The Deputy Commissioner of Income tax, Jalandhar V. Sh. Shital Kumar Vij, Jalandhar

ITA 146/ASR/2011

• Counselvise Citation: 14620914 RSA 2011
• Duration Of Justice: 1 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 11-09-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 21-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K KOUL CAS; SSH ASHWANI KALIA
• Keywords: Period of limitation; Additional evidence; Deemed dividend; Commercial expediency; Time period of passing order
• Section: 142(1); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.406(ASR)/2009 ASSESSMENT YEAR:2003-04 PAN :AAGPN8364C SH. SHITAL KUMAR VIJ, VS. ASSTT. COMMR. OF INCOME- TAX, PROP. M/S. SHITAL INTERNATIONAL, RANGE-II, JALANDHAR. JALANDHAR. (APPELLANT) (RESPONDENT) I.T.A. NO.146(ASR)/2011 ASSESSMENT YEAR:2003-04 PAN :AAGPN8364C DY. COMMR. OF INCOME-TAX, VS. SH. SHITAL KUMAR VIJ, CIRCLE-II, PROP. M/S. SHITAL INTERNATIONAL, JALANDHAR. JALANDHAR. (APPELLANT) (RESPONDENT) ASSESSEE BY: S/SH. ASHWANI KALIA & C.K. KOUL, CAS RESPONDENT BY:SH. TARSEM LAL, DR DATE OF HEARING:11/09/2012 & 14/09/2012 DATE OF PRONOUNCEMENT:20/09/2012 ORDER PER BENCH ; THE APPEAL OF THE ASSESSEE IN ITA NO.406(ASR)/2009 ARISES FROM THE ORDER OF THE LD. CIT(A), JALANDHAR, DATED 16.07.200 9 FOR THE ASSESSMENT YEAR 2 2003-04. THE REVENUE HAS ALSO FILED APPEAL IN ITA N O.146(ASR)/2011 WHICH ARISES FROM THE ORDER OF THE LD. CIT(A), JALANDHAR, DATED 25.01.2011. 2. THE ASSESSEE IN ITA NO.406(ASR)/2009 HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A) HAS ERRED IN REJECTING APPL ICATION UNDER RULE 46A OF THE INCOME TAX RULES. IT DOES NOT GIVE RISE TO ANY NEW CONTENTION AND ONLY SEEKS TO ESTABLISH THAT PRO VISIONS OF SECTION 2(22)(E) ARE NOT ATTRACTED IN THE CASE. THE FACT OF ENHANCED LIMIT BY PNB IS APPARENT FROM THE FILE OF THE COMPANY M/S. SHITAL FIBRES LTD. 2. THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ADDI TION OF RS.1,39,45,384/- MADE BY A.O. ON ACCOUNT OF DEEMED DIVIDEND. 3. THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE DIFFERENCE BETWEEN LOAN ACCOUNT AND A MUTUAL, OPEN AND CURREN T ACCOUNT ESPECIALLY WHEN THE ASSESSEE HAD LIEN OVER FUNDS OB TAINED BY THE COMPANY FROM P.N.B AS OVERDRAFT. HIS CREDIT BAL ANCE IN ACCOUNT IN THE BOOKS OF THE COMPANY M/S. SHITAL FIB RES LTD. WAS RS.1,93,11,583/- AS AGAINST DEBIT BALANCE OF RS.1,39,45,384/- DURING THE PREVIOUS YEAR. 4. ANY OTHER GROUND THAT MAY BE TAKEN UP AT THE TIM E OF HEARING. 3. THE REVENUE IN THEIR APPEAL IN ITA NO.146(ASR)/2 011 HAS RAISED FOLLOWING GROUNDS OF APPEAL FOR DELETING THE PENAL TY BY THE LD. CIT(A) UNDER SECTION 271(1)(C) OF THE I.T.ACT, 1961: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE PENALTY OF 3 RS.43,92,796/- IMPOSED BY THE AO U/S 271(1)(C) OF T HE I.T.ACT, 1961. 2. THAT, IT IS PRAYED THAT THE ORDER OF THE LD. CIT (A) BE SET-ASIDE AND THAT OF THE A.O. RESTORED. 3. THAT THE APPELLANT REQUESTS FOR LEAVE TO ADD OR AMEND OR ALTER THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AN D DISPOSED OF. 4. FIRST OF ALL, WE TAKE UP ASSESSEES APPEAL IN IT A NO.406(ASR)/2009 AS UNDER: THE BRIEF FACTS AS ARISING FROM THE ORDER OF THE A .O. ARE REPRODUCED FOR THE SAKE OF CLARITY AS UNDER: THE ASSESSEE IS A DIRECTOR IN M/S. SHITAL FIBRE LT D. AS PER REPLY DATED 23-12-2005 FILED ON 17-01-2006 IN THE CASE OF ABOVE COMPANY, IT WAS STATED THAT THE ASSESSEE IS HOLDING A TOTAL OF 1034400 SHARES OF THE ABOVE COMPANY OUT OF TOTAL SHARES ISSUED 137500 0 I.E. HE IS HOLDING 75.23% EQUITY. AS PER AUDIT REPORT FILED, IT WAS STATED IN ANNEXURED THEREOF THAT THE ASSESSEE HAD ACCEPATED LOAN FROM THE COMPANY DURING THE YEAR. THE COMPANY IS HAVING SUB STANTIAL RESERVES AND SURPLUS OUT OF PROFITS. ACCORDINGLY, THE ASSES SEE WAS REQUIRED TO SHOW CAUSE VIDE LETTER DATED 07-02-2006 AS TO WHY L OAN TAKEN FROM THE ABOVE COMPANY SHOULD NOT BE TREATED AS DEEMED D IVIDEND AS PER DEFINITION U/S. 2(22)(E) OF THE IT ACT, 1961. THE ASSESSEE HAS FILED REPLY DATED 16-03-2006 ALONG WITH COPY OF A/C OF THE ASSESSEE IN THE BOOKS OF M/S. SHITAL FIBRE LTD. IT HAS BEEN SUBMITTED THAT THE FIRM IS HAVING RUNNING ACCO UNT WITH THE ABOVE COMPANY AND THE TRANSACTIONS HAVE BEEN SQUARED UP A T THE CLOSE OF THE FINANCIAL YEAR. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE DID NOT RECEIVE ANY PAYMENT IN THE NATURE OF LOAN OR ADVANC E FROM THE COMPANY AND THUS THE PROVISIONS OF SECTION 2(22)(E) WERE NOT ATTRACTED. THE CONTENTION OF THE ASSESSEE HAS BEEN EXAMINED. IT IS SEEN FROM THE COPY OF ACCOUNT FILED THAT THE ASSESSEE HA S RECEIVED VARIOUS 4 AMOUNTS FROM THE COMPANY STARTING FROM 02-04-2002 A ND THERE IS A DEBIT BALANCE DUE TO THE COMPANY. THE PEAK OF SUCH DEBIT BALANCE IS REACHED ON 11-06-2002 WHEN THE DEBIT BALANCE IS AT RS. 1,52,06,934/-. IT WAS HELD BY THE APEX COURT IN THE CASE OF SMT. T ARULATA SHYAM AND OTHERS VS. COMMISSIONER OF INCOME-TAX. WEST BENGAL ( 108 ITR345) AS UNDER: WHEN LOAN OR ADVANCE MADE TO SHAREHOLDER ARE REPA ID BEFORE THE END OF THE ACCOUNTING YEAR, WHETHER THE LOAN OR ADVANCE COULD BE TREATED AS BEING DIVIDEND?. THE PROVISION OF S.2(6A)(E) OF 1992 ACT, WOULD BE ATTRACTED AT THE T IME OF ADVANCE OF LOAN BEING MADE TO THE SHAREHOLDER EXCEP T OR THE SPECIFIC PROVISION IN S.12(IB) FOR THE ASSESSMENT Y EAR 1955-56, THE LEGISLATURE HAS DELIBERATELY NOT MADE THE SUBSI STENCE OF THE LOAN ON THE DATE OF THE PREVISION YEAR A PREREQUISI TE FOR RAISING OR APPLYING THE STATUTORY PROVISION. THEREFORE, EV EN THOUGH THE LOAN WAS NOT OUTSTANDING AS OF THE YEAR END, IT SHO ULD BE TREATED AS DEEMED DIVIDEND. THE ABOVE DECISION OF THE APEX COURT IS SQUARELY AP PLICABLE TO THE FACTS OF THE CASE. IRRESPECTIVE OF THE FACT WH ETHER THE LOAN WAS SQUARED UP AT THE END OF THE YEAR THE PROVISION OF SECTION 2(22)(E) OF THE IT ACT, 1961 ARE ATTRACTED AT THE TIME OF ADVAN CE OF LOAN BEING MADE TO THE SHARE HOLDER. ACCORDINGLY, THE PEAK DE BIT AMOUNT OF RS. 1,52,06,934/- ADVANCED BY THE COMPANY, THE ASSESEE AS ON 11-06-2002 IS LIABLE TO BE TREATED AS DEEMED DIVIDEND U/S. 2( 22) ( E) OF THE I.T ACT, 1961. FROM THE DETAILS FILED BY THE ASSESSEE, IT IS SEEN THAT THE ASSESSEE IS HAVING A CREDIT BALANCE IN ANOTHER A/C WITH THE COMPANY AT RS. 12,61,550/- AS ON BEGINNING OF THE PREVIOUS YEA R WHICH REMAINED OUTSTANDING THROUGHOUT THE YEAR. THEREFORE, THE NE T ADVANCE FROM THE COMPANY WOULD COME TO RS. 1,55,06,934 (-) RS. 12,61 ,550/-+ RS. 1,39,45,384/- AND THE SAME IS TREATED AS DEEMED DI VIDEND U/S. 2 (22)(E) OF THE INCOME-TAX ACT, 1961 AND IS ADDED TO THE INCOME. THE ASSESSEE IS ALSO TREATED TO HAVE CONCEALED PARTICUL ARS OF INCOME-TAX TO THIS EXTEND FOR WHICH PENALTY PROCEEDINGS U/S 271(1 )(C) OF THE I T ACT, V1961 ARE BEING INITIATED SEPARATELY. 5 5. THE LD. CIT(A) AFTER CONSIDERING THE WRITTEN SUB MISSIONS OF THE ASSESSEE DATED 17.11.2008 AT PAGES 2 TO 11 AND THE REAFTER THE ADDITIONAL EVIDENCE AND RELYING UPON THE DECISIONS OF VARIOUS COURTS OF LAW CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE MR. ASHWANI KALIA, CA, AT THE OUTSET RELIED UPON THE SUBMISSIONS MADE BEFORE THE LD. CIT(A), WHICH FOR THE SAKE OF CLARITY IS REPRODUCED AS UNDER: IN THIS CASE, THE A.O. HAS MADE AN ADDITION OF RS . 1,39,45,384 ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE INC OME TAX ACT, 1961 ( IN SHORT THE ACT) ON THE GROUND THAT ASSESSEE H AS RECEIVED LOANS AND ADVANCES OF THE AFORESAID AMOUNTS FROM M/S. SHI TAL FIBRES LTD. THE A.O. AS TREATED THE SAID AMOUNT AS DEEMED DIVID END WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. 2. SECTION 2(22)(E) IS A DEEMING PROVISION WHICH CR EATES A LEGAL FICTION. IN ORDER TO APPRECIATE THE SCOPE OF ITS A PPLICABILITY AND THE CONDITIONS WHICH ARE REQUIRED TO BE SATISFIED, IT W OULD BE APPROPRIATE TO REPRODUCE HEREUNDER THE PROVISION OF THIS SECTIO N. THE SECTION READS AS UNDER : ANY PAYMENT BY A COMPANY NOT BEING A COMPANY IN WH ICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER R EPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE)MADE AFTE R THE 31 ST DAY OF MAY 1987 BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER BEING A PERSON WHO IS BENEFICIAL OWNER OF SHARES ( NOT BEING SHARE S ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDINGS NOT LESS THAN TEN PERCENT OF THE VOTING POWER OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER O R A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST ( HEREIN AFT ER IN THIS CAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHARES HOLDER TO 6 THE EXTENT TO WHICH THE COMPANY IN EITHER CASE PRO CESS ACCUMULATED PROFITS. A BARE READING OF THIS SECTION SHOWS THAT CERTAIN S PECIFIED PAYMENTS MADE BY A COMPANY TO A SPECIFIED SHAREHOLDER OR TO A CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST OR ANY PAYMENT BY ANY BY ANY S UCH COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF SPECIFIED S HAREHOLDER TO THE EXTEND TO WHICH COMPANY POSSESSES ACCUMULATED PROFI T CONSTITUTES DEEMED DIVIDEND AND AS SUCH LIABLE TO TAX IN THE HA NDS OF SUCH SHAREHOLDER. THIS SECTION PROVIDES: I) THAT IT APPLIES TO A CLOSELY HELD COMPANY AND NOT T O COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED; II) THAT SUCH COMPANY HAS MADE A PAYMENT BY WAY OF LOAN OR ADVANCE TO THE SHAREHOLDER OR TO CERTAIN CONCERN IN WHICH THE SHAREHOLDER HAS S SUBSTANTIAL INTEREST; III) OR THAT THE SUCH COMPANY HAS MADE PAYMENT ON BEHALF OF SUCH SHAREHOLDER; IV) OR THAT SUCH COMPANY HAS MADE PAYMENT FOR THE INDIV IDUAL BENEFIT OF SUCH SHARE HOLDER. THE AFORESAID PAYMENTS THEN BE TREATED AS DEEMED DI VIDEND IN THE HANDS OF SHAREHOLDER AND CAN BE TAXED AS SUCH. HOW EVER THE SCOPE OF DEEMED DIVIDEND IS RESTRICTED TO PAYMENTS TO THE EX TEND OF ACCUMULATED PROFITS. THE SECTION WOULD NOT APPLY IN CASE THE COMPANY DOES NOT HAVE ACCUMULATED PROFITS. 