The ITO, Ward-6(1), Ahmedabad V. M/s. Radheshyam Fibres, Ahmedabad

ITA 1914/AHD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72970 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 30-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Bogus purchase; Opportunity of being heard; Deemed dividend; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO.1901/AHD/2012 A.Y. 2009-10 M/S. RADHESHYAM FIBERS, C/O. SHRI VALLABH LAXMI COTTON PVT. LTD., KHEDA-BAVLA ROAD., DHOKLA, AHMEDABAD. PAN: AAGFR 0800B V/S. INCOME TAX OFFICER WARD-6(1), AHMEDABAD. (APPELLANT) (RESPONDENT) ITA NO.1914/AHD/2012 A.Y. 2009-10 INCOME TAX OFFICER WARD- 6(1), AHMEDABAD. V/S. M/S. RADHESHYAM FIBERS, C/O. SHRI VALLABH LAXMI COTTON PVT. LTD., KHEDA-BAVLA ROAD., DHOKLA, AHMEDABAD. PAN: AAGFR 0800B (APPELLANT) (RESPONDENT) REVENUE BY : SHRI P.L. KUREEL, SR.D.R. ASSESSEE(S) BY : SHRI CHIRAG SHAH, A.R. / DATE OF HEARING : 07/01/2014 / DATE OF PRONOUNCEMENT: 14/02/2014 / O R D E R PER SHRI T.R. MEENA, ACCOUNTANT MEMBER : THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THE REVENUE, EMANATING FROM THE ORDER OF LEARNED CIT(A) -XI, VIDE BOTH ORDER DATED 27.06.2012, FOR A.Y. 2009-10. THE EFFECTIVE GROUNDS OF ASSESSEES APPEAL ARE AS UNDER: ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 2 - 1.THE ASSESSMENT ORDER PASSED U/S.143(3) OF IT ACT BY THE ASSESSING OFFICER AND PARTLY CONFIRMED BY THE FIRST APPELLATE AUTHORITY IS BAD IN LAW AND DESERVED TO BE UNCALLED FOR. 2.THE ASSESSING OFFICER AS WELL AS FIRST APPELLATE AUTHORITY HAS ERRED IN LAW AND ON FACTS IN MAKING AND PARTLY CONFIRMING RE SPECTIVELY THE ADDITION OF RS.60,70,000/- TOWARDS DEEMED DIVIDEND U/S.2(22)(E). THE SAME DESERVES TO BE DELETED. 2. BOTH THE GROUNDS ARE REVOLVING AROUND CONFIRMING ADDITION OF RS.60,70,000/- TOWARDS DEEMED DIVIDEND U/S.2(22) (E) OF THE IT ACT. THE AO OBSERVED THAT THE ASSESSEE IS IN THE BU SINESS OF SALE AND PURCHASE OF COTTON AND COTTON SHEET AND THE ASS ESSEE IS HAVING MIXED ACCOUNT WITH M/S. SHREE VALLABHALAXMI COTTON PVT. LIMITED HAVING PURCHASE ACCOUNT, SALE ACCOUNT AND SHARAFI A CCOUNT. THIS LEDGER ACCOUNT SHOWS TOTAL TRANSACTION OF RS.4,09,2 9,442/- WHEREIN ASSESSEE HAD SHOWN PURCHASE OF RS.3,03,41,817/- AND SALES OF RS.39,05,695/-M/S. SRI VALLABHALAXMI COTTON PVT. LT D. HAD ADVANCED RS.66,81,930/- TO THE ASSESSEE. THE AO GAV E REASONABLE OPPORTUNITY OF BEING HEARD AS TO WHY ADVANCES OF RS .66,81,930/- SHOULD NOT BE ASSESSED AS DEEMED DIVIDEND U/S.2(22) (E) OF THE IT ACT. THE ASSESSEE FURNISHED THE REPLY ON 20.12.2011 . THE ASSESSEE ONLY CLAIMED BEFORE THE AO THAT THESE TRANSACTIONS WERE FOR BUSINESS PURPOSES AS ASSESSEE PURCHASED GOODS OF RS .3,03,41,817/- AND SOLD GOODS FOR RS.39,05,695/- WHICH WAS RESULTE D INTO CREDIT BALANCE OF RS.2,64,33,003/-. AFTER CONSIDERING THE ASSESSEE REPLY, THE AO HELD THAT ASSESSEE MADE PURCHASE OF RS.3,03, 41,817/- AND PAID CHEQUE OF RS.1,65,000/- AND RECEIVED CHEQUE OF RS.1,05,87,625/- AGAINST SALE OF RS.39,05,695/- VID E LETTER DATED 20.12.2011. THE ASSESSEE HAD ALSO EXPLAINED THAT IT HAS RECEIVED RS.66,81,930/- FROM M/S. VALLABHALAXMI COTTON PVT. LTD., ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 3 - THEREFORE, IT IS CLEAR THAT M/S. VALLABHALAXMI COTT ON PVT. LTD. HAD ADVANCED RS.66,81,930/- [RS.1,05,87,625/- - RS. 39,05,695/-] TO