Deputy Commissioner of Income-tax, V. Shri Sudhir V. Karnataki, Pune

ITA 144/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0581 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 22-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Proportionate interest; Deemed dividend; Commercial expediency
• Section: 143(3)

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE , !', $ % BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.130/PN/2014 ASSESSMENT YEAR : 2010-11 SHRI SUDHIR V. KARNATAKI, A-1, RAJGADH, SBI COLONY, SHIVTIRTH NAGAR, KOTHRUD, PUNE 411 038. PAN : AFIPK9965R . APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 3, PUNE. . RESPONDENT ITA NO.144/PN/2014 ASSESSMENT YEAR : 2010-11 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 3, PUNE. . APPELLANT VS. SHRI SUDHIR V. KARNATAKI, A-1, RAJGADH, SBI COLONY, SHIVTIRTH NAGAR, KOTHRUD, PUNE 411 038. PAN : AFIPK9965R . RESPONDENT ASSESSEE BY : SHRI KISHOR PHADKE DEPARTMENT BY : SHRI MAHESH AKHADE / DATE OF HEARING : 07.12.2015 / DATE OF PRONOUNCEMENT: 30.12.2015 & / ORDER PER PRADIP KUMAR KEDIA, AM : THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REV ENUE ARE AGAINST THE ORDER OF CIT(A)-II, PUNE, DATED 23.09.2013 RELATING TO ASSESSMENT YEAR 2010-11 PASSED UNDER SECTION 143(3) OF THE INCOME T AX ACT, 1961 (IN SHORT THE ACT). 2 ITA NO.130/PN/2014 ITA NO.144/PN/2014 2. THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLID ATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO.130/PN/2014 HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL :- 1. THE LD. CIT(A)-II, PUNE ERRED IN LAW AND ON FAC TS IN CONFIRMING AO'S ACTION OF DISALLOWANCE OF INTEREST U/S 36(1)(III) AMOUNTIN G TO RS.11,74,469/-. 2. THE LD. CIT(A)-II, PUNE ERRED IN LAW AND ON FACT S IN CONFIRMING AO'S ACTION OF MAKING ADDITION OF RS.18,37,003/- BEING CLOSING BALANCE OF ADVANCE RECEIVED FROM M/S TRY CONSTRUCTION PVT. LTD. A SISTER CONCER N OF APPELLANT AS DEEMED DIVIDEND U/S 2(22)(E) OF INCOME TAX ACT, 1961. 3. THE ASSESSEE CRAVES LEAVE TO ADD/ MODIFY/ DELETE ALL OR ANY OF THE GROUNDS OF APPEAL. 4. THE REVENUE IN ITA NO.144/PN/2014 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN HOLDING THAT PAYMENTS MADE BY M/S. TRY DEVELOPERS PVT. LTD. (TDP L) TO THE ASSESSEE FOR PURCHASE OF COMMERCIAL SPACE AS PER MOU CANNOT PART AKE THE CHARACTER OF LOAN OR ADVANCE SO AS TO BE COVERED WITHIN THE PURV IEW OF SEC.2(22)(E) OF THE ACT. 2) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT THOUGH THE PRACTICE OF P RELAUNCH OFFER IS COMMON IN REAL ESTATE SECTOR, IN THE INSTANT CASE, THE TRANSACTION WAS NOT BETWEEN TWO UNRELATED ENTITIES BUT BETWEEN THE ASSESSEE AND M/S. TDPL IN WHICH ASSESSEE HELD 87% SHARES AND HIS WIFE HELD 13% SHARE. 3) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT APPRECIATING THAT THE SAID TRANSACTION WAS NOT A NO RMAL BUSINESS TRANSACTION AND THAT THE AMOUNT ADVANCED WAS NOT A BUSINESS ADVANCE AS ASSESSEE HAD ADMITTED BEFORE THE ASSESSING OFFICER THAT THE MOTIVE OF MOU WAS FOR TDPL TO BE ABLE TO GIVE PROPOSED PROPERTY ON RENT AND THAT INTEREST HAD BEEN PAID BY THE ASSESSEE TOWARDS THE LOAN. 4) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT APPRECIATING SIMILAR TREATMENT HAD BEEN GIVEN TO PA YMENT RECEIVED FROM M/S. TRY CONSTRUCTIONS PVT. LTD., SISTER CONCERN TO WHICH TH E ASSESSEE CONSENTED WHICH PROVES THAT THE PAYMENTS MADE BY TDPL TO THE ASSESSEE WAS INDEED A LOAN. 5) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT APPRECIATING THAT THE LAND OF THE PROPOSED BUILDING HAD NOT BEEN ACQUIRED BY THE DATE OF SAID MOU WHICH SUGGEST THAT MOU WAS AN AFTE RTHOUGHT. 6) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY OR ALL THE GROUNDS OF APPEAL. 3 ITA NO.130/PN/2014 ITA NO.144/PN/2014 5. FIRST, WE SHALL TAKE-UP THE APPEAL OF THE ASSESS EE IN ITA NO.130/PN/2014. IN THIS APPEAL, THE ASSESSEE HAS R AISED TWO ISSUES FOR ADJUDICATION. 6. THE FIRST ISSUE RELATES TO DISALLOWANCE OF INTER EST UNDER SECTION 36(1)(III) OF THE ACT AMOUNTING TO RS.11,74,469/-. 7. BRIEFLY STATED THE RELEVANT FACTS PERTAINING TO THE ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN REAL ESTATE DEVELOPMENT AND CONSTRUCTION ACTIVITY AND HAS ALSO EARNED INCOME FROM AGRICULTURAL OPERATIONS . THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.4,70,09,189/ -. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT INTEREST BEARING FUNDS HAVE BEEN EXTENDED FOR NON- BUSINESS PURPOSES ALSO. AS THE ASSESSEE HAS BORROW ED FUNDS AND WAS PAYING INTEREST ON THESE FUNDS, HE PROPOSED PROPORTIONATE DISALLOWANCE OF EXPENDITURE ON LOANS WHICH IS NOT UTILIZED FOR BUSINESS PURPOSE S. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT OUT OF TOTAL LOAN S AND ADVANCES OF RS.81,35,000/-, RS.75,85,000/- WERE EXTENDED FOR NO N-BUSINESS PURPOSES ON WHICH INTEREST BEARING FUNDS WERE UTILIZED. THE PR OPORTIONATE INTEREST ATTRIBUTABLE TO THIS NON-BUSINESS UTILIZATION WAS C ALCULATED BY THE ASSESSING OFFICER AT RS.19,57,449/-. THE ASSESSING OFFICER O BSERVED THAT SINCE 60% OF THE AFORESAID INTEREST HAS BEEN CHARGED TO THE PROF IT & LOSS ACCOUNT AND REST HAS BEEN CAPITALIZED AS WORK-IN-PROGRESS, THE DISAL LOWANCE IS LIMITED TO 60% OF RS.19,57,449/- I.E. RS.11,74,469/-. 8. IN APPEAL BEFORE THE CIT(A), THE ASSESSEE CONTEN DED THAT NON-INTEREST BEARING ADVANCES WERE MADE BY THE ASSESSEE OUT OF O WN FUNDS. IT WAS SUBMITTED BEFORE THE CIT(A) THAT THE ASSESSING OFFI CER HAS COMPUTED THE DISALLOWANCE FOR THE WHOLE YEAR WHEREAS THE COMPUTA TION HAS TO BE MADE ON DAY-TO-DAY BASIS ON THE PERIOD OF FUNDS EMPLOYED. 9. IT WAS OBSERVED BY THE CIT(A) THAT THE ENTIRE FU ND HAS BEEN RECEIVED IN THE BANK ACCOUNT WHICH IS COMMON FOR ALL SOURCES. THE ASSESSEE HAS NOT BEEN 4 ITA NO.130/PN/2014 ITA NO.144/PN/2014 ABLE TO BRING ANY MATERIAL TO INDICATE THE PURPOSE OR THE COMMERCIAL EXPEDIENCY FOR WHICH THE ADVANCE AND THE BENEFIT AC CRUING OUT OF THE SAID ADVANCES IS APPARENTLY NOT SHOWN TO HAVE SERVED ANY BUSINESS PURPOSES OF THE ASSESSEE. HE OBSERVED THAT ASSESSEE COULD NOT SHOW ANY ELEMENT OF COMMERCIAL EXPEDIENCY IN INTEREST-FREE ADVANCES AND ACCORDINGLY CONFIRMED THE DISALLOWANCE OF PROPORTIONATE INTEREST PLACING RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILD ERS LTD. VS. CIT, (2007) 288 ITR 1 (SC). THE RELEVANT PARA OF THE FINDING O F THE CIT(A) IS REPRODUCED AS UNDER :- 4.2 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND PERUSED MATERIAL ON RECORD. THE APPELLANT HAS AN OUTSTANDIN G LOAN OF RS. 90.72 LACS AND PAID AN INTEREST OF RS. 23.41 LACS DURING THE YEAR. THE APPELLANT HAS ALSO ADVANCED RS. 81.35 LACS TO VARIOUS PARTIES ON WHICH IT HAS N OT CHARGED ANY INTEREST AND OUT OF THE SAID AMOUNT ADVANCES OF RS. 75.85 LACS HAVE BEE N ADMITTED TO HAVE BEEN GIVEN FOR NON BUSINESS PURPOSE. THE ASSESSING OFFICER ON THE OTHER HAND IS OF THE OPINION THAT INTEREST BEARING FUNDS ARE EXTENDED FOR INTERE ST FREE ADVANCES AND THAT TOO FOR NON BUSINESS PURPOSE AND HENCE AS PER THE PROVISION OF SEC 36(1)(III) PROPORTIONATE DISALLOWANCE HAS TO BE MADE FROM THE INTEREST PAID. THE FUNDS HAVE BEEN RECEIVED BY THE APPELLANT IN A BANK ACCOUNT WHICH IS COMMON FOR ALL SOURCES AND APPLICATIONS. 