3. IT IS O DOUBT TRUE THAT SECTION 2(22)(E) OF THE ACT IS A DEEMING PROVISION. IT IS A SETTLED RULE OF INTERP RETATION OF A FICTION THAT COURT/AUTHORITY MUST ASCERTAIN FOR W HAT PURPOSE THE FICTION IS CREATED, AND AFTER ASCERTAINING THE PURP OSE, THE COURT HAS TO ASSUME ALL FACTS WHICH ARE INCIDENTAL TO THE GIVING EFFECT TO THAT FICTION. HOWEVER, IT WILL NOT BE GIVEN A WIDER MEA NING THEN 7 THAT IT PURPORTS TO DO. RELIANCE IN THIS REGARD IS PLACED ON THE JUDGEMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CA SE OF CED VS. KRISHAN KUMARI DEVI 173 ITR 561. IN THE CASE OF D. K.JAIN VS. STATE OF HARYANA (1995) SUPPL (1) SCC 349, THE HONBLE SU PREME COURT HAS HELD THAT A STATUTORY FICTION CANNOT BE EXTENDE D BEYOND THE PURPOSE. SIMILAR VIEW WAS TAKEN BY THE APEX COURT IN THE CASE OF CIT VS. C.P. SARTHY MUDALIAR 83 ITR 170 AND OF KERELA H IGH COURT AND IN THE CASE OF P.V. JOHN 181 ITR 1. THUS, IT CLEAR THA T BEFORE THE DEEMING PROVISION OF THE ACT IS INVOKED, THE PURPO SE FOR ENACTING THE SECTION MUST BE CLEAR AND BORNE IN MIND. 4. THE COMPANIES TO WHICH SECTION APPLIES INCLUDE I NTER-ALIA THE COMPANIES IN WHICH THE MAJORITY OF THE VOTING POWER LIES IN THE HANDS OF GROUNDS OF PERSONS OTHER THAN THE PUBLIC. THESE COMPANIES ARE CONTROLLED BY GROUP OF PERSONS. THE DECISION WHETH ER THE PROFITS OF THE COMPANIES SHOULD BE DISTRIBUTED AS DIVIDENDS OR NOT RESTS WITH SUCH GROUP OF PERSONS. THE LEGISLATURE REALISED TH AT THOUGH THE MONEY WAS AVAILABLE WITH THE COMPANY IN THE FORM OF PROFIT, YET THOSE IN CONTROL OF THE COMPANY INTENTIONALLY REFUSED TO DISTRIBUTE THE SAME AS DIVIDEND TO SHAREHOLDERS. INSTEAD, SUCH GROUP C ONTROLLING THE COMPANY ADOPTED THE DEVICE OF ADVANCING THE SAID AC CUMULATED PROFITS BY WAY OF LOAN OR ADVANCE TO ONE OF THE SHA REHOLDERS. IT WAS OBVIOUS THAT SUCH PRACTICE WAS RESORTED TO ONE OF T HE SHAREHOLDERS. IT WAS OBVIOUS THAT SUCH PRACTICE WAS RESORTED TO WITH A VIEW TO EVADE THE TAX ON ACCUMULATED PROFITS. THE PURPOSE OF EN ACTING SECTION 2 (22)(E) WAS TO CORRECT THIS MISCHIEF. AS PER DEEMI NG PROVISION OF THIS SECTION, SUCH PAYMENTS S BY A COMPANY TO A SHAREHOL DER CONSTITUTES DEEMED DIVIDEND, WHICH MAY NOT OTHERWISE FALL IN TH E CATEGORY OF DIVIDED. IN THIS CONTEXT, RELIANCE IS PLACED ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF NAVNEET LAL JAVERI VS. K. K. SEC 56 ITR 207, WHERE THE PURPOSE FOR INSERTING THIS SECTION IN THE ACT WAS DULY EXPLAINED. 5 IN THE PRESENT CASE IT IS TRUE THAT M/S. SHIT AL FIBRES LTD, IS NOT A PUBLIC LTD. COMPANY AND THE ASSESSEE WAS HOLDING SHARES 8 OF M/S. SHITAL FEBRES LTD EXCEEDING THE LIMIT PRESC RIBED IN SECTION 2 (22) (E) OF THE ACT. IT IS ALSO TRUE THA T THE TRANSACTIONS NOTED BY THE ASSESSING OFFICER APPEAR IN THE NAME O F M/S. SHITAL INTERNATIONAL WHICH IS A PROPRIETARY CONCERN OF THE ASSESSEE. THEREFORE BOTH WERE RELATED CONCERNS AND APPARENTLY THE CONDITIONS NECESSARY FOR INVOKING THE PROVISIONS OF SECTION 2 (22)(E) ARE SATISFIED SO FAR THESE PARAMETERS ARE C ONCERNED. HOWEVER FOR INVOKING HE PROVISIONS OF SECTION 2(22 )(E) OF THE ACT, THE DEPARTMENT IS REQUIRED TO ESTABLISH THAT P AYMENT MADE BY A COMPANY TO THE SHARE HOLDER OR TO A CONCERN IN WHICH HE HAS A SUBSTANTIAL INTEREST FALL INTO THE NATURE AND CHARACTER OF LOANS OR ADVANCES AS THERE IS NO ALLEGATION OF THE DEPARTMENT THAT THE COMPANY HAS MADE PAYMENTS ON BEHALF OF THE ASSESSEE FOR HIS INDIVIDUAL BENEFIT. NOW THE MATERIAL QUESTI ON WHICH REQUIRES TO BE DECIDED IN THIS CASE IS WHETHER THE ENTRIES APPEARING IN THE ACCOUNT OF SHITAL INTERNATIONAL IN THE BOOKS OF ACCOUNT OF THE COMPANY ARE IN THE NATURE AND CHARAC TER OF LOAN OR ADVANCES SO AS TO FUSTIFY THE INVOCATION OF SECT ION 2 (22)(E) OF THE ACT. THE ASSESSING OFFICER HAS NOWHERE EXPL AINED AS TO HOW THESE ENTRIES WERE IN THE NATURE OF LOANS. THE A.O. HAS MERELY REFERRED TO THE STATUTORY AUDIT REPORT IN FO RM NO. 3CD WHERE THE AUDITORS HAVE INDICATED THE AMOUNTS OF D EPOSITS OR LOAN FROM THE COMPANY BECAUSE THERE IS ONLY ONE COL UMN FOR THE SAME. BUT IT DOES NOT MEAN THAT THESE AMOUNTS WERE LOANS OR ADVANCES IN THE LEGAL SENSE. GENERALISED MEANING C ANNOT BE GIVEN TO LOAN OR ADVANCES. MOREOVER, ITEMS (A) AND (B) OF COLUMN 24 IN THE STATUTORY AUDIT REPORT IN FORM NO. 3CD REFERS TO PARTICULARS OF EACH LOAN OR DEPOSIT FROM AND TO RELATED CONCERNS. THIS ALSO INCLUDES ITEMS OF DEPOSITS. THE TERM DEPOSIT HAS A DIFFERENCE MEANING THAN THE TERM L OAN. THEREFORE IT WAS NOT CORRECT ON THE PART OF THE ASS ESSING OFFICER O MAKE A CASUAL REFERENCE TO THE AUDIT REPORT AND J UMP TO THE CONCLUSION THAT IMPUGNED TRANSACTIONS WERE IN THE N ATURE OF LOANS. 6. AS STATED EARLIER THE TERM DEPOSIT IS DIFFEREN T FROM THE TERM LOAN. IT IS RELEVANT TO POINT OUR THAT SECTION 2 22)(E) IS APPLICABLE ONLY TO LOANS OR ADVANCES AND NOT BE DEP OSITS. THE 9 DEEMING PROVISIONS OF THIS SECTION CANNOT BE STRETC HED TO COVER TRANSACTION OF DEPOSITS AS THESE ARE LEGALLY DIFF ERENT FROM THE TRANSACTION OF LOAN AND THESE HAVE NOT BEEN COVERED IN THE SECTION THE DIFFERENCE BETWEEN THE LOANS AND ADVANC ES WAS DULY NOTED BY THE HONBLE DELHI HIGH COURT I THE CA SE OF VAIDYANATH PLASTICS INDUSTRIES (P) LTD, VS. K.L. AN AND, INCOME TAX OFFICER 230 ITR 522 WHICH WAS DELIVERED IN THE CONTEXT OF PROVISION OF SECTION 269T OF THE ACT. SECTION 269T OF THE ACT AS IT STOOD AT THE RELEVANT TIME PROHIBITED THE REPAYM ENT OF DEPOSITS IN CASH EXCEEDING THE PRESCRIBED MONETARY LIMIT. HOWEVER, THE SECTION DID NOT INCLUDE REPAYMENT OF L OANS IN CASH AT THE RELEVANT TIME. THE ASSESSING OFFICER CONSID ERED THE TRANSACTION OF LOANS AS TRANSACTIONS OF DEPOSITS AN D PROCEEDED AGAINST THE ASSESSEE FOR HOLDING THAT THE ASSESSEE HAD VIOLATED THE PROVISIONS OF SECTION 269 T OF THE ACT. HOWEVE R, THE HONBLE DELHI HIGH COURT OBSERVED THAT THE PROVISIO N OF SECTION 269T WERE APPLICABLE ONLY TO DEPOSITS AND NOT TO LOAN. THE COURT ALSO OBSERVED THAT THERE IS A DI STINCTION BETWEEN A LOAN AND DEPOSIT IN A MUCH AS IN THE CASE OF THE FORMER, IT IS ORDINARILY THE DUTY OF THE DEBT OR TO SEEK OUT THE CREDITOR AND TO REPAY THE MONEY ACCORDINGLY TO THE AGREEMENT AND IN THE CASE OF THE LATTER IT IS GENER ALLY THE DUTY OF DEPOSITOR TO GO TO THE BANKER OR THE DEPOSITEE AS T HE CASE MAY BE AND MAKE A DEMAND FOR IT. THE COURT ALSO NOTIC ED THE DIFFERENCE BETWEEN A LOAN AND DEPOSIT UNDER THE LIMITATION ACT. THE COURT OBSERVED WHILE ARTICLES 19 AND 21 THE LIMITATION ACT PROVIDE FOR THE PERIOD WITHIN WHICH A SUIT FOR RECOVERY OF A LOAN CAN BE FILED, ARTICLE 22 DEALS W ITH THE PERIOD OF LIMITATION FOR SUITS FOR RECOVERY ON ACCOUNT OF A DEPOSIT. THE HONBLE HIGH COURT OBSERVED THAT LOANS AND DEPOSITS BEING DIFFERENT IN LEGAL TERMS AND BY APPLYIN G THE STRICT RULE OF INTERPRETATION IT COULD NOT BE SAID THA T THERE WAS A VIOLATION OF PROVISIONS OF SECTION 269T OF THE ACT BECAUSE THE TRANSACTIONS OF LOANS WERE NOT INCLUDED IN SEC TION 269T OF THE ACT. IN THE PRESENT CASE ALSO SECTION 2(22)(E) WHICH IS DEEMING PROVISION MUST RECEIVE A STRICT INTERPRET ATION. SINCE THIS SECTION DOES NOT INCLUDE THE TRANSACTIONS OF D EPOSITS, THE SAME CANNOT BE EXTENDED TO COVER TRANSACTION OF DEP OSITS. THERE, THE A.O. WAS NOT CORRECT IN SUMMARILY CONCLU DING THAT 10 THESE WERE TRANSACTIONS OF LOANS WITHOUT ACTUALLY DEMONSTRATING THAT THESE WERE SO IN THE LEGAL TERMS . 