THE ASSESSEE FIRM. THE ASSESSEE HAD GIVEN DETAILS O F THE DIRECTORS OF COMPANY OF M/S. VALLABHALAXMI COTTON PVT. LTD., WHI CH SHOWS THAT ONE OF THE PARTNERS OF THE FIRM, SRI JAGDISHBH AI VALLABHBHAI JASANI IS HAVING 12.82% OF SHAREHOLDING OF THE TOTA L AUTHORIZED CAPITAL OF THE COMPANY WHICH IS MORE THAN 10% OF TH E AUTHORIZED SHARE CAPITAL OF THE COMPANY. THE FIRST CONDITION I S SUBSTANTIAL SHAREHOLDING OF THE ASSESSEE IN THE COMPANY, SECOND THE GIVING OF LOAN AND ADVANCES BY THE SAID COMPANY AND THIRD THE EXISTENCE OF THE ACCUMULATED PROFITS OF THE COMPANY MAKING THE L OAN AND ADVANCES TO THE ASSESSEE, THEN SUCH AMOUNT OF LOANS AND ADVANCES TO THE EXTENT OF ACCUMULATED PROFITS ARE TO BE TREA TED AS DEEMED TO BE THE DIVIDEND INCOME IN THE HANDS OF RECIPIENTS, I.E., ASSESSEE. THUS, AO MADE ADDITION OF RS.66,81,930/- U/S. 2(22) (E) OF THE IT ACT. 3. BEING AGGRIEVED BY THE ORDER OF THE AO, THE ASSE SSEE CARRIED THE MATTER BEFORE THE LEARNED CIT(A). LEARNED CIT(A ) CONFIRMED THE ADDITION BY OBSERVING AS UNDER: 3.3 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. I HAVE ALSO PERUSED VARIOUS CASE LAWS RELIED UPON BY THE APPELL ANT. IT IS SEEN THAT THE APPELLANT HAS CHALLENGED THIS ADDITION ON THE F OLLOWING TWO GROUNDS :- (I) THE APPELLANT FIRM IS NOT A SHAREHOL DER OF M/S. SHREE VALLABHALAXMI COTTON PVT. LTD. (II) THE IMPUGNED ADVANCES HAS BEEN RECEIVED IN THE REGULAR COURSE OF BUSINESS. 3.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E BY THE APPELLANT. THE APPELLANTS CONTENTION THAT THE APPELLANT FIRM I S NOT A REGISTERED SHAREHOLDER OF M/S. VALLABHALAXMI COTTON PVT. LTD. AND ACCORDINGLY THE DEEMED DIVIDEND CANNOT BE TAXED IN THE HANDS OF THE APPELLANT ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 4 - CANNOT BE ACCEPTED AS THE EXPRESS PROVISIONS OF SEC .2(22)(E) SPECIFICALLY PROVIDES THAT EVEN IF ADVANCES ARE REC EIVED BY A CONCERN WHERE SUCH SHAREHOLDER IS SUBSTANTIALLY INTERESTED, THE ADVANCES SHOULD BE TAXED AS DEEMED DIVIDEND. THE APPELLANT H AS PLACED RELIANCE ON VARIOUS CASE LAWS IN THIS REGARD, HOWEV ER, THE FACTS OF THESE CASES WERE DIFFERENT. I WOULD LIKE TO SPECIFI CALLY DISCUSS THE CASE CIT VS. HOTEL HILLTOP(RAJ.) REPORTED AT 313 ITR 116 HEAVILY RELIED UPON THE LD. A.R. IN THIS CASE THE HON'BLE COURT HA D HELD THAT THE ADVANCES RECEIVED BY THE FIRM CANNOT BE TREATED AS DEEMED DIVIDEND AS THESE ADVANCES WERE RECEIVED ON BEHALF AND FOR T HE BENEFIT OF THE PARTNERS. THIS IS NOT THE CASE HERE. THE ADVANCES R ECEIVED BY THE APPELLANT FIRM WAS FOR THE BENEFIT OF THE FIRM AND NOT FOR THE BENEFIT OF THE PARTNERS. THIS WAY THE RATIO OF THIS CASE WILL NOT BE APPLICABLE IN THE CASE OF THE APPELLANT. THE OTHER CASES RELIED U PON BY THE APPELLANT WERE ALSO DELIVERED ON DIFFERENT FACTS AND ACCORDIN GLY I HOLD THAT RATIO OF THESE CASE LAWS WILL ALSO NOT HELP THE APPELLANT . 