4.3 INTEREST ON BORROWED MONEY IS ALLOWED AS A DEDU CTION FROM BUSINESS, ONLY IF IT SATISFIES THE CONDITION THAT IF FOR THE PURPOSE OF BUSINESS OR PROFESSION WHERE THE MONEY BORROWED WAS DIVERTED FOR GIVING INTEREST FRE E LOANS TO SISTER CONCERN, THE PROPORTIONATE INTEREST ATTRIBUTABLE TO SUCH LOANS C OULD BE LEGITIMATELY DISALLOWED BY THE ASSESSING OFFICER. IT WAS SO HELD IN S A BUILDE RS LTD VS CIT (2004) 269 ITR 535 (P&H). THE APPELLANT IN THE PRESENT CASE HAS NOT BE EN ABLE TO BRING ANY MATERIAL ON RECORD TO INDICATE THE PURPOSE OR THE COMMERCIAL EX PEDIENCY FOR WHICH THE SAID AMOUNTS WERE ADVANCED INTEREST FREE AND THE BENEFIT ACCRUING OUT OF THE SAID ADVANCES IS APPARENTLY NOT SHOWN TO HAVE SERVED ANY BUSINESS PURPOSE FOR THE APPELLANT. WHERE THE ASSESSEE LENDS MONEY WITHOUT I NTEREST, THERE CAN BE NO INFERENCE OF NOTIONAL INCOME BASED ON REASONABLE IN TEREST, WHICH THE ASSESSEE MIGHT HAVE CHARGED FOR LENDING TO RELATIVES OR SISTER CON CERNS. BUT THEN, IT IS POSSIBLE IN SUCH CASES TO DISALLOW A PROPORTIONATE PART OF INTE REST PAID ON SUCH BORROWED CAPITAL, IF ANY, TO THE EXTENT THAT THE BORROWED FU NDS ARE UTILIZED FOR INTEREST FREE ADVANCES. DISALLOWANCE IS ON THE GROUND THAT IT WIL L NOT BE ELIGIBLE FOR DEDUCTION AS EXPENDITURE INCURRED FOR PURPOSES OF BUSINESS. HOWE VER, IF THE ASSESSEE COULD SHOW THAT SUCH INTEREST FREE ADVANCES HAVE AN ELEMENT OF COMMERCIAL EXPEDIENCY, IT MAY NOT NEED DISALLOWANCE AS WAS HELD BY THE APEX COURT IN THE CASE OF S A BUILDERS LTD VS CIT (2007) 288 ITR 1 (SC), ALSO RELIED UPON BY T HE APPELLANT. THE FACTS AS BROUGHT ON RECORD CLEARLY INDICATE THAT THE APPELLA NT HAS FAILED TO SHOW AND DEMONSTRATE THE COMMERCIAL EXPEDIENCY FOR ADVANCING THE AFORESAID AMOUNT TO ITS SISTER CONCERNS AND, THEREFORE, THE RELIANCE PL ACED BY THE APPELLANT ON THE AFORESAID DECISION IS MISPLACED AS THE FACTS ARE NO T APPLICABLE AND CLEARLY DISTINGUISHABLE. THE APPELLANT IN THE PRESENT CASE HAS NOT DEMONSTRATED THAT THE SUMS LENT WERE UTILIZED FOR THE PURPOSES OF BUSINES S BY ITS SUBSIDIARY AS NO EVIDENCE OR ANY MATERIAL TO THAT EFFECT HAS BEEN BR OUGHT ON RECORD. IN THE CASE OF CIT VS POPULAR VEHICLES AND SERVICES LTD (2010) 325 ITR 523 (KAR) WHERE THE INTEREST FREE LOANS TO A SISTER CONCERN WAS NOT SHO WN TO BE FOR ITS BENEFIT OR PROMPTED BY COMMERCIAL EXPEDIENCY, DISALLOWANCE WAS HELD TO BE JUSTIFIED. A 5 ITA NO.130/PN/2014 ITA NO.144/PN/2014 DISTINCTION IS SOMETIMES SOUGHT TO BE MADE BETWEEN LOANS, WHICH ARE TAKEN FOR PURPOSES OF BUSINESS, BUT LATER DIVERTED FOR NON-BU SINESS USE, SO THAT DISALLOWANCE IS DISPUTED ON THE GROUND THAT THE LAW IS CONCERNED WITH RULING FACTS AT THE TIME OF BORROWING, BUT THE DEPARTMENTAL INFE RENCE HAS CONSISTENTLY BEEN THAT EVEN IN SUCH CASE THE AMOUNT CEASED TO BE A BORROWI NG FOR THE PURPOSE OF BUSINESS, SO THAT A PROPORTIONATE DISALLOWANCE CAN BE MADE EV EN WHERE IT IS NOT POSSIBLE TO IDENTIFY THE SOURCE OF DIVERTED FUNDS, WHEN THEY AR E MIXED UP WITH GENERAL FUND. THIS VIEW HAS BEEN ACCEPTED IN THE CA SE OF CIT VS H.R. SUGAR FACTORY PVT. LTD (1991) 187 ITR 363 (ALL), THE HON. COURT POINTED OUT THAT NO BUSINESS PURPOSE WAS SERVED BY SUCH LENDING AND THA T THE AMOUNTS WERE SUBSTANTIAL AND CANNOT BE GLOSSED OVER AND THAT THE FACT THAT THE ASSESSEE BORROWS MONEY FOR ITS BUSINESS CANNOT BY ITSELF JUS TIFY THE DEDUCTION. THE APPELLANT'S PLEA THAT SUFFICIENT INTEREST FREE FUND S WERE AVAILABLE IN COMPARISON TO THE INTEREST BEARING FUNDS DOES NOT HOLD GOOD BECAU SE THE APPELLANT HAS MADE INVESTMENTS IN FIXED ASSET, LOANS AND ADVANCES AND ALSO CERTAIN INVESTMENT AS IS EVIDENT FROM THE BALANCE SHEET OF THE APPELLANT COM PANY WHICH CLEARLY INDICATES THAT THE AVAILABLE FUNDS WERE NOT FREE AND AVAILABL E TO THE APPELLANT. THE APPELLANT HAS NOT BEEN ABLE TO PROVE THE AVAILABILI TY OF THE INTEREST FREE FUNDS WITH REFERENCE TO BANK ACCOUNT. IN THE CASE OF CIT VS VA RINDER AGRO CHEMICALS LTD (2007) 290 ITR 147 (P&H), THE LOAN TO THE SISTER CO MPANY WAS INTEREST FREE AND SUCH WAS NOT SHOWN TO BE FOR THE PURPOSES OF BUSINE SS, INTEREST LIABILITY INCURRED BY THE ASSESSEE FOR ADVANCING THE LOAN WAS FOUND TO BE NOT ELIGIBLE FOR DEDUCTION. THUS WHEN THE ASSESSEE BORROWS MONEY FOR PURPOSES O F ADVANCING INTEREST FREE LOANS TO SISTER CONCERN, IT STANDS TO REASON THAT S UCH INTEREST WOULD NOT BE ELIGIBLE AS DEDUCTION U/S 36(I)(III) OF THE I.T. ACT. 4.4 WHILE INTEREST ON BORROWINGS FOR BUSINESS IS AL LOWABLE AS A DEDUCTION U/S 36(1)(III) SUCH BORROWING IF DIVERTED WOULD CEASE T O BE A BORROWING FOR PURPOSES OF BUSINESS SO THAT PROPORTIONATE INTEREST IS LIABLE F OR DISALLOWANCE. IT WAS SO HELD IN K. SOMA SUNDARAM & BROTHERS (1999) 238 ITR 939 (MAD) I N THE CONTEXT OF BORROWING BEING DIVERTED FOR INTEREST FREE ADVANCE TO RELATIV ES OF PARTIES. IT WAS FOUND THAT, THE FACT THAT IT WAS INITIALLY BORROWED FOR THE PURPOSE S OF BUSINESS CANNOT JUSTIFY THE DEDUCTION. IT IS EXPECTED THAT THE CAPITAL BORROWED FOR THE PURPOSE OF THE BUSINESS CONTINUES TO REMAIN IN THE BALANCE-SHEET IN THE SEN SE THAT IT IS USED FOR BUSINESS WHERE AN INCOME EARNED BY A COMPANY IS SOUGHT TO BE DIVERTED TO ANOTHER BY ARTIFICIAL MEANS, COURT COULD ALWAYS IGNORE SUCH AR RANGEMENT AND TAX THE PERSONS, WHO IN LAW IS ENTITLED TO THE INCOME NOTWITHSTANDIN G THE FACT THAT IT HAS BEEN DIVERTED. WHEN ASSESSEE BORROWS MONEY FOR PURPOSES OF ADVANCING INTEREST FREE LOANS TO SISTER CONCERNS, IT STANDS TO REASON THAT SUCH INTEREST WOULD NOT BE ELIGIBLE FOR A DEDUCTION U/S 36(1)(III). WHERE THE FUNDS ARE SO MIXED UP SO THAT IT IS NOT POSSIBLE TO IDENTIFY THE EXTENT OF BORROWING UTILIS ED FOR SUCH LOANS, PROPORTIONATE AMOUNT COULD BE DISALLOWED AS HELD IN THE CASE OF K . SOMA SUNDARAM CITED (SUPRA). INTEREST ON BORROWED CAPITAL TO THE EXTENT TO WHICH SUCH CAPITAL IS GIVEN AS INTEREST FREE ADVANCES TO SISTER CONCERNS WITHOUT ANY JUSTIF IABLE REASON IS LIABLE FOR DISALLOWANCE. THE APPELLANT HAS ADVANCED HUGE SUMS OF MONEY FOR WHICH NO JUSTIFIABLE REASONS HAVE BEEN BROUGHT ON RECORD. 4.5 IN VIEW OF THE ABOVE FACTS, THE DISALLOWANCE ON ACCOUNT OF INTEREST FOR NON- BUSINESS PURPOSE MADE BY THE A.O. IS UPHELD. GROUND NO. 2 OF APPEAL IS LIABLE TO BE DISMISSED. 10. WE ARE IN AGREEMENT WITH THE OBSERVATIONS OF TH E CIT(A) THAT MONEY LYING IN COMMON POOL HAS NO IDENTITY. HOWEVER, WE ARE OF THE VIEW THAT THE DISALLOWANCE HAS TO BE RESTRICTED FOR THE PERIOD FO R WHICH THE INTEREST-FREE ADVANCES HAVE BEEN AVAILED. THE LD. AUTHORIZED REP RESENTATIVE FOR THE 6 ITA NO.130/PN/2014 ITA NO.144/PN/2014 ASSESSEE REFERRED AT PAGE NO.4 OF THE PAPER BOOK AN D SUBMITTED THAT THE DISALLOWANCE CALCULATED AT THE RATE OF 14% PER ANNU M ON DAY TO BASIS THE DISALLOWANCE OF INTEREST CALCULATED WORKS OUT TO RS .1,69,552/- WHICH WAS SUBMITTED BEFORE THE CIT(A) AS NOTED IN PAGE NO.5 O F HIS ORDER. WE FIND THAT IN VIEW OF THE AFORESAID WORKING AVAILABLE BEFORE T HE LOWER AUTHORITIES, THE DISALLOWANCE SHOULD BE CONFINED TO THE AFORESAID AM OUNT OF RS.1,69,552/-. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DID NOT AGITATE THE MATTER FURTHER AND FAIRLY CONSENTED FOR SUCH RESTRICTED DI SALLOWANCE IN THE COURSE OF HEARING. 11. IN THE RESULT, THE GROUND NO.1 OF THE ASSESSEE S APPEAL IS PARTLY ALLOWED. 12. THE SECOND ISSUE RAISED BY THE ASSESSEE IS TOWA RDS ADDITION OF RS.18,37,003/- ON ACCOUNT OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. THE REVENUE HAS ALSO RAISED IDENTICAL ISSUE A GAINST RELIEF ON APPLICABILITY OF PROVISIONS OF DEEMED DIVIDEND BY CIT(A) IN THEIR APPEAL FOR ANOTHER AMOUNT OF RS.41,30,130/- ARISING FROM THE SAME CAUS E OF ACTION. 13. BRIEFLY STATED THE RELEVANT FACTS INVOLVING THE ISSUE ARE THAT ON PERUSAL OF THE BALANCE-SHEET OF THE ASSESSEE, THE ASSESSING OF FICER OBSERVED THAT THE ASSESSEE HAS TAKEN UNSECURED LOAN FROM SISTER CONCE RNS NAMELY M/S TRY DEVELOPERS (P) LTD. (TDPL) RS.41,30,130/- AND M/S T RY CONSTRUCTION P. LTD. (TCPL) RS.23,58,102/-. IT WAS OBSERVED BY THE ASSE SSING OFFICER THAT BOTH THESE LENDER COMPANIES I.E. TDPL AND TCPL ARE CLOSE LY HELD COMPANIES. THE ASSESSEE IS REGISTERED SHARE-HOLDER IN THESE COMPAN IES AND IS BENEFICIAL HOLDER OF MORE THAN 10% OF THE EQUITY SHARES OF BOTH THESE COMPANIES. THE LENDER COMPANIES HAVE ACCUMULATED PROFITS AVAILABLE FOR DI STRIBUTION OF DIVIDEND. HE ACCORDINGLY INVOKED PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND HELD THAT THE LOAN GIVEN TO THE ASSESSEE IS TAXABLE AS DEEMED DIV IDEND IN THE HANDS OF THE ASSESSEE. 