7. NOW THE QUESTION ARISES WHAT IS THE MEANING OF A LOAN AND AN ADVANCE. BOTH THESE TERMS HAVE DISTINCT AND SEPARATE MEANING. THE EXPRESSION ADVANCE MEANS SOMETHING WHICH IS DUE TO A PERSON BUT WHICH IS PAID TO HIM AHEAD OF T IME WHEN IT IS DUE TO BE PAID. THIS VIEW WAS TAKEN BY THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT.VS. K. SRINAVASAN 50 ITR788. IN THE DICTIONARY OF ACCOUNTS BY ERIC L. KOHLER (5 TH EDITION ) THE EXPRESSION ADVANCE WAS DEFINED AS PAYMENT OF CASH OR THE TRANSFER OF GOODS FOR WHICH ACCOUNTING MUST BE REND ERED BY THE RECIPIENT AT SOME LATER DATE. IN THE PRESENT CASE, NO PAYMENT WAS DUE TO BE MADE BY THE COMPANY TO THE ASSESSEE. THEREFORE, PAYMENTS MADE DO NOT FALL IN THE CATEGORY OF ADVAN CES SO AS TO ATTRACT PROVISION OF SECTION OF SECTION 2(22)(E) OF THE ACT. 7.1 THE EXPRESSION LOAN MEANS A LENDING DELIVERY BY ONE PARTY TO AND RECEIPT BY ANOTHER PARTY OF A SUM OF M ONEY UPON AGREEMENT, EXPRESS OR IMPLIED, TO REPLY WITH OR WIT HOUT INTEREST. FOR A LOAN THERE MUST BE A LENDER, A BORROWER, A TH ING LOANED FOR USE AS WELL AS A CONTRACT BETWEEN THE PARTIES O F RETURN OF THE THING LOANED. A LOAN CONTRACTED NO DOUBT CREAT ES AS DEBT BUT THERE MAY BE A DEBT WITHOUT CONTRACTING A LOAN. IN A LOAN THE MIND AND INTENTION OF THE TWO PARTIES, THE LEND ER AND THE BORROWER MUST BE AD IDEM. NOW IN THE PRESENT CASE, THE A.O. HAS NOT EXAMINED THESE ASPECTS BEFORE COMING TO THE CONCLUSION THAT IMPUGNED TRANSACTION WERE IN THE NATURE AND CH ARACTER OF LOANS. NOWHERE HAS HE BROUGHT OUR THE INTENT AND M IND OF THE PARTIES. THE MERE FACT THAT THERE WAS A RUNNING CU RRENT ACCOUNT OF THE ASSESSEE IN THE BOOK OF A COMPANY DO ES NOT MEAN THAT THESE WERE TRANSACTION OF LOANS. SUCH INFEREN CE IS NOT AUTOMATIC UNTIL IT IS SO SHOWN BY THE REVENUE. 8. IN ORDER TO APPRECIATE THE NATURE AND CHARACTER OF TRANSACTIONS IN THIS CASE, IT IS PERTINENT TO MENTION THE BACKGR OUND OF THESE TRANSACTIONS. A COPY OF THE ACCOUNT OF THE ASSES SEE IN THE BOOKS 11 OF THE COMPANY IS ENCLOSED. IT MAY BE SEEN THERE FROM THAT THE ACCOUNT BETWEEN THE ASSESSEE AND THE COMPANY IS MUT UAL, OPEN AND CURRENT IN NATURE. THE ACCOUNT OPENS WITH RS. 100, 000 ON 02.04.2002. THE DEBIT BALANCE GOES ON INCREASING T ILL IT REACHES MAXIMUM OF RS. 1,52,06934 ON 11.06.2002. IT SHOWS DEBIT BALANCE TILL 11.11.2002. THEREAFTER THE SAME STARTS SHOWIN G CREDIT BALANCE. THE MAXIMUM DEBIT BALANCE IS ON 18.02.2003 OF RS. 1,93,11583. IN SIMPLE WORDS THE PAYMENT MADE BY THE ASSESSEE TO THE COMPANY DURING THE PERIOD FROM 11.11.2002 TO 18.02.2003 FAR EXCEEDED THE PAYMENTS RECEIVED BY THE ASSESSEE DURING THE PERIOD FROM 02.04.2002 TO 11.06.2002. THERE ARE ABOUT 200 ENTR IES IN HIS ACCOUNT WHICH SHOW THAT IT IS A RUNNING ACCOUNT FOR THE MUTUAL ACCOMMODATION OF THE PARTIES AND NOT A LOAN ACCOUNT . IT IS NOT THE CASE OF THE DEPARTMENT THAT THERE WAS A WRITTEN OR IMPLIED CONTRACT TO BRING THESE TRANSACTIONS BETWEEN THE PURVIEW OF LOANS. ON THE OTHER HAND, THE ASSESSEE ANY THE COMPANY WERE PARKI NG THEIR SURPLUS FUNDS WITH EACH OTHER AS DEPOSITS FOR THE IR MUTUAL BENEFITS. 9. IT IS ALSO RELEVANT TO POINT OUT THAT IN THE YEA R 1999, THE COMPANY WAS BADLY IN NEED OF AVAILING OF HIGHER CRE DIT LIMIT FROM THE BANK. BUT THE COMPANY HAD NO PROPERLY TO PLEDGE WI TH THE BANK AS COLLATERAL SECURITY. TAT THIS STAGE IN ASSESSEE CA ME FORWARD TO PLEDGE HIS OWN PROPERTIES SO THAT THE COMPANY MAY AVAIL OF HIGHER CREDIT LIMIT WHICH WAS BADLY REQUIRED BY THE COMPANY FOR T HE PURPOSE OF ITS BUSINESS. TO BE SPECIFIC ASSESSEE PLEDGED THE FOLL OWING PROPERTIES: 1 EQUITABLE MORTGAGE OF LAND AND BUILDING MEASURING 8 K 8 MARLA SITUATED AT RAM NAGAR, GAJI GULLA, JALANDHAR, IN TH E NAME OF SH. SHITAL K. VIJ. 2. EQUITABLE MORTGAGE OF LAND AND BUILDING MEASURIN G 127.57 MARLAS SITUATED AT S-9, INDUSTRIAL AREA, JALANDHAR, IN THE NAME OF SH. SHITAL K. VIJH. 3. EQUITABLE MORTGAGE OF LAND AND BUILDING SITUATED AT S-18 INDUSTRIAL AREA, JALANDHAR, IN THE NAME OF SH. SHIT AL K. VIJ. 12 4. EQUITABLE MORTGAGE OF LAND AND BUILDING MEASURIN G 8 KANAL 7 MARLA SITUATED AT SANJAY GANDHI NAGAR, INDUSTRIAL A REA, JALANDHAR, IN THE NAME OF SH. SHITAL K. VIJ, AGAINST THE PLEDGE OF ABOVE MENTIONED PROPERTIES, T HE BANK HAD ADVANCED THE FOLLOWING CREDIT FACILITIES: PACKING CREDIT RS. 75.00 LAC FOBP RS. 100.00 LAC FOBNCL NEED BASED (WITHIN PBF) PBF CEILING RS. 1.60.000 LAC FLC(DP) RS. 400.00 LAC THE CERTIFICATE TO THIS EFFECT FORM PUMJAB NATIONAL BANK IS ENCLOSED AS AN ADDITIONAL EVIDENCE. CONSIDERING THE FACT SU CH ADDITIONAL EVIDENCE IS VERY VITAL WHICH GOES TO THE VERY ROOT OF THIS ISSUE AND IN THE INTEREST OF SUBSTANTIAL JUSTICE HE SAME MAY KIN DLY BE ADMITTED AS PER PROVISION OF RULE 46 A. THUS, IT IS CLEAR THAT THE COMPANY BENEFITED MORE T HAN ASSESSEE. HOWEVER, WHILE AGREEING TO PLEDGE THE ABOVE MENTION ED PROPERTIES WITH THE BANK IT WAS MUTUALLY AGREED THAT BOTH THE COMPANY AND THE ASSESSEE WOULD PARK THEIR SURPLUS FUNDS WITH EACH O THER FOR THEIR MUTUAL BENEFIT. WITH THIS UNDERSTANDING THE COMPAN Y HAD PARKED ITS SURPLUS FUNDS AS DEPOSITS WITH THE ASSESSEE DURIN G THE LEAN PERIOD. IT IS RELEVANT TO MENTIONED THE COMPANY IS IN THE B USINESS OF MANUFACTURE OF MINK BLANKETS FOR WHICH THE DEMAND I S GENERALLY MORE IN THE WINTER SEASON. THE BUSINESS IN SUMMER MONTH S IS GENERALLY LEAN AND, THEREFORE, THE SURPLUS FUNDS WERE DEPOSIT ED WITH THE ASSESSEE DURING THIS LEAN SEASON, THESE WHEN THE FU NDS WERE NEEDED BY THE COMPANY DURING THE WINTER SEASON, THESE WERE NOT ONLY RETURNED BUT ALSO THE ASSESSEE HIMSELF PARKED HIS S URPLUS FUNDS WITH THE COMPANY. THIS IS CLEAR FORM THE FAT THAT AS A GAINST THE PEAK OF DEBIT BALANCE OF RS. 1,52,06934 DUE FROM THE ASSESS EE ON 11.06.2002, 13 THE PEAK OF CREDIT BALANCE PAYABLE BY THE COMPANY TO AN ASSESSEE STOOD T RSL 1,93,11853 AS ON 18.02.2003. IN ADDITION TO THE SAME HERE WAS A SEPARATE ACCOUNT IN THE NAME OF ASSESSEE IN THE BOOKS OF THE COMPANY WHERE COMPANY OWED AN AMOUNT OF RS. 12,61,550 THROUGHOUT THE YEAR. THERE FORE, THERE WAS NO INTENTION OF ADVANCING ANY LOAN TO ASSESSE E OUT OF ACCUMULATED PROFITS. THIS ONLY SHOWN THAT THESE WE RE NOT LOANS AS ALLEGED BY THE DEPARTMENT BUT THESE WERE DEPOSIT S IN THE MUTUAL, OPEN CURRENT ACCOUNT FOR THE MUTUAL BENEFIT OF EACH OTHER. THEREFORE THE PROVISION OF SECTION 2(22)(E) ARE NOT ATTRACTED TO THIS CASE. 10. FURTHER, AS DISCUSSED EARLIER, THE ACCOUNT BETW EEN THE ASSESSEE AND THE COMPANY IS MUTUAL, OPEN AND CURREN T IN NATURE. THERE ARE MORE THAN200 ENTRIES. SOMETIMES THERE IS A DEBIT BALANCE AND IN THE LATTER PART THERE IS HUGE CREDIT BALANCE. THEREFORE NO PART OF RUNNING ACCOUNT COULD BE TREAT ED AS LOAN AS THE ACCOUNT IS MOVING ONE AND THE BALANCE REFLEC TED IN THAT RUNNING ACCOUNT IS MOMENTARY IN NATURE AND SUBJECT TO FREQUENT CHARGES. IN THIS REGARD ATTENTION IS INVITED TO TH E PROVISION CONTAINED IN SCHEDULE TO LIMITATION ACT, 1963 TO EX PLAIN THE DISTINCTION PROVIDED BY THE STATUTE BETWEEN MUTUAL, OPEN, CURRENT ACCOUNT AND LOAN ACCOUNT FOR THE PURPOSE OF LIMITATION. AS PER ARTICLE 1 AND 10 OF SCHEDULE TO LIMITATIO N ACT, 1963, THE LIMITATION PERIOD PRESCRIBED IN THE CASE OF MUT UAL, OPEN, CURRENT IS THERE YEARS FROM THE CLOSE OF THE YEAR IN WHICH THE LAST ITEM IS ADMITTED OR PROVED AS ENTERED IN THE ACCOUNT WHEREAS IN THE CASE OF A LOAN THE LIMITATION PERIOD IS THREE YEARS FROM THE DATE ON WHICH THE LOAN IS MAD E. THE DISTINCTION MADE BY THE LIMITATION ACT IS RECOGNIZE D BY THE COURTS TO DETERMINE THE EXACT NATURE OF THESE TRANS ACTIONS. RELIANCE IN THIS REGARD IS PLACED ON THE TWO JUDGME NTS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF DURGA PRAS AD MANDELIA VS. REGISTAR OF COMPANIES (1987) 61 COMPAN IES CASES479 AND PENNWELT INDIA LTD. VS. REGISTRAR OF COMPANIES (1987)62 COMPANIES CASES 112. THUS A RUNNING ACCOU NT MAINTAINED BY TWO CONCERNS EVEN IF THEY ARE RELATED CONCERNS DOES NOT FALL WITHIN THE PURVIEW OF SECTION 2(22)(E ) OF THE ACT AS 14 ENTRIES THEREIN ARE IN THE NORMAL COURSE OF THE B USINESS WHICH CANNOT BE TREATED AS LOANS. RELIANCE IN THIS REGAR D IS ALSO PLACED ON THE DECISION OF ITAT BOMBAY BENCH IN THE CASE OF NH SECURITIES LTD. VS. DEPUTY COMMISSIONER OF INCOME-T AX (2007) 11SOT 302 WHERE IT WAS HELD THAT THE LAW DOES NOT P ROHIBIT BUSINESS TRANSACTION BETWEEN RELATED CONCERNS AND T HEREFORE PAYMENT MADE IN THE ORDINARY COURSE OF BUSINESS CAN NOT BE TREATED AS LOANS AND ADVANCES FOR THE PURPOSE OF SE CTION 2(22)(E) OF THE ACT. 11. IN THE CASE OF DCIT VS. LAKRA BROS (2004)106TTJ 205 ITAT CHANDIGARH BENCH HAS HELD THAT SECTION 2(22)(E ) CANNOT BE EXTENDED TO INCLUDE EVEN LEGITIMATE TRANSACTION CARRIED OUT IN THE ORDINARY COURSE OF BUSINESS WHERE THE INTERN ATIONAL IS NEITHER TO GIVE LOAN NOR AN ADVANCE. 