3.5 THE APPELLANT HAS ALSO CONTENDED THAT THESE ADV ANCES HAVE BEEN RECEIVED IN THE NORMAL COURSE OF BUSINESS. I AM ALS O NOT INCLINED TO AGREE WITH THIS CONTENTION. PERUSAL OF THE ACCOUNT OF M/S. SHREE VALLABHALAXMI COTTON PVT. LTD. IN THE BOOKS OF THE APPELLANT REVEALS THAT THE APPELLANT IS PURCHASING AND SELLING COTTON TO THIS CONCERN. IN MY CONSIDERED VIEW THE PAYMENTS MADE AGAINST PURCHA SES OR PAYMENTS RECEIVED AGAINST SALES FROM M/S. SHREE VAL LABHALAXMI COTTON PVT. LTD. CAN BE SAID TO BE IN THE REGULAR C OURSE OF BUSINESS AND AS PER THE PROVISIONS OF SEC.2(22)(E), THESE PA YMENTS CANNOT BE TAXED AS DEEMED DIVIDEND. IT IS NOTICED THAT SOME O F THE PAYMENTS MADE BY THE APPELLANT DURING THE YEAR UNDER CONSIDE RATION FULFILLS THESE CONDITIONS AND ACCORDINGLY THE DEEMED DIVIDEN D PROVISIONS ARE NOT ATTRACTED ON SUCH RECEIPTS. PAYMENTS RECEIVED B Y THE APPELLANT FROM M/S. SHREE VALLABHALAXMI COTTON PVT. LTD. FROM 1.4.2008 UPTO 12/1/2009 FALLS IN THIS CATEGORY AS UPTO THIS DATE THE BALANCE IN THIS ACCOUNT WAS DEBIT AND THIS DEBIT BALANCE HAS COME A S A RESULT OF PURCHASE OF COTTON FROM M/S. SHREE VALLABHALAXMI CO TTON PVT. LTD. HOWEVER, FROM THIS DATE ONWARDS THE ACCOUNT OF M/S. SHREE VALLABHALAXMI COTTON PVT. LTD. IN THE BOOKS, OF APP ELLANT IS SHOWING A CREDIT BALANCE. IT MEANS THAT IN THE REGULAR COURSE OF BUSINESS THE APPELLANT HAS TO MAKE PAYMENT TO THE SISTER CONCERN NAMELY M/S. SHREE VALLABHALAXMI COTTON PVT. LTD. AGAINST THESE PURCHASES. IT IS STRANGE TO NOTE THAT, EVEN IN CASES WHERE THE CREDI T BALANCE STANDS IN THE ACCOUNT OF M/S. SHREE VALLABHALAXMI COTTON PVT. LTD., THE APPELLANT KEPT ON RECEIVING THE PAYMENT FROM-SHREE VALLABHALAXMI COTTON PVT. LTD. THE DETAILS OF RECEIPT OF SUCH PAY MENTS ARE ANNEXED AS ANNEXURE-A TO THIS ORDER. THE TOTAL OF SUCH PAYM ENT RECEIVED WORKS OUT TO RS. 60,70,000/-. IT IS ALSO NOTICED THAT THE ACCOUNT UNDER CONSIDERATION IS NOT A TYPICALLY PURCHASE AND SALE ACCOUNT OR IN THIS ACCOUNT THERE ARE TRANSACTIONS WHICH IS NOT IN THE REGULAR COURSE OF BUSINESS. IN SUPPORT OF THIS PROPOSITION IT WILL AL SO BE PERTINENT TO MENTION THAT THERE ARE INSTANCES WHEN THE APPELLANT HAD MADE ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 5 - PAYMENTS TO SISTER CONCERN WHEN THE BALANCE IN THIS ACCOUNT WAS DEBIT, I.E. THE APPELLANT FIRM WAS TO RECEIVE MONEY FROM S ISTER CONCERN AT THIS POINT OF TIME. SINCE, THE ABOVE MENTIONED ADVANCES OF RS.60,70,000/- HAS NOT BEEN RECEIVED IN THE REGULAR COURSE OF BUSI NESS AND ACCORDINGLY, IN MY CONSIDERED VIEW ON THESE ADVANCE S, PROVISIONS OF SEC.2(22)(E) ARE ATTRACTED. 3.6 THE A.O. HAS WORKED OUT THE QUANTUM OF DEEMED D IVIDEND ON THE BASIS OF TOTAL BALANCE IN THE ACCOUNT OF THE APPELL ANT. I DO NOT AGREE WITH THIS WORKING. IN FACT AS PER THE PROVISIONS OF SEC.2(22)(E), THE DEEMING PROVISION ARE ATTRACTED ON THE TIME OF RECE IPT OF EACH PAYMENT. THE PROVISIONS OF SEC.2(22)(E) AND THE ACT UAL QUANTUM OF DEEMED DIVIDEND RECEIVED BY THE APPELLANT IS DISCUS SED IN THE FOLLOWING PARAGRAPHS. 3.7 THE A.O. MADE AN ADDITION OF RS.66,81,9307- U/S.2(22)(E) OF THE I.T. ACT. SINCE THE ADDITION HAS BEEN MADE AS PER T HE PROVISIONS OF SEC.2(22)(E), IT WILL BE PERTINENT TO DISCUSS THESE PROVISIONS IN DETAIL. PROVISIONS OF SEC.2(22)(E) ARE ATTRACTED IF THE FOL LOWING CONDITIONS ARE FULFILLED:- I) PAYMENT SHOULD BE MADE BY A CLOSELY HELD COMPANY . II)THE PAYMENTS RECEIVED SHOULD BE IN THE NATURE OF LOANS AND ADVANCES. III)THE PAYMENT SHOULD BE MADE TO A SHAREHOLDER WHO HOLDS NOT LESS THAN 10% OF VOTING POWER IN THE PAYER COMP ANY. OR PAYMENT IS MADE TO ANY CONCERN IN WHICH SUCH SHAREH OLDER IS A MEMBER OR A PARTNER IN WHICH HE HAS SUBSTANTIAL INTEREST(BENEFICIALLY ENTITLED TO NOT LESS THAN 20% OF THE INCOME OF SUCH CONCERN). IV)DEEMED DIVIDEND CAN BE TAXED TO THE EXTENT OF AC CUMULATED PROFITS OF THE PAYER CLOSELY HELD COMPANY. V)THE LOANS AND ADVANCES SHOULD NOT BE RECEIVED IN THE REGULAR COURSE OF BUSINESS. 