7 ITA NO.130/PN/2014 ITA NO.144/PN/2014 14. THE ASSESSING OFFICER, INTER-ALIA , OBSERVED THAT THE ASSESSEE DID NOT RAISE ANY OBJECTION TO THE TREATMENT OF LOAN OF TCP L AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. HOWEVER, IN RES PECT OF LOAN RECEIVED FROM TDPL, THE ASSESSEE SUBMITTED THAT SAME CANNOT BE TA KEN UNDER THE PURVIEW OF SECTION 2(22)(E) OF THE ACT FOR THE REASON THAT THE AMOUNT RECEIVED IS GUIDED BY COMMERCE IN THE ORDINARY COURSE OF BUSINESS. THE A SSESSEE STATED TO HAVE ENTERED INTO AN AGREEMENT WITH ONE NATU FAMILY FOR SOME LAND DEAL FOR DEVELOPMENT OF PROPERTY. SUBSEQUENTLY, THE LENDER T DPL ENTERED INTO A MEMORANDUM OF UNDERSTANDING (MOU) WITH THE ASSESSEE FOR ACQUIRING COMMERCIAL SPACE ON THE FIRST FLOOR OF THE PROPOSED BUILDING. IT WAS SUBMITTED THAT IN CONSIDERATION OF PROPOSED PURCHASE OF COMME RCIAL SPACE, THE AMOUNT WAS RECEIVED AS AN ADVANCE AS MENTIONED IN THE MOU. THE ASSESSEE FURTHER SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE AMO UNT DUE TO TDPL WAS WRONGLY MENTIONED AS LOAN WHICH IN-FACT IS IN THE N ATURE OF CURRENT LIABILITY. THE ASSESSING OFFICER, HOWEVER, REJECTED THE THEORY OF IMPUGNED COMMERCIAL ADVANCE AS SPECIFIED IN MOU. HE QUESTIONED THE BON A-FIDES OF MOU ON THE GROUND THAT THE SAID MOU IS NOT REGISTERED AND IS A N AFTERTHOUGHT. THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT LOANS RECEIVED FROM THESE TWO PARTIES ARE SQUARELY COVERED WITHIN THE AMBIT OF SE CTION 2(22)(E) OF THE ACT AS ALL THE CONDITIONS OF THE SECTION HAS BEEN FULFILLE D. IN RESPECT OF LOAN OF RS.23,58,102/- RECEIVED FROM TCPL, THE ADDITION TOW ARDS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT WAS RESTRICTED TO THE EXTENT OF AVAILABLE ACCUMULATED PROFIT OF RS.18,37,003/-. SIMILARLY, O UTSTANDING LOAN OF RS.41,30,130/- RECEIVED FROM TDPL WAS TREATED AS DE EMED DIVIDEND IN THE HANDS OF THE ASSESSEE. SINCE ACCUMULATED PROFITS O F RS.1,99,44,199/- WAS FAR IN EXCESS OF THE OUTSTANDING LOAN. 15. THE CIT(A) CONFIRMED THE ADDITION OF RS.18,37,0 03/- RECEIVED FROM TCPL AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF T HE ACT ON THE GROUND THAT THE ASSESSEE HAS NOT OBJECTED TO THE TREATMENT OF L OAN FROM TCPL AS DEEMED DIVIDEND IN THE ASSESSMENT PROCEEDINGS. THE CIT(A) ALSO OBSERVED THAT THE ASSESSEE HAS NOT FILED ANY SUBMISSIONS OR BROUGHT A NY MATERIAL ON RECORD TO 8 ITA NO.130/PN/2014 ITA NO.144/PN/2014 BRING ANYTHING CONTRARY TO THE FINDINGS OF THE ASSE SSING OFFICER AGAINST THE ADDITION OF RS.18,37,003/-. 16. THE ASSESSEE HAS PREFERRED APPEAL AGAINST THE A FORESAID ADDITION AS PER GROUND NO.2 OF ITS APPEAL MEMO. 17. WITH REGARD TO THE SECOND LIMB OF THE ADDITION UNDER SECTION 2(22)(E) OF THE ACT OF RS.41,30,130/- ON ACCOUNT OF DEEMED DIVI DEND, THE CIT(A) AGREED WITH THE CONTENTION OF THE ASSESSEE THAT THE AFORES AID LOAN IS IN THE NATURE OF BUSINESS TRANSACTION FOR A COMMERCIAL CONSIDERATION AND THEREFORE SECTION 2(22)(E) OF THE ACT IS NOT ATTRACTED IN RESPECT OF LOAN RECEIVED FROM TDPL. HE ACCORDINGLY GRANTED RELIEF TO THE ASSESSEE IN RESPE CT OF ADDITION OF RS.41,30,130/-. THE RELEVANT PORTION OF THE CIT(A) ORDER DEALING WITH THE ISSUE PERTAINING TO ADDITION UNDER SECTION 2(22)(E) OF THE ACT IS REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENCE :- 6. IN GROUND OF APPEAL NO. 4 THE APPELLANT HAS CON TESTED THE ADDITION U/S 2(22)(E) OF RS.41,30,130/- AND RS.18,37,003/- O N ACCOUNT OF DEEMED DIVIDEND. DURING THE ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER NOTICED ON PERUSAL OF THE BALANCE SHEET OF THE APPELLANT THAT DURING THE YEAR THE ASSESSEE HAD RECEIVED LOANS FROM TRY DEVELOPERS (P) LTD (TDP L FOR SHORT) AND M/S TRY CONSTRUCTION P. LTD. (TCPL FOR SHORT). THE ASSESSIN G OFFICER FOUND THAT THE CONDITIONS OF SEC 2(22)(E) STOOD SATISFIED THE SAME WAS APPLICABLE. THE ASSESSING OFFICER NOTED THAT THE AFORESAID CONCERNS WERE CLOSELY HELD COMPANIES AND THE LOAN HAD BEEN GIVEN TO A REGISTERED SHARE H OLDER I.E. THE APPELLANT WHERE HE WAS HOLDING MORE THAN 10% OF THE EQUITY SHARES I N BOTH THE COMPANIES AND THE COMPANY HAD ACCUMULATED PROFITS FROM WHICH THE DIVIDEND WAS DISTRIBUTED. THE EXPLANATION FURNISHED BY THE ASSESSEE IN THIS R EGARD DID NOT FIND FAVOR WITH THE ASSESSING OFFICER ESPECIALLY WITH RESPECT TO TH E MOU ENTERED INTO BY THE APPELLANT WITH M/S TRY DEVELOPERS P. LTD, WHICH IS HELD BY HIM TO BE MERELY AN AFTERTHOUGHT TO AVOID THE DEEMED DIVIDEND. THE ASSE SSING OFFICER ALSO NOTED THAT THE AMOUNTS WERE SHOWN AS LOAN IN THE BOOKS OF THE APPELLANT AS AGAINST CURRENT LIABILITY AS CLAIMED AND EVEN INTEREST HAD BEEN PAI D ON THE SAID AMOUNT. THE ASSESSING OFFICER THUS FOUND THAT THE AMOUNTS RECEI VED FROM THE TWO SISTER CONCERNS I.E. TRY CONSTRUCTIONS PVT. LTD OF RS. 23, 58,102/- AND TRY DEVELOPERS PVT. LTD OF RS. 41,30,1301/- WERE DEEMED DIVIDEND A S PER THE PROVISIONS OF THE ACT AND THUS A TOTAL ADDITION ON ACCOUNT OF DEEMED DIVI DEND OF RS. 59,67,133/- WAS MADE TO THE TOTAL INCOME. THE ASSESSING OFFICER REL IED ON THE FOLLOWING DECISION: 1. CIT VS K. SRINIVASAN (1963) 50 ITR 788 (MAD) 2. KANTILAL MANILAL VS CIT (1961) ITR 275 (SC) 3. CIT VS MARTIN BURN LTD (1982) 136 ITR 805 (CAL) THE ASSESSING OFFICER HAS DISCUSSED THE ISSUE IN P ARA 6 OF THE ASSESSMENT ORDER. 9 ITA NO.130/PN/2014 ITA NO.144/PN/2014 6.1 DURING THE APPELLATE PROCEEDINGS IT HAS BEEN CO NTENDED BY THE LD COUNSEL OF THE APPELLANT THAT THE ADDITION U/S 2(22 )(E) I.E. DEEMED DIVIDEND AMOUNTING TO RS. 41,30,130/- BEING BALANCE OUTSTAND ING FROM TRY DEVELOPERS PVT. LTD. IT HAS BEEN STATED BY THE LD. COUNSEL THAT THE APPELLANT IS A MAJORITY SHARE HOLDER IN TRY DEVELOPERS PVT. LTD AND IN A.Y. 2008- 09 ENTERED INTO AN AGREEMENT FOR PURCHASE OF PLOT OF LAND SITUATED IN THE HEART OF CITY AT BAJIRAO ROAD WITH VARIOUS MEMBERS OF THE NATU FAMILY BETWEEN JUNE 200 7 TO MARCH 2008 AND THE SAID AGREEMENT WAS DULY REGISTERED BY PAYING THE ST AMP DUTY. THE APPELLANT FURTHER SUBMITS THAT HE INTENDED TO CONSTRUCT COMME RCIAL CUM RESIDENTIAL COMPLEX ON THE SAID PIECE OF LAND AND IN FEB 2008 HE ENTERE D INTO A MEMORANDUM OF UNDERSTANDING (MOU) WITH M/S TRY DEVELOPERS P LTD ( TDPL FOR SHORT) FOR SALE OF 6000 SQ.FT OF COMMERCIAL PREMISES IN THE PROPOSED C OMMERCIAL CUM RESIDENTIAL COMPLEX. THE APPELLANT HAS FILED THE COPY OF THE AF ORESAID MOU DATED 01-02-2008. THE APPELLANT FURTHER STATES THAT AS PE R THE MOU M/S TDPL WAS TO PAY RS. 2.5 CRORES BEFORE MARCH 2008 AND THE SAME W AS DULY RECEIVED BEFORE 31-3-2009 WHICH HAS BEEN PARTIALLY RECEIVED. THE LD . COUNSEL OF THE APPELLANT HAS SUBMITTED THAT THE AFORESAID AMOUNT RECEIVED FR OM TDPL WAS REFLECTED AS UNSECURED LOAN IN THE BALANCE SHEET OF THE APPELLAN T, HOWEVER, DURING THE ASSESSMENT PROCEEDINGS IT WAS STATED THAT THE SAID AMOUNT RECEIVED FROM TDPL IS ADVANCE AGAINST THE MOU AND NOT UNSECURED LOAN P ER SE AND HENCE NOT COVERED U/S 2(22)(E), HOWEVER THE ASSESSING OFFICER DISBELIEVED THE MOU AND MADE AN ADDITION OF RS. 41,30,130/-. IT HAS BEEN CO NTENDED BY THE APPELLANT THAT EXCESSIVE IMPORTANCE HAS BEEN GIVEN TO THE REFLECTI ON OF ADVANCE FROM TDPL AS UNSECURED LOAN BY THE ASSESSING OFFICER AND HAS PLA CED RELIANCE ON THE DECISION OF THE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG CO. LTD VS CIT (1971) 82 ITR 363 (SC) FOR THE PROPOSITION THAT ENTRIES IN TH E BOOKS OF ACCOUNT ARE NOT DECISIVE AS REGARDS REAL NATURE/CHARACTER OF ANY IT EM OF INCOME. THE APPELLANT HAS ALSO STATED THAT THE ASSESSING OFFICER HAS DOUB TED THE MOU BY OBSERVING SOME INFIRMITIES WHICH ARE NOT CORRECT AS THE SAID MOU IS NOTARIZED AND EXECUTED ON A STAMP PAPER AND HENCE NO REASON TO DOUBT ITS BONA FIDE/GENUINENESS. THE APPELLANTS COUNSEL HAS FURTHER ELABORATED THAT THE APPELLANTS DEAL WITH THE NATU FAMILY RAN INTO PROBLEMS WHICH IS WELL KNOWN IN PUB LIC DOMAIN AND BUT FOR THESE DEVELOPMENTS THE APPELLANT WOULD HAVE CONTINUED THE MOU AND ALLOTTED COMMERCIAL SPACE TO TDPL. THE APPELLANT HAS ALSO SU BMITTED THAT THE BOARD OF DIRECTORS RESOLUTION OF TRY DEVELOPERS PASSED ON 30 TH JAN 2008 RESOLVING TO ENTER INTO AN AGREEMENT FOR PURCHASE OF COMMERCIAL PROPERTY FROM APPELLANT CONFIRMED THE PURCHASE OF PROPOSED COMMERCIAL PREMI SES OF ABOUT 6000 SQ.FT IN THE PROPOSED BUILDING AT SHUKRAWAR PETH FROM TRY DE VELOPERS, A PROPRIETARY CONCERN OF SUDHIR KARNATAKI AT A COST OF RS. 6 CROR ES AND THE DRAFT MOU WAS ALSO APPROVED BY THE BOARD. THE APPELLANT HAS ALSO FURNI SHED THE SUMMARY OF THE AMOUNT PAID FOR THE LAND PURCHASED BY HIM. THE APPE LLANT HAS ALSO DISTINGUISHED THE JUDICIAL DECISIONS RELIED UPON BY THE A.O. AS T HOSE RELATE TO THE GENERAL PROPOSITION AND ON DIFFERENT ISSUE WHERE FACTS ARE NOT APPLICABLE TO THE PRESENT CASE. THE APPELLANT HAS CONTESTED THAT BONA FIDE BU SINESS ADVANCES ARE NOT COVERED UNDER THE SCOPE OF ADVANCE OR LOAN FOR THE PURPOSE OF SECTION 2(22)(E) AND HAS PLACED RELIANCE ON THE FOLLOWING JUDICIAL D ECISIONS: 1. CIT VS NAGINDAS M KAPADIA - 177 ITR 393 (BORN) 2. CIT VS. RAJ KUMAR - 318 ITR 462 (DEL.) 3. CIT VS. CREATIVE DYEING & PRINTING P. LTD., 318 ITR 476 (DEL) 4. HEMKUNT STEEL & WIRES P. LTD. VS DCIT, 35 CCH 2 58 (DEI ITAT) 5. SMT. NIGAM CHAWLA VS ITO, 28 SOT 503 (DEL. ITAT ) 6.