12. THE DEPARTMENT HAS HEAVILY RELIED ON THE SOLITA RY JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SMT. TA RULATA SHYAM & OTHERS VS. CIT 108 ITR 345 WITHOUT APPRECIATING T HE FACTS OF THAT CASE AND THE ISSUES RAISED THEREIN. IT IS SET TLED POSITION OF LAW THAT THE JUDGEMENT OF THE COURT TAKES IT COLOUR FROM THE FACTS OF THE CASE AND THE ISSUES RAISED THEREIN. IT IS N OT CORRECT TO PICK UP AN ISOLATED WORLD FROM THE JUDGMENT AND READ AS LAW LAID DOWN BY THE COURT. RELIANCE IN THIS REGARD IS BASE D ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. SUM ENGINEERING WORKS 198 ITR 297. IN THE CASE OF SMT. TARULATA SHAM & OTHERS VS. CIT THE ISSUE RAISED BEFORE HE COURT WAS WHETHER ANY PAYMENT BY A COMPANY BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER OUT OF THE ACCUMULATED PROFITS IS TO BE DEEMED AS D IVIDED EVEN IF THAT ADVANCE OR LOAN, WAS SUBSEQUENTLY PERIOD IN ITS ENT IRELY DURING THE RELEVANT PREVIOUS YEAR IN WHICH IT WAS TAKEN. IN TH AT CASE THERE WAS NO DISPUTE ABOUT THE FACT THAT THE AMOUNT GIVEN BY THE COMPANY TO THE SHAREHOLDER WAS IN THE NATURE OF LOAN. THEREFORE, THE COURT WAS NOT REQUIRED TO DETERMINE WHETHER THE TRANSACTIONS WERE IN THE NATURE AND CHARACTER OF LOANS OR NOT. THE HONBLE COURT HELD THAT SUCH LOAN 15 WOULD FALL WITHIN THE PURVIEW OF SECTION 2(22)(E) I RRESPECTIVE OF THE FACT THAT SUCH LOAN WAS RETURNED BEFORE THE CLOSE O F THE ACCOUNTING YEAR ITSELF. IN THE PRESENT CASE THE MAIN CONTROVE RSY RELATES TO THE IMPUGNED TRANSACTION WHICH IS NOT IN THE NATURE OF LOANS OR ADVANCES. THESE ARE TRANSACTIONS IN THE MUTUAL, RUNNING AND C URRENT OPEN ACCOUNT WHERE SURPLUS FUNDS WERE KEPT AS DEPOSITS F OR THE MUTUAL BENEFIT OF EACH OTHER. THEREFORE THE JUDGMENT RELI ED UPON BY THE REVENUE IS NOT AT ALL APPLICABLE TO THE FACTS OF TH E PRESENT CASE. 13. FURTHER, WITHOUT PREJUDICE AND INDEPENDENT OF T HE VIEW THAT IMPUGNED TRANSACTION WERE NOT IN THE NATURE OF LOAN S OR ADVANCES, IT IS SUBMITTED THAT A.O. HAS ERRONEOUSLY MADE THE ADDITION BY TAKEN PEAK OF THE DEBITS. THIS IS NOT AN ADDITION OF CASH CREDIT WHERE ADDITION COULD BE MADE AND WORKED OUT ON PEAK BASIS. THIS IS AN ADDITION UNDER THE DEEMING PROVISION OF SECTION 2(22)(E) OF THE ACT. THE ENTIRE TRANSACTIO N APPEARING IN THE ACCOUNT NEEDED TO BE EXAMINED IN DETAIL BEFORE COMING CONCLUSION THAT ALL TRANSACTIONS WERE IN THE NATURE OF LOANS. FURTHER, THE A.O. WAS DUTY BOUNDS TO EXAMINE THE SU BSEQUENT TRANSACTION WHERE THE ENTIRE DEBIT BALANCE STOOD LI QUIDATED ON 11.11.2002. THEREAFTER IT WAS A CREDIT BALANCE PAY ABLE TO THE ASSESSEE STOOD AT STAGGERING FIGURE RS. 1,93,11,583 ASS ON 18.02.2003. THE COMPANY OWED MUCH HIGHER AMOUNT TO THE SHAREHOLDER THEN THE VICE VERSA. IF THE INTENTION OF THE GROUP OF SHAREHOLDER WAS TO DIVERT THE ACCUMULATED PROFIT TO THE ASSESSEE IN THE GUISE OF LOANS, WHY WOULD THE ASSESSEE SUBSE QUENTLY KEEP HUGE DEPOSITS WITH THE COMPANY IN THE SAME ACCOUNTI NG YEAR. THIS ONLY PROVES BEYOND DOUBT THAT TRANSACTIONS APP EARING IN THE MUTUAL, OPEN RUNNING ACCOUNT WERE IN THE NATURE OF DEPOSITS AND NOT LOAN AND ADVANCES AS ALLEGED BY THE DEPARTM ENT. THIS IS NOT A CASE WHICH WOULD FALL IN THE MISCHIEF FOR WHICH DEEMING PROVISION OF SECTION 2 (22)(E) WERE ENACTED. 14. THUS. TO SUM UP IT IS RESPECTFULLY SUBMITTED TH AT THE IMPUGNED TRANSACTIONS IN THE MUTUAL, OPEN AND CURRE NT ACCOUNT 16 ARE IN THE NATURE OF DEPOSIT WHERE SURPLUS FUNDS A RE PARKED BY THE PARTIES FOR THEIR MUTUAL BENEFIT. THESE ARE NO T LOANS AND ADVANCES SPECIFIED IN SECTION 2(22)(E) OF THE ACT. THEREFORE SECTION 2 (22)(E) OF THE ACT IS NOT APPLICABLE TO T HE PRESENT CASE. THE ADDITION MADE BY THE A.O. IS ILLEGAL, UNWARRANT ED AND CONTRARY TO THE PROVISION OF THE ACT. THE SAME MAY KINDLY BE DELETED. 7. HE FURTHER ARGUED THAT THE ADDITIONAL EVIDENCE U NDER RULE 46A OF I.T. RULES, 1962 WAS WITHDRAWN WITH A MISCONCEPTION THAT THE CERTIFICATE FROM PNB MUST HAVE BEEN FILED WITH THE RETURN OF INCOME. ACCORDINGLY, HE FILED A FRESH APPLICATION DATED 17.11.2008 FOR ADMITTING TH E ADDITIONAL EVIDENCE WHICH IS THE CERTIFICATE FROM PNB. THE LD. CIT(A), HOWEVER, OBSERVED ON THE FRESH APPLICATION THAT THIS DOCUMENT DOES NOT H AVE THE IMPACT ON THE APPLICATION U/S 2(22)(E) OF THE ACT. THE LD. COUNSE L FOR THE ASSESSEE, MR. ASHWANI KALIA, RELIED UPON THE DECISION OF COORDINA TE BENCH OF ITAT CHENNAI BENCH A IN THE CASE OF ACIT VS.. SMT. G. SREEVIDYA IN ITA NO.1270(MDS) OF 2011 DATED 28.06.2012 REPORTED IN ( 2012) 24 TAXMAN .COM 75 (CHENNAI) TRIB., WHICH IS EXACTLY ON THE ID ENTICAL ISSUE IN HAND BEFORE THE BENCH IN THE CASE OF THE PRESENT ASSESSE E. THE LD. COUNSEL FOR THE ASSESSEE READ THE SAID DECISION OF THE COORDINATE B ENCH IN THE CASE OF ACIT VS. SMT. G. SREEVIDYA (SUPRA) AND INVITED OUR ATTEN TION TO THE EXPLANATION SUBMITTED BEFORE THE LD. CIT(A) THAT THE ASSESSEE D ID NOT RECEIVE ANY PAYMENT IN THE NATURE OF LOAN OR ADVANCE FROM THE C OMPANY. THUS, THE 17 PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT A TTRACTED. HE INVITED OUR ATTENTION TO PARA 9 BEING THE EXPLANATION GIVEN BE FORE THE LD. CIT(A) THAT THE COMPANY M/S. SHITAL FABRICS LTD. WAS BADLY IN N EED OF AVAILING OF HIGHER CREDIT LIMIT FROM THE BANK AND THE COMPANY HAD NO P ROPERTY TO PLEDGE WITH THE BANK AS COLLATERAL SECURITY. AT THIS STAGE, THE ASSESSEE CAME FORWARD TO PLEDGE HIS OWN PROPERTIES SO THAT COMPANY MIGHT AVA IL OF HIGHER CREDIT LIMIT. THE ASSESSEE PLEDGED FOUR PROPERTIES MENTIONED IN T HE EXPLANATION AND THE WRITTEN SUBMISSIONS BEFORE THE LD. CIT(A) MENTIONED HEREINABOVE. THERE WAS A MUTUAL AGREEMENT WITH THE COMPANY THAT BOTH T HE COMPANY AND ASSESSEE WOULD PARK THEIR SURPLUS FUNDS WITH EACH O THER FOR THEIR MUTUAL BENEFIT. WITH THIS UNDERSTANDING THE COMPANY HAD PA RKED ITS SURPLUS FUNDS AS DEPOSITS WITH THE ASSESSEE DURING THE LOAN PERIOD . THE BUSINESS IN SUMMER MONTHS IS GENERALLY LEAN AND THEREFORE, THE SURP LUS FUNDS WERE DEPOSITED WITH THE ASSESSEE DURING THIS LEAN SEASON. WHEN THE FUNDS WERE NEEDED BY THE COMPANY DURING THE WINTER SEASON, THESE WERE NO T ONLY RETURNED BUT ALSO THE ASSESSEE HIMSELF PARKED HIS SURPLUS FUNDS WITH THE COMPANY. THIS IS CLEAR FROM THE FACT THAT AS AGAINST THE PEAK OF DEBIT BAL ANCE OF RS.1,52,06,934/- DUE FROM THE ASSESSEE ON 11.06.2002, THE PEAK OF CR EDIT BALANCE PAYABLE BY THE COMPANY TO AN ASSESSEE STOOD AT RS.1,93,11,853/ - AS ON 18.02.2003. IN ADDITION TO THE SAME THERE WAS A SEPARATE ACCOUNT I N THE NAME OF ASSESSEE IN 18 THE BOOKS OF THE COMPANY WHERE THE COMPANY OWED AN AMOUNT OF RS.12,61,550/- THROUGHOUT THE YEAR. THEREFORE, THER E WAS NO INTENTION OF ADVANCING ANY LOAN TO ASSESSEE OUT OF ACCUMULATED PROFITS. 8. THE LD. COUNSEL FOR THE ASSESSEE, MR. ASHWANI KA LIA, ARGUED THAT THE ACCOUNT BETWEEN THE ASSESSEE AND THE COMPANY IS MUT UAL, OPEN AND CURRENT IN NATURE. SOMETIMES, THERE IS A DEBIT BALANCE AND IN THE LATTER PART THERE IS A HUGE CREDIT BALANCE AND THEREFORE, NO PART OF RUNNI NG ACCOUNT COULD BE TREATED AS LOAN. HE INVITED OUR ATTENTION TO SCHEDU LE OF LIMITATION ACT, 1963, IN WHICH AS PER ARTICLE 1 AND 9 OF SCHEDULE TO LIMI TATION IS DIFFERENT IN CASE OF MUTUAL, OPEN AND CURRENT ACCOUNT AS COMPARED TO THE LOAN. THE LD. COUNSEL FOR THE ASSESSEE, RELIED UPON THE DECISION OF THE ITAT, MUMBAI BENCH IN THE CASE OF N.H. SECURITIES VS. DY. CIT ( 2007) 11 SOT 302 WHERE IT HAS BEEN HELD THAT THE LAW DOES NOT PROHIBIT B USINESS TRANSACTIONS BETWEEN RELATED CONCERNS AND THEREFORE PAYMENTS MAD E IN THE ORDINARY COURSE OF BUSINESS CANNOT BE TREATED AS LOANS AND A DVANCES FOR THE PURPOSES OF SECTION 2(22)(E) OF THE ACT. HE FURTHER INVITED OUR ATTENTION TO THE DECISION OF THE ITAT, CHANDIGARH BENCH IN THE CASE OF DCIT VS. LAKRA BROS (2004) 106 TTJ 205, IN WHICH IT HAS BEEN HELD THAT SECTION 2(22)(E) CANNOT BE EXTENDED TO INCLUDE EVEN LEGITIMATE TRANS ACTIONS CARRIED OUT IN THE 19 ORDINARY COURSE OF BUSINESS WHERE THE INTENTION IS NEITHER TO GIVE LOAN NOR AN ADVANCE. 9. THE DECISIONS RELIED UPON BY THE AO AND THE LD. CIT(A) IN THE CASE OF SMT. TARULATA SHYAM & OTHERS VS. CIT 108 ITR 345 CA NNOT BE MADE APPLICABLE IN THE PRESENT CASE SINCE THE FACTS IN T HAT CASE ARE DISTINGUISHABLE BECAUSE THE AMOUNT GIVEN BY THE COMPANY IN THE CASE OF SHAREHOLDERS WAS IN THE NATURE OF LOAN AND IT WAS NOT IN DISPUTE. THE D ISPUTE BEFORE THE COURT IN THE SAID CASE WAS WHETHER ANY PAYMENT BY A COMPANY BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER OUT OF THE ACCUMULATED PROFIT S IS TO BE DEEMED AS DIVIDEND EVEN IF THAT ADVANCE OR LOAN WAS SUBSEQUEN TLY REPAID IN ITS ENTIRETY DURING THE RELEVANT PREVIOUS YEAR. BUT IN THE CASE OF PRESENT ASSESSEE, THE TRANSACTIONS ARE IN THE FORM OF DEPOSITS AND NOT I N THE NATURE OF LOANS OR ADVANCES. THE TRANSACTIONS HAVE BEEN CARRIED OUT IN THE ORDINARY COURSE OF BUSINESS AS MENTIONED HEREINABOVE. 