3.8 THE ABOVE MENTIONED CONDITIONS IN THE CASE OF L OANS AND ADVANCES RECEIVED BY THE APPELLANT FROM M/S. SHREE VALLABHAL AXMI COTTON PVT. LTD. ARE FULFILLED. IN THE INSTANT CASE, THE PAYMEN TS HAS BEEN MADE BY SHREE VALLABHALAXMI COTTON PVT. LTD. WHICH IS UNDOU BTEDLY A CLOSELY HELD COMPANY. THE PAYMENTS HAS BEEN RECEIVED BY THE APPELLANT FIRM IN WHICH SHRI JAGDISHBHAI VALLABHBHAI IS BENEFICIAL LY ENTITLED TO 50% OF INCOME. IT IS ALSO A MATTER OF FACT THAT SHRI JA GDISHBHAI VALLABHBHAI IS HAVING 12.82% OF VOTING POWER IN M/S.SHREE VALLA BHALAXMI COTTON PVT. LTD. THESE FACTS ARE ACCEPTED EVEN BY THE APPE LLANT AS THE APPELLANT HAD NOT CONTESTED THE SAME. THIS WAY THE CONDITION NO.(II) AS MENTIONED ABOVE IS FULFILLED AND THE LOANS AND ADVA NCES RECEIVED BY THE APPELLANT FIRM ARE HIT BY THE PROVISIONS OF SEC .2(22)(E). IT IS ALSO A MATTER OF FACT THAT M/S. SHREE VALLABHALAXMI COTTON IS HAVING RESERVES ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 6 - AND SURPLUS OF RS. 1,17,18,870/-. THIS MEANS THAT L OANS AND ADVANCES RECEIVED TO THE EXTENT OF RS.1,17,18,870/- CAN BE T AXED AS DEEMED DIVIDEND. THE DEEMED DIVIDEND OF RS. 60,70,000/- IS MUCH BELOW THIS LIMIT. AS DISCUSSED ABOVE, THE ADVANCES RECEIVED FR OM SHREE VALLABHALAXMI COTTON PVT LTD. ARE NOT IN THE REGULA R COURSE OF BUSINESS. THE ADVANCES OF RS.60,70,000/- HAS BEEN R ECEIVED BY THE APPELLANT FIRM WHEN THE BALANCE IN THE ACCOUNT OF M /S. SHREE VALLABHALAXMI COTTON PVT. LTD. WAS SHOWING CREDIT B ALANCE. THIS WAY BY THE RECEIPT OF THESE PAYMENTS, THE CREDIT BALANC E HAD INCREASED. THESE PAYMENTS HAS NOT BEEN RECEIVED AGAINST THE SA LES AND ACCORDINGLY, THESE PAYMENTS CANNOT BE SAID TO HAVE BEEN RECEIVED IN THE REGULAR COURSE OF BUSINESS AND ACCORDINGLY THES E ARE IN THE NATURE OF LOANS AND ADVANCES AND THE SAME ARE HIT BY THE P ROVISIONS OF SEC.2(22)(E). IT WILL ALSO BE WORTHWHILE TO MENTION HERE THAT SEC.2(22)(E) USES THE WORD 'ANY PAYMENT,' AS ITS OP ENING WORD, WHICH MUST MEAN EVERY PAYMENT. THEREFORE THE PROVISIONS O F THE SECTION CAN BE INVOKED EVEN IN CASE OF SUCCESSIVE ADVANCES IF O THER CONDITIONS OF THE SECTIONS ARE FULFILLED. RELIANCE IN THIS REGARD IS PLACED ON CIT VS P.K. BADIANI, 76 ITR 369 (MUMBAI). IT IS FURTHER HE LD BY THE HON'BLE GUJARAT HIGH COURT THAT THE REFERENCE IS TO 'ANY PA YMENT' AND NOT TO BOOK ANY PROPORTIONATE PART OF IT. [CIT VS MAYUR MA DHUKANT MEHTA 85 ITR 230(GUJ.)]. IT IS FURTHER HELD BY THE HON'BL E COURT THAT THE WORD PAYMENT IS HAVING A WIDE CONNOTATION. IT WILL ALSO BE WORTHWHILE TO MENTION HERE THAT THE PURPORT OF WORD ADVANCE IS VE RY WIDE. THIS EXPRESSION MEANS SOMETHING WHICH IS DUE TO A PERSON BUT WHICH IS PAID TO HIM AHEAD OF THE TIME WHEN IT IS DUE TO BE PAID. RELIANCE IN THIS REGARD IS PLACED ON CIT VS K. SREENIVASAN 50 I TR 788 (MAD). AS PER THIS DEFINITION, THE PAYMENTS RECEIVED BY THE A PPELLANT ARE ADVANCES AS THE SAME WERE RECEIVED BY IT AHEAD OF T IME WHEN IT IS DUE TO BE PAID. THIS WAY THE TERMINOLOGY USED IN SECTIO N NAMELY 'ANY PAYMENT, BY WAY OF ADVANCE OR LOAN' IS HAVING A WID E PURPORT AND IT COVERS ALMOST EVERY ADVANCE WHICH HAS BEEN RECEIVED BY THE APPELLANT. IN THIS CASE