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND PERUSED MATERIAL ON RECORD. THE APPELLANT IS SH OWING AMOUNT RECEIVED FROM HIS SISTER CONCERNS I.E. TRY CONSTRUCTIONS PVT. LTD (TCPL) OF RS. 23,58,102/- AND 10 ITA NO.130/PN/2014 ITA NO.144/PN/2014 TRY DEVELOPERS P LTD (TDPL) OF RS. 41,30,130/- AND THE SAME WAS SHOWN OUTSTANDING AS ON 31-3-2010. THE ASSESSING OFFICER ENQUIRED ABOUT THE APPLICABILITY OF DEEMED DIVIDEND U/S 2(22)(E) ON TH E ABOVE MENTIONED RECEIPTS. THE ASSESSING OFFICER HAS MADE A TOTAL ADDITION OF RS. 59,67,133/- [RS. 41,30,130/- + RS. 18,37,003/-] WHICH INCLUDES THE OUTSTANDING AMOUNT OF THE TWO SISTER CONCERNS FROM WHOM THE SAID AMOUNT HAVE BEEN RECEIVED BY THE APPELLANT. THE APPELLANT HAS CONTESTED THE ENTIRE A DDITION OF RS. 59,67,133/- HOWEVER, HAS MADE SUBMISSION ONLY WITH RESPECT TO T HE AMOUNT RECEIVED FROM TDPL OF RS.41,30,130/-. IT IS ALSO NOTICED THAT THE APP ELLANT DURING THE ASSESSMENT PROCEEDINGS HAD NOT OBJECTED TO THE TREATMENT OF LO AN FROM TCPL AS DEEMED DIVIDEND AND THE SAID FACT HAS ALSO BEEN NOT ED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. EVEN DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAS NOT FILED ANY SUBMISSION NOR BROUGHT ANY MATERIAL O N RECORD WHICH CONTRARY TO THE FINDING OF THE ASSESSING OFFICER AND, THEREFORE, TH E ADDITION OF RS. 18,37,003/- (RS, 23,58,102/- RESTRICTED TO THE ACCUMULATED PROF ITS) IS LIABLE TO BE UPHELD. 6.3 SO FAR AS THE ADDITION OF RS. 41,30,1301- IS CO NCERNED, IT IS NOTICED THAT THE APPELLANT HAD CONTESTED THE TREATMENT OF T HE LOAN FROM TDPL AS DEEMED DIVIDEND, DURING THE ASSESSMENT PROCEEDINGS. THE FA CT OF THE CASE AS BROUGHT OUT BY THE APPELLANT IS THAT THE APPELLANT ENTERED INTO AN AGREEMENT FOR DEVELOPMENT OF LAND SITUATED AT BAJIRAO ROAD, PUNE WITH THE VAR IOUS FAMILY MEMBERS OF THE NATU FAMILY AND AS THE PLOT OF LAND WAS JOINTLY OWN ED BY VARIOUS FAMILY MEMBERS OF THE NATU FAMILY, SEPARATE DEVELOPMENT AGREEMENTS WERE ENTERED INTO FOR GIVING EFFECT TO THE DEAL. THE FIRST AGREEMENT WAS ENTERED ON 18-10-2007 AND THE LAST AGREEMENT WAS MADE ON 7-3-2008 AND ALL THE SAID AGR EEMENTS WERE DULY REGISTERED BY PAYING THE STAMP DUTY AND REGISTRATIO N FEES. THEREAFTER, TRY DEVELOPERS PVT LTD ENTERED INTO MOU ON 1-2-2008 FOR PURCHASE OF COMMERCIAL PREMISES ON THE FIRST FLOOR FOR A LUMP SUM CONSIDER ATION OF RS. 6 CRORES AND THE SAID AGREEMENT OR THE MOU WAS NOTARIZED ON 1-2-2008 . AS PER THE CLAUSE 4 OF THE MOU, TDPL HAD TO PAY AN AMOUNT OF RS. 2.50 CROR ES UPTO MARCH 2008 AND FURTHER AMOUNT OF RS. 2 CRORES IN F.Y. 2008-09. MEA NWHILE ONE OF THE NATU FAMILY MEMBERS WENT TO COURT ALLEGING THAT THE DEVELOPERS OBTAINED CONSENT THROUGH UNWARRANTED FORCE AND THE SAID MEMBER FILED A CRIMI NAL CASE AGAINST THE APPELLANT AND AGENTS INVOLVED IN THE DEAL. THE MATT ER WENT TO COURT AND THE CIVIL COURT, PUNE DECIDED IN FAVOUR OF THE APPELLANT, HOW EVER THE SAID FAMILY MEMBER OF THE NATU FAMILY FILED APPEAL TO BOMBAY HIGH COURT W HICH IS STILL PENDING. THE APPELLANT IN VIEW OF THE ABOVE FACTUAL POSITION CON TENDED BEFORE THE ASSESSING OFFICER THAT THE AMOUNT RECEIVED FROM TDPL WAS FOR BUSINESS PURPOSE HENCE OUTSIDE THE AMBIT OF SEC 2(22)(E) AND ALSO STATED T HAT THE AFORESAID AMOUNT WAS ERRONEOUSLY SHOWN AS A LOAN BUT IN SUBSTANCE IS A C URRENT LIABILITY I.E. ADVANCE AGAINST PROPOSED SALE AND SHOULD HAVE BEEN TRULY DI SCLOSED ACCORDINGLY. THE ASSESSING OFFICER HAS QUESTIONED THE VERACITY OF TH E MOU AND ITS EVIDENTIARY VALUE AS THE SAME WAS NOT REGISTERED THOUGH THE APP ELLANT DID STATE THAT THE AMOUNT RECEIVED FROM TDPL WAS AN ADVANCE AGAINST MO U AND NOT UNSECURED LOAN AS SHOWN IN THE BALANCE SHEET. 6.4 THE APPELLANT HAS SUBMITTED A COPY OF THE MOU D ATED 1-2-2008 WHICH IS NOTARIZED AND EXECUTED ON A STAMP PAPER DATED 11.01 .2008. THE APPELLANT HAD ENTERED INTO NEARLY FIVE DIFFERENT AGREEMENTS WITH THE FAMILY MEMBERS OF THE NATU FAMILY PRIOR TO THE SIGNING OF THE MOU AND ALL THE FIVE AGREEMENT WERE REGISTERED. THESE AGREEMENT ENTERED INTO BY THE APPELLANT COMPR ISED OF NEARLY 50% OF THE TOTAL LAND WHICH WERE DULY REGISTERED PRIOR TO THE EXECUT ION OF THE MOU. THE ASSESSING OFFICER'S OBSERVATION THAT THE MOU FOR ACQUIRING TH E FIRST FLOOR IN A YET TO BE CONSTRUCTED PROPOSED BUILDING ON A LAND DEAL YET TO BE REGISTERED IS THUS FACTUALLY NOT CORRECT. FURTHER THE ASSESSING OFFICER'S NOTING THAT THE LAND DEED WAS REGISTERED AFTER THE MOU DATE IS ALSO PARTIALLY CORRECT AS THE AGREEMENT FOR NEARLY 50% OF THE LAND WERE ALREADY REGISTERED PRIOR TO SIGNING OF TH E MOU. THE LAND DEAL ENTERED INTO BY THE APPELLANT WAS A LARGE DEAL FOR THE APPE LLANT AND THE SAID LANDS TO BE 11 ITA NO.130/PN/2014 ITA NO.144/PN/2014 PURCHASED BY THE APPELLANT WERE IN DIFFERENT NAMES OF THE NATU FAMILY. THE CONTENTION OF THE APPELLANT THAT DUE TO THE UPFRONT PAYMENT FOR PURCHASE OF LAND, PAYMENT WAS REQUIRED TO BE MADE AND HENCE THE APPEL LANT THOUGHT IT PRUDENT TO SELL SOME SPACE IN THE PROPOSED SCHEME TO BE CONSTRUCTED ON THE ACQUIRED LAND STANDS TO REASON AND APPEARS TO BE A REASONABLE DECISION TAKE N ON THE BASIS OF THE COMMERCIAL NECESSITY. THE APPELLANT HAD UNDERTAKEN A PROJECT WHICH NEEDED FUNDS AND IT IS A COMMON PRACTICE TO DEAL IN THE RE AL ESTATE SECTOR TO HAVE PRELAUNCH OFFER CIRCULATED FOR RAISING MONEY/FUND F ROM THE INVESTORS AND WITHOUT ANY SORT OF AGREEMENT IT WOULD BECOME DIFFICULT FOR THE DEVELOPERS TO AVAIL FUNDS AND DISCHARGE THE DUES TO THE LANDLORD. HENCE THE C ONTENTION OF THE ASSESSING OFFICER THAT EXTENDING OF ADVANCE MONEY FOR ACQUIRI NG PART OF A PROPOSED BUILDING IS BEYOND THE BOUNDARIES OF PRAGMATIVE BUSINESS PRACTI CES DOES NOT APPEAR TO BE A CORRECT PROPOSITION IN VIEW OF THE TRADE PRACTICE P REVALENT IN THE REAL ESTATE SECTOR. THE ASSESSING OFFICER HAS PUT TOO MUCH EMPHASIS ON THE MOU BEING NOT REGISTERED AND HAVING NO EVIDENTIARY VALUE AND AN AFTERTHOUGHT TO AVOID THE PROVISIONS OF DEEMED DIVIDEND. THE ASSESSING OFFICER HAS NOT CARR IED OUT ANY EXAMINATION EITHER OF THE APPELLANT OR THE NOTARY WHO HAD NOTARIZED TH E SAID MOU WHICH WAS EXECUTED ON A STAMP PAPER DATED 11.01.2008 AND ALSO INCORREC T TO INFER THAT THE MOU HAS NO EVIDENTIARY VALUE. THE DETAILS OF THE NOTARY AND TH E PERSON SELLING THE STAMP PAPER WAS ALSO AVAILABLE TO THE A.O. THE A.O. HAS THUS NO T GIVEN THE BASIS ON WHICH HE HAS CLASSIFIED THE DOCUMENT TO BE AN AFTERTHOUGHT AND H AVING NO EVIDENTIARY VALUE, IN THE CIRCUMSTANCES THERE IS NO REASON TO DOUBT THE BONAF IDE OF THE SAID MEMORANDUM. IT IS UNDISPUTED FACT THAT THE APPELLANT HAD ENTERED I NTO TRANSACTION WITH THE NATU FAMILY FOR THE PURCHASE OF LAND FOR UNDERTAKING THE CONSTRUCTION OF THE PROJECT WHICH SUBSEQUENTLY RAN INTO LEGAL PROBLEMS AS IS EVIDENT FROM THE COPY OF THE SUIT FILED BY THE APPELLANT. THUS THE CONTENTION RAISED BY THE AS SESSING OFFICER THAT THERE WAS NEVER A BUSINESS TRANSACTION IS NOT PRIMA FACIE COR RECT AS EXISTENCE OF A BUSINESS TRANSACTION