTION 2(22)(E) OF THE AC T. NO INTERFERENCE IS REQUIRED. 11. IN THE RESULT, ALL THE FIVE APPEALS FILED BY TH E REVENUE ARE DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE SIXTH OF DECEMBER, 2012, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 6 TH DECEMBER, 2012. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-III, CHENNAI/ CIT, CHENNAI-I, CHENNAI/D.R./GUARD FILE