10. THE LD. COUNSEL ALSO RELIED UPON THE DECISION O F THE HONBLE CALCUTTA HIGH COURT, IN THE CASE OF PRADIP KUMAR MALHOTRA VS. CIT 338 ITR 538 WHERE ANY LOAN IN RETURN TO ADVANTAGE CONFERRED BY SHAREHOLDER IS NOT TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THE LD. COUNSEL ALSO RELIED UPON THE JUDGMENT OF HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS. 20 RAJ KUMAR (2009) 318 ITR 462 AND IN THE CASE OF BAIDYA NATH PLASTIC INDUSTRIES (P) LTD. VS. K.L. ANAND ITO REPORTED AT 230 ITR 522. 11. THE LD. DCIT(DR), MR. TARSEM LAL, ON THE OTHER HAND, MADE THE WRITTEN SUBMISSIONS WHICH ARE REPRODUCED FOR THE SA KE OF CLARITY AS UNDER: IT IS SUBMITTED THAT THE FOLLOWING FACTS WERE ADMI TTED BY THE LEARNED COUNSEL FOR THE ASSESSEE DURING THE COURSE OF LAST HEARING I.E. A) THE ASSESSEE WAS HOLDING AROUND 75.52% (I.E. MORE T HAN 10% AS STIPULATED IN THE PROVISIONS OF SECTION 2(22 )(E) OF THE INCOME TAX ACT, 1961 OF THE SHARES OF THE COMPA NY. B) THE COMPANY M/S. SHITAL FIBRES LTD. HAD SUBSTANTIAL ACCUMULATED PROFITS KEPT IN RESERVES. C) THE COMPANY M/S. SHITAL FIBRES LTD. IS ONE IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED I.E. IT WAS A CLOSELY HELD COMPANY. D) MONEY HAS BEEN PAID BY THE COMPANY TO THE SHAREHOLD ER I.E. THE ASSESSEE FOR THE INDIVIDUAL BENEFIT OF THE ASSESSEE. THE ONLY POINT WHICH THE ASSESSEE DISPUTED IS THAT THE MONIES RECEIVED BY HIM WERE IN THE NATURE OF DEPOSITS AND NOT LOAN OR ADVANCES. THE SUBMISSIONS MADE BY THE LD. COUNSEL M ADE ARE AS UNDER: A) THE ASSESSEE HAD RECEIVED DEPOSITS FROM THE COMPANY M/S. SHITAL FIBRES LTD. B) THE ACCOUNT WITH COMPANY M/S. SHITAL FIBRES LTD. W AS A RUNNING ACCOUNT OR CURRENT ACCOUNT. C) THE COMPANY HAD ENTERED INTO AN AGREEMENT WITH THE ASSESSEE THAT IN LIEU OF KEEPING HIS IMMOVABLE PROP ERTIES AS SECURITY WITH PBN AND STANDING COLLATERAL SECURITY FOR THE COMPANY, THE COMPANY WOULD DEPOSIT ITS SURPLUS FUND S WITH HIM. 21 THE SUBMISSIONS MADE ARE SELF CONTRADICTORY AND LOU DLY PROCLAIM THAT THE ASSESSEE IS HAVING NO WORTHWHILE SUBMISSION TO MAKE. THE IRRELEVANCE OF THE SUBMISSIONS MADE IS DISCUSSED HE REUNDER: THE LD. COUNSEL FOR THE ASSESSEE HAS BEEN HARPING MAINLY ON THE SUBMISSION THAT THE ASSESSEE HAD RECEIVED DEPOSITS FROM THE COMPANY. HE WAS VEHEMENTLY ASSERTING THAT THE PAYMENTS RECEI VED WERE IN THE NATURE OF DEPOSITS AND NOT LOAN. HE MERELY ASSERTED THAT THE PAYMENTS RECEIVED FROM DEPOSITS BUT COULD NOT ADDUCE ANY ARG UMENT/EVIDENCE AS TO HOW THE PAYMENTS RECEIVED SHOULD BE ACCEPTED AS DEPOSITS. THE ONLY SUBMISSION MADE IN SUPPORT OF THIS CONTENTION WAS BY WAY OF ADDITIONAL EVIDENCE IN SUPPORT OF HIS CONTENTION TH AT THE COMPANY HAD ENTERED INTO AN AGREEMENT WITH HIM THAT IN LIEU OF KEEPING HIS IMMOVABLE PROPERTIES AS SECURITY WITH PBN AND STAND ING COLLATERAL SECURITY FOR THE COMPANY. THE COMPANY WOULD DEPOSIT S ITS SURPLUS FUNDS WITH HIM. THIS CONTENTION HAS BEEN SOUGHT TO BE RAISED IN GROUND NO.1 OF APPEAL. IT IS PERTINENT TO MENTION H ERE THAT THE LD. COUNSEL HAD ADDUCED NO ARGUMENT OR EVIDENCE IN SUPP ORT OF THIS CONTENTION AND MOREOVER THE ASSESSEE HAD WITHDRAWN THE ADDITIONAL EVIDENCE BEFORE THE AO WHICH HE HAD FILED BEFORE TH E AO. THIS FACT HAS BEEN RECORDED AT PARA 3.3.1 OF THE LD. CIT(A)S ORDER. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE ONLY BAS IS OF THE ASSESSEES CLAIM THAT THE PAYMENTS RECEIVED BY THE ASSESSEE WERE DEPOSIT IS NOT EXISTING ON RECORD AND AS SUCH, THIS SUBMISSION IS NOT WORTH ENTERTAINING IN THE FIRST PLACE ITSELF. THE OTHER SUBMISSION IN SUPPORT OF THIS CONTENTION WAS THAT IN ANNEXURE D TO THE AUDIT REPORT FOR THE ASSESSMENT Y EAR 2003-04, WHAT HAD BEEN SHOWN WERE DEPOSITS AND NOT LOAN. THE LD. COUNSEL HAD INVITED THE KIND ATTENTION OF THE HONBLE BENCH TO PARA 3 OF THE ASSESSMENT ORDER IN THIS REGARD. HE HAD ASSERTED TH AT IN THE SAID ANNEXURE-D, BOTH THE WORDS LOAN OR DEPOSIT ARE MENT IONED AND THE AO PICKED UP THE WORD LOAN AND IGNORED THE WORD DEPOSIT WHEN ACTUALLY THE SAID AMOUNT REPRESENTED DEPOSIT. IN T HIS REGARD, IT IS SUBMITTED THAT WHEN THE ASSESSEE ON THE ONE HAND C LAIMS THAT THE MONIES WERE DEPOSITS AND IN THE SAME BREATH IT CLAI MS THAT THE ACCOUNT OF THE ASSESSEE WITH COMPANY WAS A RUNNING ACCOUNT OR CURRENT ACCOUNT, THIS CLEARLY SHOWS THAT THE ASSESSEE HAS A DOPTED A CONFLICTING STANCE. THE PERUSAL OF THE ACCOUNT SHOWS THAT THE M ONIES RECEIVED BY 22 THE ASSESSEE WAS FOR THE FREE USE OF THE ASSESSEE. THUS THE ASSESSEE HIMSELF AFFIRMS WHEN HE CLAIMS THAT IT WAS A RUNNIN G ACCOUNT AND AS AND WHEN MONEY WAS NEEDED, THE SAME WAS RAISED BY T HEM FOR EACH OTHER. THIS BEING SO, IT HARDLY LEAVES ANY ROOM FOR THE CULMINATION OF THE FACT THAT THE MONIES RECEIVED BY THE ASSESSEE W ERE IN THE NATURE OF LOAN AND THE ASSESSEES CASE WAS COVERED BY THE PRO VISIONS OF SECTION 2(22)(E) ON ALL FOURS. THE JUDGMENTS RELIED UPON BY THE LD. COUNSEL ARE A LSO NOT RELEVANT. THE IRRELEVANCE OF THE JUDGMENTS RELIED U PON BY THE LD. COUNSEL FOR THE ASSESSEE IS DISCUSSED AS UNDER: CIT VS. RAJ KUMAR 318 ITR 462 THE FINDING OF THE HONBLE TRIBUNAL IN THIS CASE IN APPRECIATION OF WHICH THE HONBLE DELHI HIGH COURT PASSED THE JU DGMENT WAS THE MONEY RECEIVED BY THE ASSESSEE FROM CEI LTD. WAS IN THE NATURE OF A TRADE ADVANCE. THE LD. COUNSEL FOR THE ASSESSEE SH. ASHWANI KALIA NEVER CLAIMED IN HIS SUBMISSIONS BEFORE THE HONBLE BENCH THAT THE MONIES RECEIVED BY SH. SHITAL VIJ WAS IN THE NATURE OF TRADE ADVANCE. HE HAD MADE TWO SUBMISSIONS MAINLY I.E. THE MONIES RECEIVED WERE IN THE NATURE OF DEPOSITS AND SECOND IT WAS A RUNNING OR CURRENT ACCOUNT WITH THE COMPANY. THERE WAS NO CLAIM OF ANY BUSINES S DEALING WITH EACH OTHER. THEREFORE, THIS JUDGMENT IS CLEARLY NOT RELEVANT TO THE FACTS OF THE CASE AND DOES NOT HELP THE ASSESSEE IN ANY W AY. BAIDYA NATH PLASTIC INDUSTRIES (P) LTD. VS. K.L. AN AND ITO REPORTED AT 230 ITR 522. IT MAY BE STATED THAT THIS JUDGMENT GIVES A LUCID ACCOUNT OF THE TERMS DEPOSIT AND LOAN AND CLEARLY SHOW THAT TH E MONIES RECEIVED BY THE ASSESSEE WERE IN THE NATURE OF LOAN. IN THIS CASE, THE CONTENTION OF THE ASSESSEE HAD B EEN THAT IT HAD RAISED LOAN AND REPAYMENT WAS MADE IN CASH OF THE S AID LOAN. BUT THE DEPARTMENT HAD TAKEN THE STANCE THAT THE REPAYMENT HAD BEEN MADE OF DEPOSIT. THE HONBLE HIGH COURT DELVED INTO THE REL ATIVE MEANING OF THE TERM DEPOSIT AND LOAN AND ON APPRECIATING T HAT THE COMPLAINANT I.E. THE AO HAD HIMSELF WRITTEN TO THE ASSESSEE IN SHOW CAUSE NOTICE DATED 2 ND MARCH, 1987 THAT THE SAID ASSESSEE HAD RAISED A LO AN FROM M/S. SUMMAN STEEL & ROLLING MILLS AND MADE PAYMENT FOR THE SAID 23 LOAN IN THE PREVIOUS YEAR RELEVANT TO THE A.Y. 1984 -85 IN CASH, HAD SET ASIDE THE PROSECUTION PROCEEDINGS U/S 276E OF THE I .T. ACT. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE FACTUAL MATRIX OF THE CASE IS NOT AT PAR WITH THE ASSESSEE. NONETHELESS, AS SUBMITTED ABOVE, IN THIS JUDGMENT, THE HONBLE HIGH COURT HAD DELVED INTO THE RELATIVE MEANING OF THE TERMS DEPOSIT AND LOAN WHICH IS AS UNDER: THAT A DEPOSIT IS TO BE KEPT BY THE DEPOSITEEE FOR THE DEPOSITOR AND THE LOAN IS TO BE KEPT BY THE BORROWE R FOR HIMSELF. THUS, I DEPOSIT MY HAT IN THE CLOAK ROOM. MY HAT IS NOT TO BE USED BY THE DEPOSITEE BUT IS TO BE KEPT FOR ME AND RETUR NED TO ME ON MY DEMAND BUT I LEND MY MONEY TO A FRIEND AND HE C AN DO WHAT HE LIKES WITH IT AS LONG AS HE RETURNS IT TO ME EIT HER ON DEMAND OR AT SOME SPECIFIED TIME. IN VIEW OF SUCH A CLARITY OF THE TERMS DEPOSIT AN D LOAN IT BECOMES CLEAR THAT THE MONIES RECEIVED BY THE ASSESSEE WERE LOAN AND NOT DEPOSIT AS VEHEMENTLY CLAIMED THE LD. COUNSEL FOR THE ASSESSEE. IT IS PERTINENT TO MENTION HERE THAT WHEN THE ASSESSEE CL AIMS THAT IT HAD A CURRENT ACCOUNT OR RUNNING ACCOUNT WITH THE C OMPANY, IT CLEARLY SHOWS THAT IT WAS FREE TO USE THE MONEY IN ANY MANNER IT LIKED AND WAS NOT TO KEEP THE MONEY FOR THE COMPANY AS SUCH, AS A DEPOSIT. THUS, THE ESSENTIAL INGREDIENT OF DEPOSIT IS NOT SATISFIED. RATHER, IT EMPHATICALLY AFFIRMS THAT THE MONIES GI VEN BY THE COMPANY WAS IN THE NATURE OF LOAN AS THE ASSESSEE WAS FREE TO USE THE MONIES RECEIVED FROM THE COMPANIES IN THE MANNER HE LIKED. THIS IS WHAT IS THE TRUE IMPORT OF A RUNNING OR CURRENT ACCOUNT. IN VIEW OF THE ABOVE SUBMISSIONS, IT BECOMES CRYST AL CLEAR THAT THE ASSESSEES SUBMISSIONS ARE TOTALLY IRRELEVANT A ND IT WAS COPY BOOK CASE WHERE THE PROVISIONS OF SECTION 2(22)(E) HAD D IRECT APPLICABILITY. LAST BUT NOT THE LEAST, IT MAY BE MENTIONED HERE T HAT THE ASSESSEE HAS STATED IN THE GROUND NO.1 OF APPEAL AS THE COMPANY HAD BEEN ALLOWED ENHANCED LIMIT BY PUNJAB NATIONAL BANK . IT IS STRANGE THAT THE ASSESSEE HAD RAISED THIS GROUND