THE FACT OF RECEIVING ADVAN CE BY THE APPELLANT IS CLEARLY ESTABLISHED BY ACCOUNT OF M/S. SHREE VALLAB HALAXMI COTTON PVT. LTD. IN THE BOOKS OF THE APPELLANT AND INSTANC ES OF SUCH RECEIPT OF ADVANCES IS SUMMARIZED IN ANNEXURE TO THIS ORDER AS DISCUSSED ABOVE THE ADVANCES RECEIVED BY THE APPELLANT TO THE EXTEN T OF RS 60,70,000/- ARE HIT BY THE PROVISIONS OF SECTION 2(22)(E) OF TH E IT. ACT. ONCE ANY ADVANCE RECEIVED BY THE APPELLANT FULFILLS THE COND ITIONS AS LAID DOWN IN THE DEEMING PROVISIONS OF SECTION 2(22)(E) OF TH E IT.ACT, THE SAME HAS TO BE TAKEN TO IT'S LOGICAL ENDS AND THERE SHOU LD NOT BE ANY HESITATION IN GIVING FULL EFFECT TO THESE PROVISION S. RELIANCE IN THIS REGARD IS PLACED ON BUILDERS ASSOCIATION OF INDIA V /S. UNION OF INDIA (1989) 73 STC 370 (S.C.). IN VIEW OF ABOVE FACTS, I HOLD THAT ADVANCES RECEIV ED BY THE APPELLANT TO THE TUNE OF RS. 60,70,000/- IS A DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT AS PER THE PROVISIONS OF SEC.2(22)(E) OF THE I.T. ACT. ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 7 - ACCORDINGLY, ADDITION TO THE TUNE OF RS. 60,70,000/ - IS CONFIRMED. THE APPELLANT WILL GET A RELIEF OF RS.6,11,930/- (66,81 ,930-60,70,000). THIS GROUND OF APPEAL IS PARTLY ALLOWED. 4. NOW ASSESSEE IS BEFORE US. LEARNED COUNSEL FOR T HE ASSESSEE CONTENDED THAT ASSESSEE IS NOT A SHAREHOLDER OF THE COMPANY. PARTNERS ARE THE SHAREHOLDER IN THE COMPANYS BOOK AND RECEIVED DIVIDEND BY THEM. THE ASSESSEE IS NEITHER SHAREHOLD ER NOR BENEFICIAL SHAREHOLDER OF THE COMPANY. HE FURTHER R ELIED UPON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CAS E OF CIT V/S. HOTEL HILLTOP, (2009) 313 ITR 116 (RAJ.) , WHERE IDENTICAL ISSUE HAS BEEN CONSIDERED. THE SHAREHOLDERS WERE THE PART NERS OF THE FIRM. THE LOAN ADVANCES WERE RECEIVED BY THE FIRM, THEREFORE, IT WAS HELD THAT THE FIRM WAS NOT BENEFICIAL SHAREHOLD ER, THE DEEMING PROVISION CAN BE APPLIED ONLY ON SHAREHOLDERS. HE F URTHER DRAWN OUR ATTENTION ON MEANING OF DIVIDEND BY RELYING UPO N THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BANK OF INDIA, (1976) 102 ITR 270 (BOM). HE FURTHER CLAIMED THAT THESE TRANSACTIONS ARE BUSINESS IN NATURE WHICH CAN BE VE RIFIED FROM THE LEDGER ACCOUNT PRODUCED BEFORE THE AO DURING THE CO URSE OF ASSESSMENT ITSELF. THE AMOUNT OF RS.1.05 CRORE WAS RECEIVED AGAINST DEBIT BALANCE OF RS.1.04 CRORE WHICH HAS AR ISEN ON ACCOUNT OF SALE MADE BY THE APPELLANT TO SRI VALLABHALAXMI COTTON PVT. LTD. IN THE PRECEEDING YEAR. IT IS AN ESTABLISHED L EGAL POSITION THAT ANY TRADE ADVANCES GIVEN AND RECEIPT IN THE COURSE BY CARRYING NORMAL BUSINESS ACTIVITY ARE OUTSIDE THE PURVIEW OF SECTION 2(22)(E) OF THE ACT. IN SUPPORT OF CONTENTION, HE R ELIED UPON THE DECISION OF HONBLE ITAT IN THE CASE OF SUNIL SHETTY VS. DCIT, (2005), 26 SOT 95 . HE FURTHER RELIED UPON THE DECISION OF HONBLE ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 8 - DELHI HIGH COURT IN THE CASE OF CIT VS. CREATIVE DYEING AND PRINTING PRIVATE LTD., (2009) 318 ITR 476 (DEL) WHEREIN IT HELD SUCH ADVANCES AS A NORMAL BUSINESS TRANSACTION. HE FURTHER RELIED UPON THE DECISION OF HONBLE ITAT D BENCH AHMEDAB AD IN THE CASE OF DCIT VS. M/S. JAG TAT MINERALS PVT. LTD. BARODA VS. ITO, ITA NO.717 & 718/AHD/2010 FOR A.Y.2006-07, VID E ORDER DATED 08.08.2012 , WHEREIN DEEMED DIVIDEND