HAS TO BE DECIDED ON THE BASIS OF THE D OCUMENT AND PERFORMANCE ON RECORD. THE ASSESSING OFFICER'S OBSERVATION THAT TR EATMENT OF UNSECURED LOAN IS CONTRARY TO THE FACTUM OF ADVANCE AGAINST MOU AND H ENCE 2(22)(E) GETS ATTRACTED. IT IS WELL KNOWN THAT THE REFLECTION OF A TRANSACTION IN THE BOOKS OF ACCOUNT DOES NOT DECIDE THE REAL NATURE OF THE SAME INCLUSIVELY AS I TS PRESENCE OR ABSENCE IS MERELY INDICATIVE. IN THE CASE OF KEDARNATH JUTE MFG LTD VS CIT 82 ITR 363 (SC) IT WAS HELD THAT WHETHER THE ASSESSEE IS ENTITLED TO A PAR TICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISIONS OF LAW RELATING THERETO AN D NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS NOR CAN THE ABSEN CE OR EXISTENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE M ATTER. THUS THE APPROACH OF THE ASSESSING OFFICER IS IN ASSUMING A PERSPECTIVE OF F ORM OVER SUBSTANCE WHEREAS THE RELIANCE OF THE APPELLANT IS ON THE PRINCIPLES OF SUBSTANCE OVER FORM. THUS THE CONTENTION OF THE APPELLANT IN THIS REGARD APPE AR TO BE THE CORRECT APPROACH TOWARDS THE ISSUE AT HAND. THE ASSESSING OFFICER HA S ALSO NOTED THAT SIMILAR TREATMENT HAS BEEN GIVEN TO THE AMOUNT RECEIVED FRO M OTHER RELATED CONCERN TCPL WHICH PROVES THAT AMOUNT RECEIVED IS INDEED A LOAN AND THAT INTEREST HAS BEEN PAID BY THE ASSESSEE TOWARDS THE SAID LOAN TO M/S TDPL. THE FACTS FOR TCPL AND TDPL ARE DIFFERENT IN AS MUCH AS THAT THE APPELLANT HAS NOT ENTERED INTO ANY MOU WITH TCPL AND HAS EVEN NOT FILED ANY S UBMISSION FOR THE SAID TRANSACTION THEREBY ACCEPTING THE DEEMED DIVIDEND F ALLOUT FROM THE SAID COMPANY. HENCE ON FACT THE TRANSACTION BETWEEN THE TWO RELATED COMPANIES ARE ON A DIFFERENT FOOTING AND HENCE NOT COMPARABLE ON FACTS. FURTHER, THE CONTENTION OF THE ASSESSING OFFICER THAT INTEREST H AS BEEN PAID TO TDPL, IT HAS BEEN BROUGHT TO THE NOTICE BY THE APPELLANT THAT AS PER CLAUSE 7 OF THE MOU, INTEREST WAS PAYABLE ON THE OUTSTANDING ADVANCE @ 1 4% IF THE CONSTRUCTION WAS NOT STARTED BY JUNE 2008 AND HENCE THE PAYMENT OF I NTEREST IS GOVERNED AS PER THE EXPRESS CLAUSES OF THE MOU AND THE SAME COULD N OT CHANGE THE CHARACTER OF THE BUSINESS. MOREOVER, THE AMOUNT ADVANCED BY THE COMPANY TO THE APPELLANT WAS BASED ON THE RESOLUTION PASSED AT THE MEETING O F THE BOARD OF DIRECTORS OF TDPL, APPROVED THE MOU AND PROPOSED PURCHASE OF COM MERCIAL PREMISES OF 12 ITA NO.130/PN/2014 ITA NO.144/PN/2014 ABOUT 6000 SQ. FT. AT A COST OF RS. 6 CRORES AND FO R WHICH THE BOARD GRANTED THE CONSENT OF THE PAYMENT TOWARDS THE COST OF PURCHASE OF THE PROPOSED PREMISES. THUS THE APPELLANT ALSO ACTED ON BEHALF OF THE COMP ANY IN ACCORDANCE WITH THE AUTHORITY HELD BY HIM THROUGH THE RESOLUTION OF THE BOARD OF DIRECTORS OF THE COMPANY. THE ENTIRE FACTS AND CIRCUMSTANCES IF TAKE N TOGETHER LEAD TO THE INFERENCE THAT THE SAID TRANSACTION IS A NORMAL BUS INESS TRANSACTION AND THAT AMOUNT ADVANCED TO BE A BUSINESS ADVANCE. 6.5 THE PROVISION OF DEEMED DIVIDEND IS DEFINED AS PER CLAUSE 22 OF SECTION 2 WHICH PROVIDES THAT DIVIDEND INCLUDES CERTAIN DIS TRIBUTION AND PAYMENT MADE BY THE COMPANY TO THE SHAREHOLDER SPECIFIED IN SUB CLA USE (A) TO (E). THE DEFINITION IS THUS INCLUSIVE AND NOT EXHAUSTIVE. THE DEFINITION GIVEN IN THIS CLAUSE CONTAINS CERTAIN EXCEPTIONS. THOSE EXCEPTIONS ARE ENUMERATE D IN SUB CLAUSE (I), (IA), (II) AND (III). EXPLANATION 1 & 2 ARE CLARIFICATORY IN NATU RE AND DEAL WITH THE SCOPE OF ACCUMULATED PROFITS, EXPRESSION USED IN ALL THE S UB CLAUSE (A) TO (E). EXPLANATION 3 DEFINES CERTAIN TERMS USED IN SUB CLAUSE (E). 6.5.1 SUB CLAUSE (E) OF CLAUSE 22 LAYS DOWN THAT DI VIDEND INCLUDES ANY PAYMENT BY A CLOSELY HELD COMPANY OF ANY SUM BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER WHO COMES IN THE CATEGORY DESCRIBED IN THAT SUB CLAUSE OR TO A CONCERN IN WHICH SUCH SHAREHOLDER HAS A SUBSTANTIAL INTEREST. DIVIDEND UNDER THIS CLAUSE ALSO INCLUDES ANY PAYMENT BY SUCH COMPA NY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER. DEEMED DIVIDEND UNDER THIS SUB CLAUSE WOULD BE TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESS AS ACCUMULATED PROFITS. THE CONCERN REFERRED TO HERE W OULD BE HUF OR A FIRM OR AN AOP OR A BOI OR A COMPANY AND THE SHAREHOLDER COULD BE DEEMED TO HAVE SUBSTANTIAL INTEREST IN SUCH CONCERN, IF HE IS AT A NY TIME DURING THE PREVIOUS YEAR BENEFICIALLY ENTITLED TO LESS THAN 20% (TWENTY PER CENT) OF THE INCOME OF SUCH CONCERN. THUS IT LAYS DOWN THAT A PERSON SHALL BE D EEMED TO HAVE SUBSTANTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS AT ANY TIME DURING THE PREVIOUS YEAR BENEFICIALLY ENTITLED TO NOT LESS THA N TWENTY PERCENT OF THE INCOME OF SUCH CONCERN. THUS A LOAN OR ADVANCE WOULD BE RE GARDED AS DEEMED DIVIDEND IF THE SAID PERSON HAS A SUBSTANTIAL INTER EST IN THE COMPANY. 6.5.2 NORMALLY LEGAL FICTION ARE CREATED FOR A DEFI NITE PURPOSE AND THEY ARE LIMITED TO THE PURPOSE FOR WHICH THEY ARE CREAT ED AND SHOULD NOT BE EXTENDED BEYOND THEIR LEGITIMATE FIELD. THE EXPRESSION USED IN FIRST PART OF SEC 2(22)(E)(II) IS 'ADVANCE OR LOAN'. THE WORD ADVANCE HAS NOT BEEN DEFINED. IT ORDINARILY MEANS PAYMENT OF CASH OR TRANSFER OF GOODS FOR WHIC H ACCOUNTING MUST BE RENDERED BY THE RECIPIENT AT SOME LATER DATE. THE E XPRESSION 'ADVANCES' ALSO REFERS TO SOMETHING WHICH IS DUE TO BE PAID TO HIM AHEAD OF TIME WHEN IT IS DUET TO BE PAID. THE TRANSACTION OF LOAN INVOLVES L ENDING AND DELIVERY BY ONE PARTY AND RECEIPT BY ANOTHER PARTY OF SUM OF MONEY UPON EXPRESS ON IMPLIED AGREEMENT TO REPAY IT WITH OR WITHOUT INTEREST. IN THE CASE OF PRADIPKUMAR MALHOTRA (2011) 338 ITR 538 (CAL) IT WAS OBSERVED: . THE PHRASE 'BY WAY OF ADVANCE OR LOAN' APPEAR ING IN SUB-CL. (E) MUST BE CONSTRUED TO MEAN THOSE ADVANCES OR LOANS W HICH A SHAREHOLDER ENJOYS FOR SIMPLY ON ACCOUNT OF BEING A PERSON WHO IS THE BENEFICIAL 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; BUT IF SUCH LOAN OR ADVANCE IS GI VEN TO SUCH SHAREHOLDER AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO THE COMPANY RECEIVED FROM SUCH A SHAREHOLDER, IN SUCH C ASE, SUCH ADVANCE OR LOAN CANNOT BE SAID TO A DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT. THUS, FOR GRATUITOUS LOAN OR ADVANCE GIVEN BY A COM PANY TO THOSE CLASSES OF SHAREHOLDERS WOULD COME WITHIN THE PURVIEW OF S. 2( 22) BUT NOT TO THE CASES WHERE THE LOAN OR ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPANY BY SUCH SHAREHOLDER, ' 13 ITA NO.130/PN/2014 ITA NO.144/PN/2014 AMOUNT ADVANCED TO THE ASSESSEE COMPANY BY ANOTHER COMPANY HAVING COMMON DIRECTOR NOT BEING A LOAN BUT AN ADVANCE FOR BUSINESS TRANSACTION WHICH IS TO BE ADJUSTED AGAINST THE MONEY PAYABLE BY THE LATTER TO THE ASSESSEE COMPANY IN SUBSEQUENT YEARS DID NOT FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND U/S 2(22)(E). IN THE CASE OF CIT VS CREATI VE DYEING AND PRINTING (P) LTD (2010) 318 ITR 476 (DEL), IT WAS HELD THAT THE PROV ISION OF SEC 2(22)(E) (II) IS BASICALLY IN THE NATURE OF AN EXPLANATION. THAT CAN NOT, HOWEVER, HAVING BEARING ON INTERPRETATION OF THE MAIN PROVISION OF SEC 2(22 )(E) AND ONCE IT IS HELD THAT THE BUSINESS TRANSACTIONS DO NOT FALL WITHIN THE SEC 2( 22)(E), ONE NEED NOT GO FURTHER TO SEC 2(22)(E)(II). THE PROVISIONS OF SEC 2(22)(E) (II) GIVES AN EXAMPLE ONLY OF ONE OF THE SITUATION WHEN THE LOAN/ADVANCE WILL NOT BE TREATED AS DEEMED DIVIDEND, BUT THAT'S ALL. THE SAME CANNOT BE EXPAND ED FURTHER TO TAKE AWAY THE BASIC MEANING, INTENT AND PURPORT OF THE MAIN PART OF SEC 2(22)(E). THIS INTERPRETATION IS IN ACCORDANCE WITH THE LEGISLATIV E INTENTION OF INTRODUCING SEC 2(22)(E) THEREFORE, THE AMOUNTS ADVANCED FOR BUSINE SS TRANSACTION BETWEEN THE PARTIES WAS NOT SUCH TO FACE WITHIN THE DEFINITION OF DEEMED DIVIDEND U/S 2(22)(E). 