WHICH REQU IRED TO BE SUPPORTED BY ADDITIONAL EVIDENCE AND WHAT TO SPEAK OF SEEKING THE ADMISSION OF ANY EVIDENCE, THE ASSESSEE HAD CHOSE TO WITHDRAW THE 24 ADDITIONAL EVIDENCE BEFORE THE AO HIMSELF. IN THIS REGARD, THE FINDING OF THE LD. CIT(A) AT PARA 3.3.1 ARE QUOTED VERBATIM : THE AO SUBMITTED THAT THE ASSESSEE HAD NOT SOUGHT TO ADDUCE ADDITIONAL EVIDENCE WHICH HE HAD FILED EARLIER ALS O AND THE WITHDRAWN. THE AO SUBMITTED THAT THE CHANGING STAND S SHOWED THAT THE PROVISIONS OF SECTION 2(220(E0 WERE ATTRAC TED IN THE CASE OF APPELLANT AND SUPPORT OF ADDITIONAL EVIDENC E WAS AN AFTERTHOUGHT TO HIDE THE TRUE FACTS OF THE CASE. THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF THE HO NBLE CHENNAI BENCH A IN THE CASE REPORT AS ACIT VS. SMT. G. SR EEVIDYA IN ITA NO.1270(MDS) OF 2011 WHICH IS CLEARLY NOT APPLICABL E AS THE ASSESSEE HAD FURNISHED NO EVIDENCE TO PROVE THAT HE HAD ENTE RED INTO AN AGREEMENT WITH THE COMPANY THAT HE WOULD GIVE BANK GUARANTEE AND ALSO GIVEN COLLATERAL SECURITY FOR ENHANCING THE LI MIT OF THE COMPANY AND THE COMPANY IN TURN WOULD ALSO HIM LIBERTY TO W ITHDRAW FUNDS FORM THE COMPANY AS AND WHEN REQUIRED. PRESSING THI S JUDGMENT AND GROUND NO.1 RATHER WAS COMPLETELY OFF THE TANGENT. IT IS FURTHER SUBMITTED THAT THE LD. CIT(A) HAS P ASSED A WELL- REASONED ORDER AND IT MAY FURTHER BE MENTIONED THAT THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SMT. TARU LATA SHYAM & ORS VS. CIT REPORTED AT 108 ITR 345 CLEARS ALL DOUB TS ABOUT THE APPLICABILITY OF THE PROVISIONS OF SECTION 2(22)(E) IN THE FACTS AND CIRCUMSTANCES WHICH ARE OBTAINING IN THIS CASE. IT HAD HELD THAT ADVANCE TO SHAREHOLDER DURING THE RELEVANT PREVIOU S YEAR BY THE COMPANY IS CHARGEABLE AS DEEMED DIVIDEND EVEN THO UGH THE LOAN DOES NOT REMAIN OUTSTANDING AS ON LAST DAY OF THE P REVIOUS YEAR. IF THE ASSESSEE COMES UNDER THE LETTER OF LAW, HE HAS TO B E TAXED, HOWEVER, GREAT THE HARDSHIP MAY APPEAR TO THE JUDICIAL MIND TO BE. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IN THE PRESENT CASE, THE AO NOTICED THAT AS PER AU DIT REPORT IN COL. NO.24, THE AUDITORS HAD REPORTED THE PARTICULARS OF LOANS OR DEPOSITS. IT IS ON THE BASIS OF THE REPORT BY THE TAX AUDITORS IN FORM 3 CD IN COL.24, THE AO HAD 25 INITIATED PROCEEDING TO GIVE SHOW CAUSE NOTICE DATE D 07.02.2006 AS TO WHY LOAN TAKEN FROM THE M/S. SHITAL FIBRES LTD. SHOULD NOT BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. THE ASS ESSEE SUBMITTED HIS REPLY DATED 16.07.2006 THAT THE FIRM IS HAVING RUNNING AC COUNT WITH THE SAID COMPANY AND THE SAID AMOUNT HAS NOT BEEN RECEIVED IN THE NATURE OF LOAN OR ADVANCE AND THEREFORE, THE PROVISIONS OF SECTION 2( 22)(E) OF THE ACT WERE NOT ATTRACTED. THE ASSESSEE SUBMITTED THE EXPLANATION B EFORE THE LD. CIT(A) DATED 17.11.2008, WHICH IS AVAILABLE AT PAGES 2 TO 11 OF LD. CIT(A)S ORDER, WHICH FOR THE SAKE OF CLARITY HAS BEEN REPRODUCED H EREINABOVE. THERE CANNOT BE ANY DISPUTE THAT IN COL. NO.24, THE WORD LOAN OR DEPOSIT HAS BEEN MENTIONED AND NOT ONLY THE LOAN WHICH IS REQUIRED T O BE REPORTED BY TAX AUDITORS . THEREFORE, ACCORDING TO THE TAX AUDITORS THE AMOUN T REPORTED COULD BE LOAN OR DEPOSIT FOR WHICH THE ASSESSEE HAD SUBMITTED THE REPLY, WHICH WAS NOT FOUND SATISFACTORY BY THE A.O. NOW T HE QUESTION BEFORE US IS WHETHER THE SAID RUNNING ACCOUNT IS IN THE CHARACTE R OF LOAN OR ADVANCE OR DEPOSIT. THE SECOND QUESTION IS WHETHER THE AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE AND GIVEN BY THE ASSESSEE TO THE SAID COMP ANY DURING THE ORDINARY COURSE OF BUSINESS OR AS PER SOME MUTUAL AGREEMENT. THERE IS NO DISPUTE TO THE FACT AND WHICH HAS NOT BEEN DENIED BY ANY OF TH E AUTHORITIES BELOW THAT 26 THE ASSESSEE SH. SHITAL VIJ HAD PLEDGED HIS PROPER TIES TO THE BANK FOR AVAILING HIGHER LIMITS BY M/S. SHITAL FIBRES LTD; W HICH FOR THE SAKE OF CLARITY ARE REPRODUCED IN SHORT AS UNDER : I) LAND AND BUILDING MEASURING 8 K 8 MARLA AT RAM NAG AR, JALANDHAR. II) LAND AND BUILDING MEASURING 127.57 MARLAS AT INDUS TRIAL AREA, JALANDHAR. III) LAND AND BUILDING AT S-18 INDUSTRIAL AREA, JALANDH AR. IV) LAND AND BUILDING MEASURING 8 K 7 MARLAS SITUATED AT SANJAY GANDHI NAGAR, JALANDHAR. ALL THE PROPERTIES ARE OWNED AND REGISTERED IN THE NAME OF SH. SHITAL K. VIJ, IS A MATTER OF RECORD WHICH HAS BEEN EXPLAINED BEF ORE THE LD. CIT(A) AND THEE FACT IS AVAILABLE AT PAGES 7 & 8 OF CIT(A)S ORDER. AGAINST THE SAID PLEDGE OF ABOVE PROPERTIES, THE BANK HAD ADVANCED T HE FOLLOWING CREDIT FACILITIES, WHICH FOR THE SAKE OF CLARITY ARE REPRO DUCED AS UNDER: I) PACKING CREDIT RS.75 LACS II) FOBP RS.100 LACS III) FOBNCL NEED BASED (WITHIN PBF) IV) PBF CEILING RS.160 LACS V) FLC (DP) RS.400 LACS 27 EVEN IF THE ADDITIONAL EVIDENCE IN THE FORM OF BANK CERTIFICATE HAD NOT BEEN ADMITTED, THE FACTS ARE ON RECORD OF THE COMPANY W HICH WERE BEFORE THE AUTHORITIES BELOW. THE SAID ARGUMENT AND THE EXPLAN ATION OF THE ASSESSEE CANNOT BE BRUSHED ASIDE BY THE LD. CIT(A) AND CANNO T BE COMMENTED UPON OR DISPOSED OF THAT SUCH EXPLANATION DOES NOT MAKE IMPACT ON THE APPLICABILITY OF SECTION 2(22)(E) OF THE ACT, TO T HE FACTS OF THE PRESENT CASE. THERE IS NO DOUBT THAT THE COMPANY IN THE PRESENT C ASE HAS BENEFITED MORE THAN THE ASSESSEE. AS PER THE MUTUAL AGREEMENT BOTH THE COMPANY AND THE ASSESSEE WOULD PARK THEIR SURPLUS FUNDS WITH EACH O THER FOR THEIR MUTUAL BENEFIT. WITH THIS UNDERSTANDING THE COMPANY HAD PA RKED ITS SURPLUS FUNDS AS DEPOSITS WITH THE ASSESSEE DURING THE LEAN PERIOD . THIS WAS EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE THE LD. CIT (A) AS WELL AS BEFORE US. THEREFORE, THERE WAS NO INTENTION OF ADVANCING ANY LOAN TO THE ASSESSEE OUT OF ACCUMULATED PROFITS BY THE COMPANY, M/S. SHITAL FIBRES LTD. THE SAID AMOUNT IN THE OPEN, CURRENT ACCOUNT WAS IN THE NAT URE OF DEPOSIT AND NOT AS A LOAN OR ADVANCE BY THE COMPANY M/S. SHITAL FIBRES LTD. THE DISTINCTION OF LOAN, MUTUAL, OPEN AND CURRENT ACCOUNT HAS BEEN DEF INED IN THE LIMITATION ACT, 1963, ARGUED BY THE LD. COUNSEL FOR THE ASSESS EE WHICH IS DIFFERENT IN THE CASE OF LOAN AS COMPARED TO THE MUTUAL, OPEN AND CU RRENT ACCOUNT. THEREFORE, IN THE PRESENT CASE, THE TRANSACTIONS AR E BUSINESS TRANSACTIONS 28 CARRIED OUT IN THE ORDINARY COURSE OF BUSINESS AND CANNOT BE TREATED AS LOANS AND ADVANCES. 12.1 THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF SMT. TARULATA SHYAM & ORS VS. CIT REPORTED IN 108 ITR 345, RELIED UPON BY THE AO AND THE LD. CIT(A) AND THE LD. DCIT(DR), MR. TARSEM LAL IS NOT APPLICABLE BEING DISTINGUISHABLE ON FACTS SINCE IN THAT CASE THE ISSUE BEFORE THE HONBLE COURT WAS THAT IF THE LOANS OR ADVANCES WERE SUBSE QUENTLY REPAID IN ITS ENTIRETY DURING THE RELEVANT PREVIOUS YEAR IN WHICH IT WAS TAKEN THEN PROVISIONS OF SECTION 2(22)(E) ARE ATTRACTED OR NOT . IN THAT CASE THERE WAS NO DISPUTE ABOUT THE FACT THAT THE AMOUNT GIVEN BY THE COMPANY TO THE SHAREHOLDER WAS IN THE NATURE OF LOAN. THEREFORE, THE HONBLE COURT WAS NOT REQUIRED TO DETERMINE WHETHER THE TRANSACTIONS WERE IN THE NATURE AND CHARACTER OF LOANS OR NOT AND HELD THAT SUCH LOAN W OULD FALL WITHIN THE PURVIEW OF SECTION 2(22)(E) OF THE ACT, IRRESPECTIV E OF THE FACT THAT SUCH LOAN WAS RETURNED BEFORE THE CLOSE OF THE ACCOUNTING YEA R. THEREFORE, IN THAT CASE, ESSENTIALLY IT WAS ESTABLISHED THAT IT WAS A LOAN A ND NOT A DEPOSIT IN THE ORDINARY COURSE OF BUSINESS. 12.2. THE RELIANCE IS PLACED ON THE DECISION OF H ONBLE CALCUTTA HIGH COURT, IN THE CASE OF PRADIP KUMAR MALHOTA VS. CIT (SUPRA) BY THE LD. COUNSEL FOR THE ASSESSEE, APPLIES TO THE PRESENT FA CTS AND CIRCUMSTANCES OF THE 29 CASE. THE HEAD NOTE OF THE SAID DECISION OF HONBL E CALCUTTA HIGH COURT, IN THE CASE OF PRADIP KUMAR MALHOTA VS. CIT (SUPRA), I S REPRODUCED FOR THE SAKE OF CLARITY AS UNDER: THE PHRASE BY WAY OF ADVANCE OR LOAN APPEARING IN SUB- CLAUSE (3) OF SECTION 2(22) OF THE INCOME-TAX ACT, 1961, MUST BE CONSTRUED TO MEAN THOSE ADVANCES OR LOANS WHICH A SHAREHOLDER ENJOYS SIMPLY ON ACCOUNT OF BEING PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RAT E OF 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 GIVEN TO SUCH SHAREHOLDER AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO THE COMPANY RECEIVED FROM S UCH A SHAREHOLDER, IN SUCH CASE, SUCH ADVANCE OR LOAN CANNOT BE SAID T O BE DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT. THUS, GRATU ITOUS LOAN OR ADVANCE GIVEN BY A COMPANY TO THOSE CLASSES OF SHAR EHOLDERS WOULD COME WITHIN THE PURVIEW OF SECTION 2(22) BUT NOT CA SES WHERE THE LOAN OR ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFE RRED UPON THE COMPANY BY SUCH SHAREHOLDER. THE ASSESSEE HAD SUBSTANTIAL SHAREHOLDING IN A PRIV ATE COMPANY. THE ASSESSEE PERMITTED HIS IMMOVABLE PROPE RTY TO BE MORTGAGED TO THE BANK FOR ENABLING THE COMPANY TO T AKE THE BENEFIT OF LOAN AND IN SPITE OF REQUEST OF THE ASSESSEE THE CO MPANY WAS UNABLE TO RELEASE THE PROPERTY FROM MORTGAGE. CONSEQUENTLY, THE BOARD OF DIRECTORS OF THE COMPANY PASSED INTEREST-FREE DEPOS IT UP TO R.50 LAKHS AS AND WHEN REQUIRED. DURING THE PREVIOUS YEAR RELE VANT TO THE ASSESSMENT YEAR 1999-2000, THE ASSESSEE OBTAINED FR OM THE COMPANY A SUM OF RS.20,75,000 BY WAY OF SECURITY DEPOSIT. O UT OF THE AMOUNT, A SUM OF RS. 20 LAKH WAS SUBSEQUENTLY RETURNED BY THE ASSESSEE TO THE COMPANY. IN THE ASSESSMENT MADE FOR 1999-2000 THE A SSESSING OFFICER ADDED THE SUM OF RS.20,75,000 AS DEEMED DIVIDEND. T HIS WAS UPHELD BY THE TRIBUNAL. ON APPEAL TO THE HIGH COURT: HELD, ALLOWING THE APPEAL, THAT FOR RETAINING THE B ENEFIT OF LOAN AVAILED OF FROM THE BANK IF DECISION WAS TAKEN TO G IVE ADVANCE TO THE ASSESSEE SUCH DECISION WAS NOT TO GIVE GRATUITOUS A DVANCE TO ITS SHAREHOLDER BUT TO PROTECT THE BUSINESS INTEREST OF THE COMPANY. THE SUM OF RS.20,75,000 COULD NOT BE TREATED AS DEEMED DIVIDEND. 