CAN BE ASSESSED AS INCOME IN THE HANDS OF SHAREHOLDER AND NOT IN THE H ANDS OF THE COMPANY IS CONCERN IN WHICH SUCH SHARE HOLDER IS ME MBER OR PARTNER AS SUBSTANTIAL INTEREST WHICH WAS DELIVERED BY CONSIDERING THE HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF CIT VS. DAISY PACKERS PVT. LTD., TAX APPEAL NO.212 OF 2010 AND SPECIAL BENCH DECISION IN CASE OF BHAUMIK COLOUR PVT. LTD. HE FURTHER RELIED UPON THE DECISIONS OF HONBLE DELHI HIGH COU RT IN THE CASE OF CIT VS. NATIONAL TRAVEL SERVICES, (2011) 14 TAXM ANN.COM 14 (DELHI) AND CIT VS. STANDIPACK PVT. LTD., (2012) 20 TAXMANN. COM 19 (DEL) AND ALSO RELIED UPON THE DECISION OF H ONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NAVINBHAI N. PATE L, (2013) 35 TAXMAN.COM, 312 (GUJ), WHEREIN REQUIREMENT OF SECTI ON 2(22) IS THAT LOANS OR ADVANCES MUST BE MADE BY A COMPANY TO ITS SHAREHOLDER WHO ARE BENEFICIAL OWNER OF THE SHARE. 5. AT THE OUTSET, LEARNED DR SUPPORTED THE ORDER OF LEARNED CIT(A) AND RELIED UPON THE DECISION OF HONBLE DELH I HIGH COURT IN THE CASE OF CIT VS. BHARTI OVERSEAS TRADING CO. (2012), 21 TAXMANN. COM 543 (DEL.), IN TAX APPEAL NO.401/2011, ORDER DATED 29 TH FEBRUARY, 2012 WHEREIN COMPANY ADVANCES MONEY TO F IRM BUT ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 9 - PARTNERS WERE THE SHAREHOLDERS AND HAVING HOLDING M ORE THAN 10% OF SHARES. THE HONBLE DELHI HIGH COURT CONFIRMED DEEMED DIVIDEND ADDITION IN THE HAND OF FIRM. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON VERIFICATION OF TH E COPY OF ACCOUNT PLACED BEFORE US, REVEALED THAT ASSESSEE HAD DEBIT BALANCE AS ON 01.04.2008 AT RS. 1,04,25,744/-, WHICH WAS CONTINUE D UP TO 07.02.2009. THEREAFTER, THE COMPANY WAS ADVANCING LOAN TO THE FIRM THROUGH CHEQUES. FINALLY, COMPANY WAS THE CR EDITOR IN THE BOOKS OF FIRM AT RS. 2,64,33,003/-. LD. CIT(A) HAS TABULATED THESE ADVANCES IN HIS ORDER AS ANNEXURE IN TOTALING RS.60 ,70,000/- WHICH WAS RECEIVED BY THE FIRM WHEN THE BALANCES IN THE A CCOUNT OF M/S SHREE VALLABHLAXMI COTTON PVT. LTD. WAS SHOWING CRE DIT BALANCE. THESE PAYMENTS HAVE NOT BEEN RECEIVED AGAINST THE S ALE AND ACCORDINGLY, THESE PAYMENTS CANNOT BE SAID TO HAVE BEEN RECEIVED IN REGULAR COURSE OF BUSINESS AND ACCORDINGLY THESE ARE IN THE NATURE OF LOAN AND ADVANCES AND THE SAME ARE COVERE D BY THE PROVISIONS OF SECTION 2 (22) (E) OF THE I.T. ACT. A S PER SECTION 2 (22) (E), ANY PAYMENT EVEN TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER IN WHICH HE HA S SUBSTANTIAL INTEREST OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHA LF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PR OFITS IS DEEMED DIVIDEND. THE ASSESSEE FIRM IS NOT SHAREHOLD ER OF M/S SHREE VALLABHLAXMI COTTON PVT. LTD. BUT PARTNER OF THE ASSESSEE FIRM WHO HAS SUBSTANTIAL SHARE IN FIRM, IS SHARE HO LDER IN M/S SHREE ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 10 - VALLABHLAXMI COTTON PVT. LTD. THE CASE LAWS CITED B Y THE APPELLANT ARE NOT SQUARELY APPLICABLE AS IT PERTAINED TO INTE RCORPORATE DEPOSITS. BUT CASE LAW RELIED BY THE SENIOR D.R. IN CASE OF CIT VS. BHARTI OVERSEAS TRADING CO.