6.5.3 IN THE PRESENT CASE, THE FACT THAT CERTAIN AM OUNT HAS BEEN ADVANCED BY THE COMPANY TO THE APPELLANT IS UNDISPUTED OUT OF WHICH THE POINT OF DISPUTE IS WITH RESPECT TO THE APPLICABILITY OF SEC 2(22)(E) IN A C ASE OF ADVANCE MADE FOR COMMERCIAL CONSIDERATION. THE ASSESSING OFFICER HAS NOT BEEN A BLE TO BEING ON RECORD ANY EVIDENCE OR ARGUMENT WHICH COULD JUSTIFY THE SAID A DDITION. THE ASSESSING OFFICER, HAS NOT MADE ANY ENQUIRY OR VERIFICATION WITH RESPE CT TO THE MOU AND THE TRANSACTION ENTERED INTO BY THE APPELLANT RATHER TH E ASSESSING OFFICER HAS STRAIGHT COME TO A CONCLUSION THAT PAYMENT OF ADVANCE MADE B Y THE COMPANY WHERE THE APPELLANT HAS A BENEFICIAL SHAREH OLDING THE DEEMING PROVISION OF SEC 2(22)(E) WAS APPLICABLE. THE ASSES SING OFFICER HAS NOT VERIFIED THE DETAILS SUBMITTED BY THE APPELLANT WITH RESPECT TO THE PURCHASE OF LAND ON WHICH THE PROPOSED BUILDING WAS TO BE CONSTRUCTED AND IN WHICH THE FIRST FLOOR OF THE SAID BUILDING HAS BEEN PURCHASED BY THE COMPANY. THE ASS ESSING OFFICER HAS ALSO NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE SAID ADVANCE WAS FOR THE PERSONAL BENEFIT OF THE APPELLANT. THE APPE LLANT HAS FILED THE COPIES OF THE STATEMENT RECORDED DURING THE COURSE OF SURVEY U/S 133A, THE LEDGER DETAILS OF THE ADVANCES MADE BY THE COMPANY AND THE COPIES OF THE PURCHASE DEED OF THE LAND PURCHASED BY HIM ALONG WITH THE MOU AND TH E COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY ON 30-01- 2008.THESE DOCUMENTS WERE ALSO AVAILABLE WITH THE A SSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE PROVISION OF THE SECTION WILL APPLY ONLY WHEN THE PAYMENTS REFLECTED IN THE ACCOUNTS OF THE CONCERNED PARTIES ACQUIRE THE COLOR OF ADVANCE OR LOAN IN A DEMONSTRATIVE MAN NER SO AS TO IMPROVE THE DEEMING PROVISIONS CONTAINED IN SEC 2(22)(E). THE S COPE AND APPLICATION OF A DEEMING PROVISION ARE CONFINED AND LIMITED TO THE P ARTICULAR PURPOSE FOR WHICH IT HAS BEEN ENACTED AND CANNOT ASSUME ANY ROLE BEYOND THE RESTRICTED AND CONFINED LIMIT AND IT CAN NEVER INTERFERE IN THE NO RMAL BUSINESS OF COMPANIES CARRIED OUT IN ORDINARY COURSE. THE CHARACTERISTIC OF A LOAN IS ABSENT IN THE PAYMENTS MADE AND HENCE NOT COVERED BY THE PROVISIO NS OF THE SECTION. THE PAYMENTS MADE BY THE COMPANY TO THE APPELLANT FOR T HE PURCHASE OF COMMERCIAL SPACE IN THE PROPOSED PROPERTY AS PER THE MOU DATED 01-02-2008 CANNOT BE TREATED AS A LOAN OR ADVANCE ONLY FOR THE REASON OF PAYMENT CANNOT PARTAKE THE CHARACTER OF LOAN OR ADVANCE SO AS TO BE COVERED WI THIN THE PURVIEW OF SEC 2(22)(E). IN THE CASE OF CIT VS RAJKUMAR 318 ITR 46 2 (DEL), THE COMPANY IN WHICH THE APPELLANT HAD SUBSTANTIAL INTEREST PAID C ERTAIN SUMS TO THE APPELLANT'S PROPRIETARY CONCERN AND WHICH WAS INVESTED TOWARDS ACQUISITION OF LAND AND BUILDING WHICH WAS TAXED AS DEEMED DIVIDEND. THE CO URT IN THIS CONTEXT HELD THAT THIS BEING BONAFIDE BUSINESS ADVANCE THE SAME IS NOT TAX ABLE AS DEEMED DIVIDEND 14 ITA NO.130/PN/2014 ITA NO.144/PN/2014 APPLYING PRINCIPLE NOSCITUR A SOCIIS, IT ALSO HELD THAT THE RELEVANT WORD I.E. ADVANCE OR LOAN, TAKE COLOR FROM EACH OTHER. 6.5.4 IN SEVERAL JUDICIAL DECISIONS INCLUDING THE D ECISION OF THE JURISDICTIONAL HON. BOMBAY HIGH COURT, NORMAL BUSINESS TRANSACTION COUL D NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E). IN THE DECISION OF THE APEX COURT IN THE CASE OF NAVNITLAL JHAVERI, 56 ITR 198, IT WAS HELD THAT THE PROVISION OF SEC 2(22)(E) MUST BE MADE APPLICABLE ONLY WHERE DIVIDEND IS DISGUISED AS A LO AN AND IS PAID BY THE COMPANY. THE CONCEPT SHOULD NOT BE STRETCHED SO FAR TO INVOL VE ANY ABSURDITIES. EVEN IN THE CASE OF SUNIL SETHI VS DCIT (2009) THE DELHI IT AT, IT WAS HELD THAT THERE WAS NO MATERIAL TO SUGGEST THAT THE TRANSACTIONS OF THE CO MPANY WITH THE ASSESSEE WAS IN ANY WAY ARRANGED TO GIVE ANY BENEFIT TO ASSESSEE. T HE AMOUNT WAS PAID FOR VERY SHORT PERIOD FOR SPECIFIC PURPOSE AND THERE WAS DOC UMENTARY EVIDENCE ON RECORD TO SUBSTANTIATE THE EXPLANATION OF THE ASSESSEE THAT T HE AMOUNT WAS GIVEN FOR THE BUSINESS PURPOSE OF THE COMPANY I.E. TO PURCHASE A SUITABLE BUSINESS PREMISES AND ASSESSEE COULD VALIDLY ACT ON BEHALF OF THE COMPANY AS THE SAID ACT OF ASSESSEE WOULD BE IN ACCORDANCE WITH THE AUTHORITY HELD BY HIM THR OUGH RESOLUTION OF THE BOARD OF DIRECTORS OF THE COMPANY, APPLYING THE RATIO OF DEC ISION OF CHANDIGARH BENCH IN THE CASE OF LAKRA BROS, (SUPRA) THE AMOUNT OF RS. 3 0 LACS COULD NOT BE CONSIDERED TO BE DEEMED DIVIDEND IN THE HANDS OF TH E ASSESSEE. THE PROVISIONS OF SEC 2(22)(E) WERE NOT APPLICABLE. 6.5.5 THE HON. BOMBAY HIGH COURT IN THE CASE OF CIT VS NAGINDAS M KAPADIA (1989) 177 ITR 393 (BOM) HELD THAT BUSINESS TRANSACTION ARE OUTSIDE THE PURVIEW OF SEC 2(22)(E) OF THE ACT. THE COURT A LSO HELD THAT WHERE COMPANY HAS MADE ADVANCES TO THE CONCERN OF THE SHAREHOLDER S TOWARDS PURCHASES TO BE MADE BY THE COMPANY FROM THE SAID CONCERN SUCH A DVANCES WOULD NOT BE DEEMED DIVIDEND U/S 2(22)(E). 6.6 IN VIEW OF THE ABOVE FACTS, OUT OF THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.59,67,137/- TREATING THE SAME AS DEEMED DIVID END ADDITION TO THE EXTENT OF RS.18,37,003/- IS SUSTAINED AND RS.41,30,130/- IS L IABLE TO BE DELETED AND THE GROUND OF APPEAL NO.4 RAISED BY THE APPELLANT IS LIABLE TO BE ALLOWED PARTLY. 18. THE REVENUE IS IN APPEAL AGAINST THE DELETION O F THE AFORESAID ADDITION OF RS.41,30,130/-. 19. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE SUBMITTED THAT ADDITION OF RS.18,37,003/- RECEIVED FROM TCPL TREAT ED AS DEEMED DIVIDEND BY INVOKING SECTION 2(22)(E) OF THE ACT IS WHOLLY INCO RRECT AND WITHOUT ANY LEGAL FOUNDATION. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ADVERTED OUR ATTENTION TO THE STATEMENT OF FACTS FILED ALONG W ITH APPEAL MEMO BEFORE THE CIT(A) AND CONTENDED THAT THE CIT(A) HAS NOT TAKEN NOTICE OF THE AFORESAID FACTS WHEREIN THE ASSESSEE HAS CLEARLY OBJECTED TO THE ADDITIONS UNDER SECTION 2(22)(E) OF THE ACT IN RESPECT OF LOAN RECEIVED FRO M TCPL TOGETHER WITH OBJECTION RAISED IN RESPECT OF ADDITION ARISING ON RECEIPT FROM TDPL. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE OBSERVED THAT NO FRESH AMOUNT OF ADVANCE HAS BEEN RECEIVED FROM TCPL DURING THE FINA NCIAL YEAR 2009-10 15 ITA NO.130/PN/2014 ITA NO.144/PN/2014 RELEVANT TO ASSESSMENT YEAR 2010-11 IN APPEAL AND T HEREFORE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE. IT IS A MATTER OF RECORD THAT THE IMPUGNED LOANS WERE BORROWED IN THE EARLIER YEAR. HE REFERRED TO THE LEDGER ACCOUNT OF THE LENDER AS APPEARING AT PAGE NO.24 OF THE PAPER BOOK AND SUBMITTED THAT THE OPENING BALANCE OF RS.33,08,102/ - WAS BROUGHT DOWN TO RS.23,58,102/- BY REPAYMENT OF RS.9,50,000/- DURING THE YEAR ON 21.10.2009. THUS, THERE IS NO RECEIPT OF ANY FRESH LOAN DURING THE YEAR WHATSOEVER. IN THE ABSENCE OF ANY FRESH LOAN DURING THE YEAR, THE PROV ISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT ATTRACTED. FOR THIS PROPOSITION, H E RELIED UPON THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F P. SATYA PRASAD VS. ITO, (2013) 31 TAXMANN.COM 267 (VISAKHAPATNAM TRIB.). 20. WE SHALL FIRST ADJUDICATE GROUND NO.2 OF THE AS SESSEES APPEAL. ON CAREFUL CONSIDERATION OF THE ORDERS OF THE AUTHORIT IES BELOW AND THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT NO FRESH LOAN HAS BEEN RECEIVED DURING THE YEAR FROM TCPL. THEREFORE, WE ARE INCLINED TO ACCE PT THE CONTENTIONS ON BEHALF OF THE ASSESSEE THAT IT IS NOT OPEN TO THE A SSESSING OFFICER TO INVOKE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN RESPEC T OF LOANS RECEIVED IN THE EARLIER YEARS. RESPECTFULLY, FOLLOWING THE DECISIO N OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE P. SATYA PRASAD (SUPRA), W E REVERSE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE T HE ADDITION OF RS.18,37,003/- MADE ON THIS SCORE. 21. IN THE RESULT, THE GROUND NO.2 OF THE ASSESSEE S APPEAL IS ALLOWED. 