30 12.3 THE RELIANCE IS ALSO PLACED ON THE DECISION OF THE HONBLE DELHI HIGH COURT, IN THE CASE OF C.I.T. VS. RAJ KUMAR, REPORTE D IN 318 ITR 462, WHERE THE ADVANCES WHICH ARE IN THE NATURE OF MONEY TRANS ACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTION, WOULD NOT FALL WITHIN THE A MBIT OF THE PROVISIONS OF SECTION 2(22)(E). 12.4. AS MENTIONED HEREINABOVE, THE WORD DEPOSIT IS DIFFERENT FROM THE WORD LOAN, HAS BEEN DECIDED BY THE HONBLE DELHI HIGH COURT, IN THE CASE OF BAIDYA NATH PLASTIC INDUSTRIES (P.) LTD. AND OT HERS VS. K.L. ANAND, INCOME TAX OFFICER (SUPRA). THE HEAD NOTES OF WHICH ARE REPRODUCED FOR THE SAKE OF CLARITY AS UNDER: IN CASE TWO INTERPRETATIONS ARE POSSIBLE, AN INTER PRETATION WHICH TAKES AN ASSESSEE OUT OF THE CLUTCHES OF A PENAL PR OVISION MUST BE PREFERRED. A PERUSAL OF SECTION 269T OF THE INCOME-TAX ACT, 19 6, MAKES IT CLEAR THAT THE AGGREGATE AMOUNT OF DEPOSITS HELD B Y A COMPANY SHALL NOT BE REPAID TO ANY PERSON OTHERWISE THAN BY AN A CCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT WHERE THE AMOUNT OF DEPOSIT, OR WHERE THE AMOUNT OF DEPOSIT IS TO BE REPAID TOGETHE R WITH ANY INTEREST, THE AGGREGATE OF THE AMOUNT OF DEPOSIT AND SUCH INT EREST, IS TEN THOUSAND RUPEES OR ABOVE, AFTER THE INCOME-TAX (SEC OND AMENDMENT) ACT, 1981, RECEIVED THE ASSENT OF THE PRESIDENT OF INDIA. THE PRESIDENT OF INDIA ASSENTED TO THE AMENDMENT ACT ON SEPTEMBER 19,1981. THE PROVISIONS OF SECTION 269T READ WITH SECTION 27 6E ARE PENAL IN NATURE AND MUST BE STRICTLY CONSTRUED. SIN CE THE LEGISLATURE SPECIFICALLY USED THE WORD DEPOSIT IN CONTRADISTI NCTION TO THE TERM LOAN, THE PROVISIONS WOULD ONLY BE ATTRACTED IF THE REPAYMENT HAS BEEN MADE IN RESPECT OF A DEPOSIT. THE MEANING OF T HE WORD DEPOSIT OCCURINGG IN SECTION 269T CANNOT BE STRETCHED TO IN CLUDE A LOAN. THE DISTINCTION BETWEEN A LOAN AND A DEPOSIT IS THAT IN THE CASE OF THE 31 FORMER, IT IS ORDINARILY THE DUTY OF THE DEBTOR TO SEEK OUT THE CREDITOR AND TO REPAY THE MONEY ACCORDING TO THE AGREEMENT A ND IN THE CASE OF THE LATTER IT IS GENERALLY THE DUTY OF THE DEPOSITO R TO GO TO THE BANKER OR TO THE DEPOSITEE, AS THE CASE MAY BE, AND MAKE A DEMAND FOR IT. WHILE ARTICLES 19 AND 21 OF THE LIMITATION ACT FIX THE PERIOD WITHIN WHICH A SUIT FOR RECOVERY OF THE LOAN CAN BE FILED, ARTICLE 22 DEALS WITH THE PERIOD OF LIMITATION FOR SUITS FOR MONEY O N ACCOUNT OF DEPOSIT. 12.5. THE FACTS IN THE PRESENT CASE ARE IDENTICAL T O THE FACTS IN THE CASE OF ASSTT. COMMR. OF INCOME-TAX VS. SMT. G. SREEVIDYA, IN ITA NO.1270(MDS) OF 2011 FOR THE ASSESSMENT YEAR 2006-07, DATED 28 TH JUNE, 2012, WHERE THE AMOUNT WITHDRAWN FROM THE COMPANY BY THE ASSESSEE E VEN FOR PERSONAL PURPOSES HAS NOT BEEN HELD TO BE DEEMED DIVIDEND. F OR THE SAKE OF CLARITY, THE FACTS OF THE CASE ARE REPRODUCED AS UNDER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE I MPUGNING THE ORDER OF THE CIT(A)-V,CHENNAI DATED 06.04.2011. 2. THE FACTS IN BRIE F OF THE CASE ARE THAT THE ASS ESSEE HAD FILED RETURN OF INCOME RELEVANT TO THE A.Y. 2006-07 ON 31 .10.2006 DECLARING TOTAL INCOME OF RS.6,78,056/-. THE CASE OF THE ASSE SSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) AND 142(1) WERE ISSUED. THE ASSESSEE IS A MANAGING DIRECTOR OF M/S. RAVINDRA SE RVICES (P) LTD. (HEREINAFTER REFERRED TO AS RSPL) HAVING SUBSTANTIA L OWNERSHIP OF SHAREHOLDING AND 10% OF VOTING POWER. THE ASSESSEE HAD TAKEN A LOAN OF RS.17,65,517/- FROM RSPL WHICH WAS SUBSEQUENTLY REPAID BY THE ASSESSEE. THE ASSESSING OFFICER TREATED THE SAID AM OUNT AS DEEMED DIVIDEND AND MADE ADDITION UNDER THE HEAD OTHER S OURCES INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. APAR T FROM THE ABOVE, THE AO MADE ADDITION OF RS.2,62,035/- TOWARDS THE RENT RECEIVED FROM RSPL UNDER THE HEAD INCOME FROM HOUSE PROPERTY. F URTHER, AN ADDITION OF RS.1,20,718/- WAS MADE IN THE TOTAL INC OME OF THE ASSESSEE AS UNDISCLOSED INCOME. THE ASSESSEE PREFERRED AN APPEAL AGAINST THE ASSESSMENT ORDER DATED 10.02.2008. THE CIT(A) ALLOW ED THE APPEAL 32 OF THE ASSESSEE VIDE ORDER DATED 6.4.2011 DELETING THE ADDITIONS UNDER THE PROVISIONS OF SECTION 2(22)(E) AS WELL AS ADDIT IONS MADE UNDER OTHER HEADS. 3. THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE ASSAILING ORDER OF THE CIT(A) ONLY ON THE GROUND THAT CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.17,65,517/- MADE BY THE A.O. AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 4. MR. SHAJI P. JACAOB, DR APPEARING ON BEHALF OF T HE REVENUE VEHEMENTLY OPPOSED THE ORDER OF THE CIT(A). HE SUBM ITTED THAT THE LOAN WAS GRANTED BY RSPL TO THE ASSESSEE WHO IS HAV ING SUBSTANTIAL INTEREST IN THE COMPANY HAVING MORE THAN 10% VOTING POWER. THE AMOUNT ADVANCED BY THE COMPANY TO THE ASSESSEE FALL S WITHIN THE AMBIT OF DEFINITION OF DEEMED DIVIDEND UNDER SECT ION 2(22)(E) OF THE ACT, AS THE COMPANY WAS HAVING ACCUMULATED PROFITS TO THAT EXTENT WHEN THE AMOUNT WAS ADVANCED TO THE ASSESSEE. HE FU RTHER SUBMITTED THAT THE REPAYMENT OF LOAN AMOUNT AS ALLEGED BY THE ASSESSEE CANNOT BE CRITERIA TO TAKE OUT THE SAID AMOUNT FROM THE AM BIT OF THE PROVISIONS OF SECTION 2(22)(E) . HE STRONGLY CONTEN DED THAT THE CIT(A) HAS ERRED IN RELYING ON THE FOLLOWING CASES: I) CIT VS. CREATIVE DYEING & PRINTING (P) LTD [2009] 3 18 ITR 476 (DELHI)/184 TAXMAN 483 (DELHI). II) CIT VS. AMBASSADOR TRAVELS (P) LTD. [2009] 318 ITR 376/[2008] 173 TAXMAN 407 (DELHI). III) CIT VS. RAJKUMAR [2009] 318 ITR 462/181 TAXMAN 155 (DELHI) THE DR SUBMITTED THAT CASE OF THE ASSESSEE IS SQUAR ELY COVERED BY THE JUDGMENT OF THE HONBLE SUPREME COURT OF INDIA IN T HE CASE OF MISS P.SARDA V. CIT [1998] 229 ITR 444/96 TAXMAN 11 AS W ELL AS SMT. TARULATA SHYAM VS. CIT [1977] 108 ITR 345 (SC). HE FURTHER RELIED ON THE JUDGMENT OF THE HOBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. P.K. ABUBUCKER [2003] 259 ITR 507/[2009]135 TAX MAN 77 (MAD.) 5. ON THE OTHER HAND, DR. ANITA SUMANTH, COUNSEL AP PEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ORDER PAS SED BY THE CIT(A) IS A WELL REASONED AND DETAILED ORDER.SHE SUBMITTED TH AT THE AMOUNT WAS ADVANCED TO THE ASSESSEE AS PER HER PRE-CONDITION O F GRANTING BANK 33 GUARANTEE AND A COLLATERAL SECURITY FOR FINDING OF THE COMPANY. THE COUNSEL SUBMITTED THAT THE ASSESSEE HAD GIVEN PERSO NAL GUARANTEE AND HAD GIVEN COLLATERAL SECURITY TO FACILITATE AVAILIN G OF CREDIT FACILITY BY THE COMPANY. AT THE TIME OF EXTENDING GUARANTEE/SEC URITY THE ASSESSEE HAD SOUGHT LIBERTY TO WITHDRAW FUNDS FROM THE COMPA NY AS AND WHEN AMOUNT FROM THE COMPANY AND HAD ALSO REPAID THE AM OUNTS WITHDRAWN PERIODICALLY. THEREFORE, THE TRANSACTION BETWEEN THE ASSESSEE AND THE COMPANY WAS PURELY OUT OF BUSINESS CONSIDERATION. THE COUNSEL FURTHER CONTENDED THAT IF THE ASSESSEE WOULD NOT HAVE GIVEN BANK GUARANTEE AND COLLATERAL SECURITY, THE O PERATIONS OF THE COMPANY WOULD HAVE COME TO A STANDSTILL. THE COUNSE L SUBMITTED THAT THE AMOUNT WAS ADVANCED BY THE COMPANY TO THE ASSES SEE PURELY ON THE TERMS OF COMMERCIAL EXPEDIENCY. IN ORDER TO SUP PORT HER CONTENTIONS THE COUNSEL RELIED ON THE JUDGMENT OF T HE HONBLE CALCUTTA HIGH COURT IN THE CASE OF PRADIP KUMAR MAL HOTRA V. CIT [2011] 338 ITR 538/203 TAXMAN 110/15 TAXMAN.COM 66 AND THE JUDGMENTS OF THE HONBLE DELHI HIGH COURT IN THE FO LLOWING CASES : I) CREATIVE DYEING & PRINTING (P) LTD (SUPRA) II) AMBASSADOR TRAVELS (P) LTD. (SUPRA) III) RAJKUMAR (SUPRA) 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RESPEC TIVE PARTIES AND HAVE GONE THROUGH THE DOCUMENTS