(DELHI HIGH COURT) (SUPR A) IS SQUARELY APPLICABLE, WHEREIN SHARES WERE IN THE NAME OF THE PARTNERS, BUT ADVANCES MADE BY THE COMPANY TO THE FIRM, HELD BY T HE HONBLE DELHI HIGH COURT AS DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT. THEREFORE, WE CONFIRM THE ORDER OF THE CIT(A). B. ITA NO.1914/AHD/2012 (REVENUES APPEAL) 6. THE GROUNDS OF APPEAL ARE AS UNDER: 1.THE LD. COMMISSIONER OF INCOME TAX(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.6,11,930/- MADE U/S.2(22)(E) OF THE ACT. 2. THE LD. COMMISSIONER OF INCOME TAX(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.8,72,071/- MADE ON ACCOUNT OF INTEREST CHARGEABL E ON LOANS GIVEN TO SISTER CONCERN. 3. THE LD. COMMISSIONER OF INCOME TAX(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.37,43,814/- MADE ON ACCOUNT OF BOGUS PURCHASES. 7. THE FIRST GROUND OF APPEAL HAS BEEN DECIDED BY U S IN ASSESSEES APPEAL. THE CIT(A) HAS ARRIVED ON CORRE CT CALCULATION ON THE BASIS OF COPY OF ACCOUNT. THE SAME FINDINGS ARE APPLICABLE HERE. NO SEPARATE ADJUDICATION IS REQUIRED. 8. THE SECOND GROUND OF APPEAL IS AGAINST DELETING THE ADDITION OF RS.8,72,071 MADE ON ACCOUNT OF INTEREST CHARGEAB LE ON LOANS GIVEN TO SISTER CONCERN. THE AO OBSERVED THAT ASSES SEE HAD DEBIT ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 11 - BALANCE OF RS.1,04,25,744/-. THE ASSESSEE HAD EXPLA INED BEFORE THE AO THAT IT IS A MIX ACCOUNT SOMETIME IT HAS DEBIT B ALANCE AND SOME OTHER TIME IT HAS CREDIT BALANCE. AFTER CONSIDERING THE ASSESSEES REPLY, THE AO CALCULATED INTEREST ON DAY TO DAY BAS IS ON DEBIT BALANCE WHICH WAS WORKED OUT AT RS.8,72,071/- AND S AME WAS ADDED BACK IN THE INTEREST OF THE INCOME. 9. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE LEARNED CIT(A). AFTER CONSIDERING THE ASSESSEES REPLY, HE ALLOWED THE AP PEAL BY OBSERVING AS UNDER: 4.2 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. I HAVE ALSO PERUSED THE CASE LAWS RELIED UPON BY THE APPELLANT. AFTER TAKING THE ENTIRETY OF FACTS IN VIEW, I AM INCLINED TO AGREE W ITH THE CONTENTIONS OF THE LD. A.R. FOR THE FOLLOWING REASONS :- (I) OPENING DEBIT BALANCE OF RS. 1,04,25,744/- IN THE ACCOUNT OF M/S. SHREE VALLABHALAXMI COTTON PVT. LTD. PERTAINS TO TH E PURCHASES MADE BY THE APPELLANT FROM THIS CONCERN IN THE MONTH OF MARCH, 2008. SINCE THE OPENING DEBIT BALANCE PERTAINS TO THE BUSINESS TRANSACTIONS, ACCORDINGLY, THERE IS NO RATIONAL TO CHARGE INTERES T ON THE OPENING DEBIT BALANCE. (II) IT IS A TRITE LAW THAT NOTIONAL INTEREST CANNO T BE CHARGED. THE HON'BLE GAUHATI HIGH COURT IN THE CASE OF HIGHWAYS CONSTRUCTION CO. LTD. VS CIT REPORTED AT 199 ITR 702 HAS HELD TH AT THERE IS NO COMPULSION THAT ONE MUST EARN, AND IF ONE HAS NOT E ARNED INCOME, NOTIONAL INCOME CANNOT BE CHARGED TO TAX. THERE IS NO PROVISION IN THE ACT PROVIDING FOR TAXING OF NOTIONAL INCOME. IN THI S REGARD, I FURTHER PLACED RELIANCE ON THE CASE OF CIT VS J. CHELLADURA I REPORTED AT 204 TAXMAN 258(MAD.). IN VIEW OF ABOVE, ADDITION OF RS. 8,72,071/- MADE B Y THE A.O. IS ORDERED TO BE DELETED. THIS GROUND OF APPEAL IS ALL OWED. ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 12 - 10. NOW REVENUE IS BEFORE US. LEARNED DR HAS RELIED UPON THE ORDER OF THE AO WHEREAS ASSESSEE HAS SUPPORTED THE ORDER OF THE LEARNED CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSION OF BOTH THE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSES SEE HAS DEBIT OPENING BALANCE AT RS.1.04 CRORE WHICH PERTAINED TO PURCHASE MADE BY THE COMPANY FROM THE ASSESSEE. THEREAFTER THE COMPANY ALSO SOLD GOODS TO ASSESSEE. ALL THE TRANSACTIONS WITH COMPANY ARE MIXED TRANSACTIONS. THEREFORE, THERE IS NO REASON T O CHARGE INTEREST NOTIONALLY ON DEBIT BALANCE. THE INCOME IS TO BE AS SESSED ON THE BASIS OF REAL INCOME NOT NOTIONALLY AS HELD BY THE VARIOUS HIGH COURTS. WE HEREBY CONFIRM THE ORDER OF THE LEARNED CIT(A). 