22. WE SHALL NOW TURN TO THE APPEAL OF THE REVENUE ON THE ISSUE. THE REVENUE IS ALSO AGGRIEVED BY THE RELIEF GRANTED BY THE CIT( A) IN RESPECT OF ANOTHER LOAN OUTSTANDING RS. 41,30130/- RECEIVED FROM OTHER CONC ERN NAMELY TRY DEVELOPERS P. LTD. (TDPL IN SHORT) HOLDING THAT S. 2(22)(E) IS NOT APPLICABLE ON THE AFORESAID RECEIPT. THE REVENUE CONTENDS THAT THE AMOUNT RECEIVED FROM TDPL IS A LOAN SIMPLICITOR AND NOT A BUSINESS AD VANCE IN THE ORDINARY COURSE OF BUSINESS AND THEREFORE SQUARELY COVERED B Y THE MISCHIEF OF S. 16 ITA NO.130/PN/2014 ITA NO.144/PN/2014 2(22)(E) OF THE ACT. THUS, THE LOAN SO RECEIVED IS LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE. 23. THE PRIMARY QUESTION IN THIS REGARD WHICH IS RE QUIRED TO BE DETERMINED IS WHETHER THE AMOUNT RECEIVED FROM TDPL IS IN THE NATURE OF BUSINESS ADVANCE PROPELLED BY COMMERCIAL EXPEDIENCY OR A L OAN SIMPLICITOR. IF THE AMOUNT IS MERELY AN ORDINARY LOAN TO ASSESSEE WHO A DMITTEDLY HOLDS SUBSTANTIAL INTEREST IN THE LENDER COMPANY, S. 2(22 )(E) WILL COME INTO PLAY. HOWEVER, SAME WOULD NOT HOLD TRUE FOR BUSINESS ADV ANCES. THE ASSESSEE HAS HEAVILY RELIED UP A MEMORANDUM OF UNDERSTANDING (MO U) DATED 01/02/2015 ENTERED INTO WITH THE LENDER CO. TO SUPPORT ITS CLA IM THAT THE AMOUNT SO RECEIVED BY THE ASSESSEE IS IN THE NATURE OF A BUSINESS ADV ANCE AND NOT A LOAN SIMPLICITOR. AS A CONSEQUENCE, THE PROVISIONS OF S. 2(22)(E) ARE NOT APPLICABLE. 24. TO ENABLE US TO WEIGH THE ISSUE INVOLVED WE NOT ICE AT THE OUTSET FROM MATERIAL AVAILABLE ON RECORD THAT THE MONEY RECEIVE D FROM TDPL HAS BEEN REFLECTED UNDER THE HEAD UNSECURED LOAN IN THE BA LANCE SHEET OF THE ASSESSEE. IN OTHER WORDS, THE ASSESSEE IN ITS FINANCIAL STATE MENTS HAS DECLARED THE AMOUNT OUTSTANDING PAYABLE TO THE LENDER AS AN ORDI NARY LOAN. IT IS THE CASE OF THE ASSESSEE HOWEVER, THAT SUCH BOOK ENTRIES ARE NO T DECISIVE OF THE NATURE AND CHARACTER OF AMOUNT RECEIVED. 25. SECONDLY, WE ALSO NOTICE THAT THE ASSESSEE (87% ) ALONG WITH HIS WIFE (13%) HOLDS 100% EQUITY OF THE LENDER COMPANY. OSTE NSIBLY, THE ASSESSEE HAS COMPLETE COMMAND AND CONTROL OVER THE AFFAIRS OF TH E LENDER COMPANY. THUS THE COMPANY AND THE ASSESSEE ARE NO DIFFERENT IN SU BSTANCE BUT FOR THE CORPORATE VEIL. 26. ON THE BASIS OF THE AFORESAID MOU, THE LD. AUTH ORIZED REPRESENTATIVE FOR THE ASSESSEE AS SOUGHT TO CANVASS THAT ALTHOUGH THE AMOUNT HAS BEEN REFLECTED AS UNSECURED LOAN, THE MONEY RECEIVED IS IN THE NATURE OF BUSINESS ADVANCE IN THE ORDINARY COURSE OF BUSINESS WHICH IS NOT PROHIBITED UNDER 17 ITA NO.130/PN/2014 ITA NO.144/PN/2014 SECTION 2(22)(E) OF THE ACT. THE IMPUGNED MOU HAS B EEN PLACED ON RECORD AT PAGE NO.53 59 OF THE PAPER BOOK. ON CLOSELY SCRUT INY OF THE AFORESAID MOU, WE NOTICE CERTAIN IMPORTANT FEATURES, NAMELY: (I) T HE MOU HAS BEEN SIGNED BY SHRI SUDHIR VASANT KARNATAKI BOTH ON BEHALF OF TH E LENDER CO. AS WELL AS IN HIS IN PERSONAL CAPACITY AS ASSESSEE. AS NOTED EARL IER, THE ASSESSEE HAS COMPLETE COMMAND OVER THE AFFAIRS OF THE LENDER CO. , THE MOU REQUIRES TO BE SEEN WITH SOME DEGREE OF CIRCUMSPECTION. (II) AS NO TED IN THE IMPUGNED MOU, THE ASSESSEE ACQUIRED DEVELOPMENT RIGHTS IN CERTAIN IMMOVABLE PROPERTY AT SHUKRAWAR PETH, PUNE AND IN ORDER TO MEET THE WORKI NG CAPITAL REQUIREMENT FOR DEVELOPING THE PROPOSED SITE, THE PURPORTED MOU HAS BEEN ENTERED INTO. IT IS STATED THAT THE CONSTRUCTION PLAN AND OTHER PAPER W ORK TO ENABLE THE LENDER TO ENTER INTO A SALE DEED HAS NOT BEEN FINALIZED OR CO MPLETED AND THEREFORE THE MOU HAS BEEN ENTERED FOR UNDERSTANDING AND KNOWLEDG E. THUS, THE MOU HAS BEEN ENTERED WHEN HARDLY ANYTHING CONCRETE IS VISIB LE. (III) THE ASSESSEE HAS AGREED TO TRANSFER, ASSIGN AND ENTRUST THE COMMERCI AL PREMISES OF ADMEASURING APPROXIMATELY 6000 SQ.FT. IN THE PROPOSED COMPLEX T O THE LENDER IN CONSIDERATION OF TOTAL LUMP SUM PAYMENT OF RS.600.0 0 LACS. AS PER CLAUSE 4 OF THE MOU, IT HAS BEEN AGREED BETWEEN THE PARTIES THA T THE LENDER ON EXECUTION OF THIS MOU SHALL PAY AN AMOUNT OF RS.250.00 LACS B Y 31 ST MARCH, 2008 TO THE ASSESSEE AS ADVANCE AGAINST PROPOSED PURCHASE OF CO MMERCIAL PREMISES. THE LENDER HAS ALSO READILY AGREED TO PAY ANOTHER AMOUN T TO RS.200.00 LACS BY 31 ST MARCH, 2009 AS PART PAYMENT AGAINST THE PROPOSED PU RCHASE OF COMMERCIAL PREMISES. NOTICEABLY, THIS AGREED PAYMENT SCHEDULE IS THE ESSENCE OF THIS MOU. (IV) AS PER CLAUSE 5 OF THE MOU, THE EXACT DAT E AND AMOUNTS TO BE PAID WILL BE MUTUALLY DECIDED BY THE PARTIES TO THIS MOU AND ON DEMAND THE AMOUNT WILL BE PAID BY THE LENDER. THUS, CURIOUSLY, THE DATES OF PAYMENT HAVE BEEN KEPT OPEN. (V) AS PER CLAUSE 6 OF THE MOU, THE CONSTRUCTION OF THE PROPOSED BUILDING SHOULD COMMENCE LATEST BY JULY, 2 008. (VI) AS PER CLAUSE 7 OF THE MOU, THE ADVANCE GIVEN BY THE LENDER WILL AT TRACT INTEREST @ 14% PER ANNUM IF THE CONSTRUCTION OF THE PROPOSED BUILDING IS NOT COMMENCED LATEST BY JUNE, 2008. IN SUCH EVENT THE INTEREST WILL BE PAI D FROM THE DATE OF INITIAL PAYMENT TILL THE COMMENCEMENT OF THE PROPOSED CONST RUCTION. THIS IS IN 18 ITA NO.130/PN/2014 ITA NO.144/PN/2014 VARIANCE WITH THE USUAL TRADE PRACTICES, WHERE LIAB ILITY TO PAY INTEREST ARISES ONLY IF DELIVERY OF THE PROPERTY IS NOT GIVEN AS PE R THE SCHEDULED TIME FRAME MUTUALLY AGREED UPON. (VII) AS PER CLAUSE 8 OF THE MOU, THE ABOVE TWO PAYMENTS OF RS.250.00 LACS AND 200.00 LACS WILL COM PRISE 75% OF THE AGREED CONSIDERATION, WHICH HAS TO BE PAID WITHIN A SHORT TIME OF APPROX. 1 YEAR. THE BALANCE CONSIDERATION WILL BE PAID BY THE LENDER ON RECEIPT OF COMPLETION CERTIFICATE OF THE PROJECT FROM THE ASSESSEE. (VIII ) AS PER CLAUSE 10 OF THE MOU, THE ASSESSEE SHALL BE OBLIGED TO COMPLETE THE CONST RUCTION IN A SPAN OF 30 MONTHS FROM THE DATE OF APPROVAL OF PLAN. (IX) THE DISPUTE ARISING FROM THE MOU SHALL BE REDRESSED THROUGH ARBITRATION MECHANIS M AS PER PARA 12 OF THE PURPORTED MOU. 27. ON A CLOSER LOOK OF THE NUANCES OF THE VARIOUS CLAUSES NOTED ABOVE QUA THE ACTUAL CONDUCT, WE FIND MANY NOTICEABLE ABERRAT IONS. WE NOTICE THAT THE ASSESSEE HAS RECEIVED FROM LENDER TDPL AN AMOUNT OF RS.233.00 LACS BY MARCH, 2008 AS AGAINST THE COMMITTED UPFRONT PAYMEN T OF RS.250.00 LACS. AS NOTED, THE ASSESSEE WAS ENTITLED TO RECEIVE ANOTHER RS.200.00 LACS BY 31 ST MARCH, 2009 AS PER PURPORTED MOU. WE NOTICE THAT TH E ASSESSEE HAS RECEIVED NET AMOUNT OF RS.4,11,59,900/- BY 31 ST MARCH, 2009. WHILE BEING SHORT OF RECEIPT OF PAYMENT COMMITTED AS PER MOU, THE ASSESS EE HAD INTER ALIA REPAID RS.62,00,000/- IN THE MONTH OF MARCH, 2009 WHILE HO LDING THE DEFICIT. DURING THE NEXT FINANCIAL YEAR 2009-10 RELEVANT TO ASSESSM ENT YEAR IN APPEAL, THE ASSESSEE HAS RECEIVED FRESH AMOUNT OF RS.45,00,000/ - AND REPAID NEARLY 5.43 CRORE THROUGH BANKING CHANNELS. THUS, WE NOTICE GRO SS DISCONNECT BETWEEN THE TERMS OF THE MOU VIS A VIS THE ACTUAL PATTERN OF FLOW OF FUNDS. WE OBSERVE FROM THE LEDGER ACCOUNT OF THE LENDER TDPL IN THE B OOKS OF THE ASSESSEE THAT THE ACCOUNT HAS BEEN OPERATED LIKE A CURRENT ACCOUN T WITH AMOUNTS RECEIVED AND RETURNED AS PER THE PLEASURE OF THE PARTIES WIT HOUT ANY NEXUS TO THE TERMS OF IMPUGNED MOU. 28. SIGNIFICANTLY, WE NOTICE THAT THERE IS NO MECHA NISM IN PLACE IN THE MOU TO RECALL FOR THE MONEY BACK SO ADVANCED OR SEEK RE DEMPTION IN THE EVENT OF 19 ITA NO.130/PN/2014 ITA NO.144/PN/2014 BREACH OF CONTRACT EXCEPT CHARGE OF INTEREST @ 14% PER ANNUM. THE ONLY MECHANISM AVAILABLE IN THE NATURE OF RESIDUARY CLAU SE IS CONVOLUTED ARBITRATION PROCESS. THUS, THE MOU IS NOT IN TUNE WITH ORDINARY BUSINESS PRACTICES. THIS IS INDICATIVE OF THE FACT THAT THE MOU WAS NOT INTENDE D TO BE ACTED UPON EXCEPT FOR PAYMENT OF INTEREST. WE ALSO NOTICE THAT THE IN TEREST CHARGEABLE IS ONLY IF THE PROPOSED BUILDING IS NOT COMMENCED LATEST BY JU NE, 2008, WHEREBY THE LIABILITY TO PAY INTEREST WOULD ARISE SINCE BEGINNI NG OF THE TRANSACTION. HERE, WE HAVE TO REMAIN ALIVE TO THE FACT THE LENDER CO. AND ASSESSEE ARE NO DIFFERENT. BEING THE SAME PERSON, THE LENDER WAS ALWAYS PRIVY TO THE FACT THAT DEVELOPMENT OF THE PROPERTY IS ON A QUITE STICKY WI CKET AND MARRED WITH SERIOUS PROBLEMS WITH NATU FAMILY. THE IMPUGNED PRO JECT COULD NOT TAKEOFF AT ALL AND THE MATTER IS EMBROILED UNDER LITIGATION. W HEN SEEN IN THIS BACKGROUND, IT WILL BE DIFFICULT TO VISUALIZE THAT A LENDER IN ORDINARY COURSE WILL AGREE TO MAKE INITIAL UPFRONT PAYMENT OF EXHORBITANT AMOUNT OF RS. 2.5 CRORE, WHICH IS AT NEARLY 41% ON SOME PROJECT WHICH IS AT SO PRIMIT IVE STAGE AND FLUID. THE INTENTION WHICH CAN AT BEST BE DEDUCED IS TO EARN I NTEREST ON MONEY LENT IN THE GUISE OF BUSINESS ADVANCE. IT ADDS TO THE SENSE OF BAFFLEMENT THAT FRESH PAYMENT TRANSACTIONS NEARLY 3.5 CR. HAVE BEEN CARRI ED OUT AFTER THE STIPULATED TIME OF JUNE 2008 WHEN THE CONSTRUCTION WORK IN THE PROJECT REFERRED TO IN THE IMPUGNED MOU WAS REQUIRED TO BEGIN. ADMITTEDLY, THE PROJECT NEVER TOOK OFF AND CONSTRUCTION COULD NOT TAKE PLACE AT ALL. THUS, CONTINUING THE LARGESSE, SUBSEQUENT PAYMENTS BY LENDER WHEN THE PROJECT IS T OTALLY IN DERAILED CONDITION IS CLEARLY MORE THAN WHAT MEETS THE EYE. IT IS CLEA RLY A PURE FINANCIAL ARRANGEMENT WHEREIN THE ASSESSEE HAS TRANSFERRED MO NEY LYING IN HIS CORPORATE ACCOUNT TO HIS INDIVIDUAL ACCOUNT AS PER HIS SOLE CONVENIENCE. THE INTEREST CHARGE HAS BEEN ACCEPTED ON THE AMOUNT OUT STANDING WITHOUT ANY RELUCTANCE. THIS GIVES CLEAR IMPRESSION THAT THE AM OUNT WAS TAKEN AND RETURNED AS MUTUAL CONVENIENCE AND INTENTION WAS TO UTILIZE THE FUNDS AVAILABLE WITH THE CORPORATE ENTITY FOR THE INDIVIDUAL BENEFIT OF THE SHAREHOLDER. 29. AS NOTED, THE LENDER CONTINUED TO LEND FRESH MO NEY WITHOUT ANY VISIBILITY OF THE COMMENCEMENT OF THE PROJECT. THE CONDUCT IS REPUGNANT TO 20 ITA NO.130/PN/2014 ITA NO.144/PN/2014 AND DOES NOT ACCORD WITH AN ORDINARY BUSINESS DEAL. THUS, A NORMAL INFERENCE WOULD BE THAT THE LENDING ARM OF THE ASSESSEES CON CERN HAS NOT TAKEN ANY BUSINESS RISK IN THE PROJECT AND LENT MONEY TO PROV IDE CONVENIENCE TO ITS SHAREHOLDER AND WITH SOME INTEREST THEREON. 30. IT DOES NOT REQUIRE OVEREMPHASIS THAT THE ASSES SEE HAS TRANSFERRED THE MONEY FROM ITS LENDER COMPANY BY VIRTUE OF BEING HA VING 100% CONTROL OVER THE LENDER COMPANY AS A SHAREHOLDER. THE CLAUSES O F THE PURPORTED MOU ARE CLEARLY SKEWED AND LOPSIDED TO MAKE IT IN CONFORMIT Y WITH THE ACTUAL TRANSACTIONS ALREADY HAPPENED. THE LENDER CO. HAS G ONE OVERBOARD TO FACILITATE PAYMENTS. HENCE, THE ACTUAL FACTS DIFFERS WITH PURP ORTED MOU IN ESSENTIAL PARTICULARS AND RUN COUNTER TO AN ORDINARY BUSINESS CONDUCT AND ALSO MILITATES AGAINST LOGIC AND RATIONAL APPROACH. THE DISQUIETIN G FEATURES OF THE MOU THUS VINDICATE THE STAND OF THE AO THAT IT IS AN AFTERTH OUGHT. UPFRONT PAYMENT OF NEARLY 75% AS AGREED WITHOUT ANYTHING CONCRETE IN S IGHT DEFIES RATIONAL APPROACH TO A BUSINESS TRANSACTION AND SO IS THE CO NTINUED PAYMENTS EVEN AFTER JUNE 2008 EVEN WHEN THE PROJECT COULD NOT TAKE OFF. CLEARLY, THE MONEY HAS BEEN TRANSFERRED FOR THE PERSONAL BENEFIT OF THE SH AREHOLDER WITHOUT ANY COMMERCIAL ENGAGEMENTS AS SOUGHT TO BE MADE OUT IN THE MOU. 31. SINCE THE TRANSACTIONS IN DISPUTE IS BETWEEN TW O INTRINSICALLY CONNECTED PARTIES WHICH ARE NOT SEPARABLE OR DISTINCT EXCEPT FOR LEGAL CORPORATE VEIL, THE ONUS IS VERY HEAVY ON THE ASSESSEE TO PROVE THE PUR PORTED INTENTION AS SPELT OUT IN MOU WITH UNDERLYING FACTS. MERE EXECUTION OF SOME SELF SERVING MOU WOULD NOT IPSO FACTO LEGITIMIZE ITS CONTENTS. HAVING REGARD TO THE FACT S AND CIRCUMSTANCES, IN OUR VIEW, THE ASSESSEE COULD NOT DISCHARGE THE ONUS WHICH LAY UPON IT. 32. RELEVANT HERE TO NOTICE THAT AS AGAINST THE OUT STANDING RECEIPT OF RS.4,11,59,900/- FROM THE LENDER AS UPTO 31 ST MARCH, 2009, THE CORRESPONDING AMOUNT PAID TO NATU FAMILY IS RS.2,86,29,148/- AS P ER STATEMENT FILED APPEARING AT PAGE NO.60 OF THE PAPER BOOK. THIS IS ALSO A POINTER TO THE FACT 21 ITA NO.130/PN/2014 ITA NO.144/PN/2014 THAT THE MONEY HAS BEEN RECEIVED FROM THE LENDER WI THOUT ANY CORRESPONDING NEXUS WITH THE TRANSACTIONS OF THE ASSESSEE WITH NA TU FAMILY. 33. WE ALSO FIND THE OBSERVATIONS MADE IN THE AUDIT REPORT OF THE LENDER COMPANY TO BE INCONSISTENT WITH THE CASE ADVANCED O N BEHALF OF THE ASSESSEE. ON PERUSAL OF THE ANNEXURE TO AUDIT REPORT [ANNEX ED TO THE BALANCE SHEET OF THE LENDER TDPL - PAGE NO. 26 TO 51 ] AT PAGE NO.29 OF THE PAPER BOOK, IT CAN BE SEEN THAT THE UNDER THE HEAD LOAN GIVEN, THE A UDITOR HAS COMMENTED THAT THE ASSESSEE HAS GIVEN MAXIMUM LOAN OF RS.4,11,59 ,900/- (IDENTICAL WITH THE FIGURE OF LOAN OF TDPL AS ON 01.04.2009) DURING THE YEAR. THUS, LENDERS FINANCIAL REPORT ALSO VOUCHES THE ENTRIES REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE THAT MONEY EXCHANGED WAS IN THE NATURE OF LOAN WHICH IS VERY DIFFERENT FROM A BUSINESS ADVANCE. BESIDES, REFEREN CE IS ALSO INVITED TO CLAUSE 5 OF THE ANNEXURE TO THE AUDIT REPORT. AS PER THE AFO RESAID CLAUSE, THE AUDITOR HAS AGAIN ASSERTED THAT DURING THE YEAR, ASSESSEE HAS N OT ENTERED ANY TRANSACTION IN RESPECT OF CONTRACTS AND ARRANGEMENTS WITH PARTIE S UNDER SECTION 301 OF THE COMPANIES ACT. SECTION 301 OF THE COMPANIES ACT CO VERS AND INCLUDES ALL DIRECTORS AND THEIR RELATIVES ETC. AND OTHER CONNEC TED ENTITIES. THUS, IN TERMS OF S. 301, THE AUDITOR IS UNDER OBLIGATION TO REPORT A NY TRANSACTION PURSUANT TO A CONTRACT OR ARRANGEMENT ETC. WITH RELATED PARTIES. AS EXAMINED BY THE AUDITOR, NO TRANSACTION PURSUANT TO CONTRACT OR ARRANGEMENT IS STATED TO HAVE BEEN ENTERED. THUS, THE PAYMENTS RECEIVED PURSUANT TO TH E PURPORTED MOU HAVE NOT BEEN GIVEN EFFECT TO IN THE STATUTORY REGISTER OF T HE LENDER CO. MAINTAINED UNDER SECTION 301 OF THE COMPANIES ACT. HENCE, THE OBSERV ATIONS OF THE AUDITORS WHO WERE PRIVY TO STATUTORY REGISTERS MAINTAINED AL SO BELIES THE STAND OF THE ASSESSEE. WE HAVE ALREADY OBSERVED THAT THE CLAUSES OF THE MOU GIVES UNINTELLIGIBLE RESULT AND DOES NOT COINCIDE WITH OR DINARY BUSINESS CONDUCT AND THUS APPEARS TO BE A MERE TOKEN DOCUMENT TO ACCOMMO DATE THE PERSONAL NEEDS OF ITS SHAREHOLDER. THE TRANSACTION IS NOT IN THE S PIRIT OF BUSINESS PRACTICES. THUS, THE CONCLUSION ARRIVED BY THE AO THAT THE IMP UGNED MOU IS ONLY AN AFTERTHOUGHT CANNOT BE DISCARDED. 22 ITA NO.130/PN/2014 ITA NO.144/PN/2014 34. IN THIS CONTEXT, IT IS USEFUL TO RECALL THE OBS ERVATIONS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KOLHIA HIR DAGARH COMPANY LTD., 17 ITR 545 (BOM), WHEREIN THE HONBLE HIGH COURT OB SERVED AS UNDER : NOW, IN TAXATION MATTERS IT IS NOT NECESSARY TO CO NSTRUE DOCUMENTS FROM THEIR PURELY LEGAL ASPECT. IT IS OPEN TO US NOT MERELY TO LOOK AT THE DOCUMENTS THEMSELVES, BUT ALSO TO CONSIDER THE SURROUNDING CIRCUMSTANCES SO AS TO ARRIVE AT A CONCLUSION AS TO WHAT WAS THE REAL NATURE OF THE TRANSACTION FROM THE POINT OF VIEW OF TWO BUSINESSMEN WHO WERE CARRYING OUT THIS TRANSACTION. IN ALL TAXATION MATTERS MORE EMPHASIS MUST BE PLACED UPON THE BUSINESS ASPECT OF THE TRANSACTION RATHER THAN ON THE PURELY LEGAL AND TECHNICAL ASPECT. 35. THE CASE LAWS RELIED UPON BY THE ASSESSEE ARE A PPLICABLE IN THE CONTEXT OF THE BUSINESS ADVANCES WHICH IS NOT THE CASE HERE AND ACCORDINGLY NOT APPLICABLE. 36. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO MERIT IN THE CONTENTION ADVANCED BY THE ASSESSEE. IN OUR CONSIDERED VIEW, THE PURPORTED MOU HAS REMAINED UNSUBSTANTIATED AND CANN OT BE RELIED UPON. THE AMOUNT PROVIDED TO THE ASSESSEE BY THE LENDER IS TH US SUSCEPTIBLE TO PROVISION OF S. 2(22)(E) OF THE ACT. IN THE RESULT, WE REVERS E THE ACTION OF THE CIT(A) AND APPROVE THE ACTION OF THE AO ON THIS SCORE. 37. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED. 38. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED AND THE APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF DECEMBER, 2015. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER PUNE ; DATED : 30 TH DECEMBER, 2015. & ' ()* +*( / COPY OF THE ORDER IS FORWARDED TO : 23 ITA NO.130/PN/2014 ITA NO.144/PN/2014 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, PUNE; 4) THE CIT-II, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. &, / BY ORDER , //TRUE COPY// ! '# / SR. PRIVATE SECRETARY $ %& %'' , / ITAT, PUNE