ON RECORD, ORDE RS OF THE LOWER AUTHORITIES AS WELL AS THE JUDGMENTS REFERRED TO BY THE RESPECTIVE PARTIES. THE PROVISIONS OF SECTION 2(22)(E) ARE REP RODUCED HEREIN BELOW:- 2(22)(E) ANY PAYMENT BY A COMPANY, NOT BEING A CO MPANY 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 31 ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL O WNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND W HETHER 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 WHIC H SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBS TANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID C ONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE I NDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH TH E COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS. 34 BUT DIVIDEND DOES NOT INCLUDE- (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLA USE (C) OR SUB-CLAUSE(D) IN RESPECT OF ANY SHARE ISSUED FOR FU LL CASH CONSIDERATION, WHERE THE HOLDER OF THE SHARE IS NO T ENTITLED IN THE EVENT OF LIQUIDATION TO PARTICIPATE IN THE SURPLUS ASSETS; (IA) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLA USE OR SUB- CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS ATTRIB UTABLE TO THE CAPITALIZED PROFITS OF THE COMPANY REPRESENTING BON US SHARES ALLOTTED TO ITS EQUITY SHAREHOLDERS AFTER THE 31 ST DAY OF MARCH, 1964 ( AND BEFORE THE IST DAY OF APRIL, 1965) II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER [ OR THE SAID CONCERN] BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE B USINESS OF THE COMPANY; III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET OF F 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 IT S OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PROVISION S OF SECTION 77A OF THE COMPANIES ACT, 1956 ( 1 OF 1956); V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERGE R 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 DEFINITION LAID DOWN BY SECTION 2(22) IS INCLUS IVE AND NOT EXHAUSTIVE. THE FOLLOWING PAYMENTS OF DISTRIBUTIONS BY A COMPANY TO ITS SHAREHOLDER ARE DEEMED AS DIVIDENDS TO THE EXTE NT OF ACCUMULATED PROFITS OF THE COMPANY ALTHOUGH THESE PAYMENTS MAY NOT BE DIVIDENDS UNDER THE PROVISIONS OF COMPANIES ACT: A) ANY DISTRIBUTION OR RELEASE OF COMPANYS ASSETS; B) ANY DISTRIBUTION OF DEBENTURES, DEBENTURE STOCK, DE POSIT CERTIFICATES AND BONUS TO PREFERENCE SHARE-HOLDERS; 35 C) DISTRIBUTION ON LIQUIDATION OF COMPANY; D) DISTRIBUTION ON REDUCTION OF CAPITAL. E) ANY PAYMENT BY AY OF LOAN OR ADVANCES BY A CLOSELY HELD COMPANY TO A SHAREHOLDER HOLDING SUBSTANTIAL INTERE ST PROVIDED THE LOAN SHOULD NOT HAVE BEEN MADE IN THE ORDINARY COURSE OF BUSINESS AND MONEY LENDING SHOULD NOT BE A SUBSTANT IAL PART OF THE COMPANYS BUSINESS. 7. IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 2( 22)(E), THE IMPORTANT CONSIDERATION IS THAT THERE SHOULD BE LOA N/ADVANCE BY A COMPANY TO ITS SHAREHOLDER. EVERY AMOUNT PAID MUST MAKE THE COMPANY A CREDITOR OF THE SHAREHOLDER OF THAT AMOUN T. AT THE SAME TIME, IT IS TO BE BORNE IN MIND THAT EVERY PAYMENT BY A COMPANY TO ITS SHAREHOLDERS MAY NOT BE LOAN/ADVANCE. IN THE PRESEN T CASE, THE AMOUNT WAS WITHDRAWN BY THE ASSESSEE FROM THE COMPA NY ONLY TO MEET HER SHORT TERM CASH REQUIREMENTS. BY VIRTUE OF OFF ERING PERSONAL GUARANTEE AND COLLATERAL SECURITY FOR THE BENEFIT O F THE COMPANY, THE LIQUIDITY POSITION OF THE ASSESSEE HAD GONE DOWN. I N THE STRICT SENSE IF IT IS TO BE CONSTRUED THE AMOUNT FORWARDED BY THE C OMPANY TO THE ASSESSEE WAS NOT IN THE SHAPE OF ADVANCES OR LOANS. THE ARRANGEMENT BETWEEN THE ASSESSEE AND THE COMPANY WAS MERELY FO R THE SAKE OF CONVENIENCE ARISING OUT OF BUSINESS EXPEDIENCY. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS NOT APPROPRIATE TO HOLD THAT THE AMOUNT WITHDRAWN BY THE ASSESSEE PARTAKE THE CHARAC TER OF DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) O F THE ACT. 8. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DIVISION BENCH JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT I N THE CASE OF PRADIP KUMAR MALHOTRA (SUPRA), WHEREIN THE FACTS WE RE SIMILAR TO THE FACTS OF COMPANY. THE ASSESSEE PERMITTED HIS IMMOVA BLE PROPERTY TO BE MORTGAGED TO THE BANK FOR ENABLING THE COMPANY T O TAKE THE BENEFIT OF LOAN. THE BOARD OF DIRECTORS OF THE COMPANY PASS ED A RESOLUTION TO OBTAIN INTEREST FREE DEPOSIT UPTO RS.50 LAKHS AS AN D WHEN REQUI8RED. THE ASSESSEE OBTAINED FROM THE COMPANY A SUM OF RS. 20,75,000/- BY WAY OF SECURITY DEPOSIT. OUT OF THIS AMOUNT, A SUM OF RS.20 LAKHS WAS RETURNED BY THE ASSESSEE TO THE COMPANY. THE AO ADD ED THE SUM OF RS.20,75,000/- AS DEEMED DIVIDEND. THE HONBLE HIGH COURT WHILE ALLOWING THE APPEAL OF THE ASSESSEE HELD THAT FOR RETAINING THE BENEFIT OF LOAN AVAILED OF FROM THE BANK, IF DECISION WAS T AKEN TO GIVE ADVANCE TO THE ASSESSEE SUCH DECISION WAS NOT TO GIVE GRATU ITOUS ADVANCE TO ITS 36 SHAREHOLDER BUT TO PROTECT THE BUSINESS INTEREST OF THE COMPANY. THE SUM OF RS.20,75,000/- COULD NOT BE TREATED AS DEEME D DIVIDEND. THE DIVISION BENCH OF THE HONBLE HIGH COURT FOLLOWED T HE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CREATIVE DY EING & PRINTING (P) LTD (SUPRA). IN THE INSTANT CASE ALSO THE ASSES SEE WAS ALLOWED TO WITHDRAW FUNDS FROM THE COMPANY AS PER REQUIREMENT FOR PERSONAL PURPOSES AGAINST THE PERSONAL GUARANTEE AND THE COL LATERAL SECURITY GIVEN BY HER TO FACILITATE HER AVAILING OF CREDIT F ACILITY OF THE COMPANY. 9. IT IS A WELL SETTLED LAW THAT LOAN OR ADVANCE GI VEN TO A SHAREHOLDER BY A COMPANY IN WHICH PUBLIC IS NOT SUB STANTIALLY INTERESTED AND WHICH HAD ACCUMULATED PROFITS, THE A MOUNT ADVANCED AS LOAN TO SUCH SHAREHOLDER IS DEEMED TO BE DIVIDE ND AS PER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. HOWEVER, THE FACTS AND CIRCUMSTANCES OF EACH CASE HAVE TO BE SCRUTINIZED B EFORE APPLYING THE RATIO OF THE CASES HOLDING ABOVE WELL SETTLED LAW. IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, JUDGMENTS RELIED UPON BY THE DR IN THE CASES OF MISS P. SARADA (SUPRA), P.K. ABUBUCKER (SUPRA) AND SMT. TARULATA SHYAM (SUPRA) ARE NOT APPLICABLE 10. THE CIT(A) VIDE ORDER DATED 6.4.2011 HAS RIGHTL Y DELETED THE ADDITION MADE ON ACCOUNT OF DEEMED DIVIDEND BY TH E ASSESSING OFFICER. WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE CIT(A). IN VIEW OF THE OUR AFORESAID FINDINGS, THE APPEAL OF THE REVENUE FAILS AND THE SAME IS DISMISSED BEING DEVOI D OF ANY MERIT. 12.6 THE LD. DCIT(DR) HAS TRIED TO DISTINGUISH THE CASES RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, WHICH IN FACT GO IN FAVOUR OF THE ASSESSEE AND THEREFORE, CANNOT HELP THE REVENUE. 12.7 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE AO IN TRE ATING THE SAID DEPOSITS AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. THE AO IS ACCORDINGLY 37 DIRECTED TO DELETE THE ADDITION. THUS, ALL THE GRO UNDS OF THE ASSESSEE ARE ALLOWED. 13. AS REGARDS THE APPEAL OF THE REVENUE IN ITA NO. 146(ASR)/2011 FOR THE ASSESSMENT YEAR 2003-04, THE A.O. LEVIED PENALT Y UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 @ 100% OF THE TAX SOUGHT TO BE EVADED BY THE ASSESSEE BY ORDER DATED 28.05.2010. THE SAID PENALTY HAS BEEN DELETED BY THE LD. CIT(A), SINCE THE ASSESSEE WAS ABLE TO SUBSTANTIATE HIS CONTENTION THAT THE MONEY RECEIVED FROM M/S. SH ITAL FIBRES LTD. WAS IN THE NATURE OF DEPOSITS AND ACCORDINGLY CANCELLED TH E PENALTY LEVIED BY THE ASSESSING OFFICER. THE LD. CIT(A) RELIED UPON THE D ECISIONS OF VARIOUS COURTS OF LAW. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. SINCE THE ADDITIONS IN THE PRESENT CASE HAVE BEEN D ELETED BY US IN QUANTUM APPEAL HEREINABOVE IN ASSESSEES CASE IN ITA NO. 40 6(ASR)/2009 FOR THE ASSESSMENT YEAR 2003-04 BY OUR ORDER OF EVEN DATE. THEREFORE, IN THE ABSENCE OF ANY ADDITION, NO PENALTY UNDER SECTION 2 71(1)(C) OF THE ACT, CAN BE LEVIED BY THE AO AND THE SAME DESERVES TO BE CAN CELLED. THE LD. CIT(A) HAS DELETED THE PENALTY SINCE THE ASSESSEE HAD EST ABLISHED THAT THE MONEY RECEIVED FROM M/S. SHITAL FIBRES LTD. IS IN THE NAT URE OF DEPOSITS AND WE DO 38 NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT( A). THUS, ALL THE GROUNDS OF THE REVENUE ARE DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.406(ASR)/2009 IS ALLOWED AND THE APPEAL OF THE REVENUE IN ITA NO.14 6(ASR)/2011 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20TH SEPTEMBER, 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20TH SEPTEMBER, 2012 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. SHITAL KUMAR VIJ PROP. M/S. SHITA L INTERNATIONAL, JALANDHAR. 2. THE ACIT R-II/DCIT,CIR.II, JALANDHAR. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.