12. GROUND NO.3 IS AGAINST DELETING THE ADDITION OF RS.37,43,814/- MADE ON ACCOUNT OF BOGUS PURCHASE. T HE AO FOUND THAT THE ASSESSEE HAD SHOWN PURCHASE OF RS.3,03,41, 817/- AND PAID CHEQUES OF RS.1,65,000/- TO M/S. SHREE VALLABHALAXM I COTTON PVT. LTD. HOWEVER, THE ASSESSEE HAD SHOWN PAYMENT OF RS. 1,65,000/- AGAINST PURCHASE OF RS.3,03,41,817/-, THE BALANCE W OULD BE OF RS.3,01,76,817/- (3,03,41,817/- - 1,65,000/-). HO WEVER, THE ASSESSEE HAD SHOWN CREDIT IN BALANCE AT RS.2,64,33, 003/-; THEREFORE, THE DIFFERENCE BETWEEN TRANSACTION MADE AND CREDIT AS SHOWN OF RS.37,43,814/- IS TREATED AS BOGUS PURCHAS E BY THE AO AND ADDED BACK INCOME OF THE ASSESSEE. ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 13 - 13. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT( A) WHO HAS ALLOWED THE APPEAL BY OBSERVING AS UNDER: 5.2 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IT IS SEEN THAT THE APPELLANT HAS SHOWN CREDIT BALANCE IN THE ACCOU NT OF M/S. SHREE VALLABHALAXMI COTTON PVT. LTD. AS ON 31/3/2009 AT R S. 2,64,33,003/-. THE SAME FIGURE IS REFLECTED IN THE BALANCE SHEET A LSO. THIS WAY THERE IS NO DISCREPANCY IN DECLARATION OF CREDIT BALANCE IN THE ACCOUNT OF M/S. SHREE VALLABHALAXMI COTTON PVT. LTD. IN FACT T HE WORKING DONE BY THE A.O IS ERRONEOUS AS THE TRANSACTIONS UNDERTAKEN VIDE CHEQUE HAS NOT BEEN CONSIDERED WHILE WORKING THE CREDIT BALANC E IN THE ACCOUNT OF M/S. SHREE VALLABHALAXMI COTTON PVT. LTD. IT IS WOR THWHILE TO MENTION HERE THAT TRANSACTIONS DONE THROUGH CHEQUES HAS BEE N TREATED AS DEEMED DIVIDEND AND SUBSTANTIAL PART OF THIS ADDITI ON HAS BEEN CONFIRMED IN THIS ORDER. SINCE THE WORKING OF THE A .O. IS ERRONEOUS AND AGAINST THE SETTLED PRINCIPLES OF ACCOUNTANCY, ACCORDINGLY I AM INCLINED TO AGREE WITH THE CONTENTIONS OF THE LD. A .R. IN VIEW OF ABOVE, ADDITION OF RS. 37,43,814/- IS ORDERED TO BE DELETE D. THIS GROUND OF APPEAL IS ALLOWED. 14. NOW THE REVENUE IS BEFORE US, THE LEARNED DR RE LIED UPON THE ORDER OF THE AO WHEREAS ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A) AND ARGUED THAT THERE IS NO DIFFEREN CE BETWEEN THE CREDITORS SHOWN IN THE BALANCE SHEET AND BALANCE SH OWN IN THE LEDGER ACCOUNT. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO WO RKED OUT CREDITORS ERRONEOUSLY BY REDUCING THE CHEQUE PAYMEN T OF RS.1,65,000/- FOR CREDIT BALANCE OF ENTRY AS TO BE CONSTRUCTED WHICH HAS BEEN CERTIFIED BY THE LEARNED AR THAT THERE IS NO DIFFERENCE ON ACCOUNT OF CREDITOR OF M/S. SHREE VALLABHALAXMI COT TON PVT. LTD. THEREFORE, WE DO NOT FIND ANY REASON TO INTERVENE I N THE ORDER OF ITA NO.1901/AHD/2012 M/S. RADHESHYAM FIBERS VS. ITO WARD-6(1), AHMEDABAD . A.Y.2009- 10 - 14 - THE LEARNED CIT(A). ACCORDINGLY, THIS GROUND OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, ASSESSEES APPEAL AND THE REVENU ES APPEAL BOTH ARE DISMISSED. SD/- SD/- (D. K. TYAGI) (T.R. MEENA) JUDICIAL MEMBER ACCOUN TANT MEMBER AHMEDABAD; DATED 14/02/2014 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD