Nutun Malpani, Hyderabad V. Asst.Commissioner of Income Tax, Circle-1, Nizamabad

ITA 2029/Hyd/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2651 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-10-2018
• Assessment Year: 2014-2015
• Appeal Filed On: 06-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M NARMADA
• Assessee Lawyers: T S AJAI
• Keywords: Deemed dividend; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER I.T.A. NO. 2029/HYD/2017 ASSESSMENT YEAR: 2014-15 NUTAN MALPANI, ADILABAD [PAN: ALHPM8232G] VS ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, NIZAMABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI T.S. AJAI, AR FOR REVENUE : SMT. M. NARMADA, DR DATE OF HEARING : 24-10-2018 DATE OF PRONOUNCEMENT : 09-11-2018 O R D E R PER S. RIFAUR RAHMAN, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)5, HYDERABAD, DATED 30-10-2017, FOR THE AY. 2014-15. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED H ER RETURN OF INCOME FOR THE AY. 2014-15 ON 30-10-2014, D ECLARING TOTAL INCOME OF RS. 16,65,230/-. THE RETURN WAS PROCES SED U/S. 143(1) OF THE INCOME TAX ACT [ACT]. SUBSEQUENTLY , THE CASE WAS TAKEN UP FOR SCRUTINY UNDER CASS AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 28-08-2015 AND THE SA ME WAS ITA NO. 2029/HYD/2017 :- 2 -: SERVED ON THE ASSESSEE ON 05-09-2015. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS RECEIVED LOAN/ADVANCE FR OM M/S. MALPANI COTTONS PVT. LTD., ADILABAD. THE ASSESSEE IS HAVING 12.42% OF THE SHARE HOLDING IN MALPANI COTTONS PVT. LT D., AND THE COMPANY IS NOT A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED. SINCE SECTION 2(22)(E) OF TH E ACT WILL BE ATTRACTED, ASSESSEE WAS ASKED TO EXPLAIN. IN THIS R EGARD, THE ASSESSEE FILED HER OBJECTION, WHICH IS AS BELOW: I, NUTAN MATPANI, PROPRIETOR OF SRI VINAYAKA INDUS TRIES, MUKUTBAN, ADILABAD (HEREINAFTER REFERRED TO AS ASSESSEE) AM E NGAGED IN THE BUSINESS OF EXTRACTION AND SALE OF COTTON SEED OIL. THE RAW MATERIAL I.E. COTTON SEED REQUIRED FOR THIS PURPOSE IS PURCH ASED FROM M/S. MALPANI COTTONS PVT. LTD, ADILABAD, IN WHICH COMPAN Y THE ASSESSEE HOLDS 12.42% OF THE SHAREHOLDING. IT IS FURTHER TO BE NOTED THAT MALPANI COTTONS PVT. LTD, (HEREINAFTER REFERRED TO AS 'COMPANY') PURCHASES COTTON SEED OIL FROM THE ASSESSEE. THEREF ORE, BOTH THE ASSESSEE AS WELL AS THE COMPANY HAS PURCHASE AS WEL L SALE TRANSACTIONS WITH EACH OTHER. IN OTHER WORDS, THE A SSESSEE PURCHASES COTTON SEED FROM THE COMPANY, CRUSHES THE SAME FOR EXTRACTING COTTON SEED OIL, WHICH IN TURN IS PURCHASED BY THE COMPANY BASED ON NECESSITIES OF THE TRADE. THEREFORE, IT IS SUBMITTED THAT THERE IS A BUSINESS RELATIONSHIP BETWEEN THE ASSESSEE AND THE COMPANY, WITH REGULAR BUSINESS TRANSACTIONS BEING ENTERED INTO BETWEEN THE PARTIES . FOR THIS PURPOSE, THE PARTIES MAINTAIN A RUNNING ACCOUNT, WHEREIN, AL L THE TRANSACTIONS ENTERED IN THE NORMAL COURSE OF BUSINESS, LIKE PURC HASES, SALES AND PAYMENTS MADE ON ACCOUNT THEREOF, ARE RECORDED. IT CAN BE SEEN FROM THE COPY OF LEDGER ACCOUNT OF THE COMPANY MAINTAINE D IN THE BOOKS OF THE ASSESSEE, THAT THERE ARE SERIES OF TRANSACTIONS , BOTH PURCHASE OF COTTON SEED FROM AND SALE OF COTTON SEED OIL TO THE COMPANY AND ALSO PAYMENTS MADE FROM TIME TO TIME EITHER AGAINST PURC HASES MADE OR AS ADVANCE FOR PURCHASES YET TO BE MADE FROM EITHER PARTY. THE ENTRIES IN THE SAID ACCOUNT REFLECT THE TRANSACTION S BETWEEN THE PARTIES CARRIED ON IN THE NORMAL COURSE OF THE BUSI NESS. HOWEVER, DURING THE EARLIER HEARINGS, THE ASSESSING OFFICER, EXPRESSED THE VIEW THAT CERTAIN PAYMENTS MADE BY TH E COMPANY TO THE ASSESSEE DURING THE COURSE OF BUSINESS ARE IN T HE NATURE OF LOAN ITA NO. 2029/HYD/2017 :- 3 -: OR ADVANCE FALLING WITHIN THE PURVIEW OF THE DEFINI TION OF DEEMED DIVIDEND' PER SECTION 2(22)(E) AND THEREFORE IT WAS SOUGHT TO BRING SUCH TRANSACTIONS TO TAX IN THE HANDS OF THE ASSESS EE. IN THIS CONNECTION, IT IS SUBMITTED THAT THE PARTIE S ARE CARRYING ON BUSINESS WITH EACH OTHER ON A REGULAR BASIS AND THE TRANSACTIONS ENTERED INTO BY THEM ARE NOTHING BUT PURE BUSINESS TRANSACTIONS AS ARE GENERALLY ENTERED INTO AS PER THE ESTABLISHED T RADE PRACTICES AND NORMS: IT IS A WELL -KNOWN FACT THAT IT A NORMAL PR ACTICE FOR ENTITIES DEALING WITH EACH OTHER TO MAKE PAYMENT FOR GOODS/S ERVICES EITHER BEFORE/AFTER OR ON THE PURCHASE/FURNISHING OF SERVI CES BASED ON THE NEEDS OF THE BUSINESS AND COMMERCIAL EXPEDIENCY DEM ANDED BY THE CIRCUMSTANCES AND ENTIRE TRANSACTIONS BY BOTH THE C ONCERNS INTER SE TRADING / BUSINESS TRANSACTIONS AND THE SAME IS EVI DENCED BY BOOKS OF ACCOUNTS AND OTHER RECORDS AND THE SAME IS REFLE CTED IN THE RETURNS FILED BEFORE VARIOUS AUTHORITIES. SECTION 34 OF EVIDENCE ACT GIVE A GREAT DEGREE OF A UTHENTICITY TO THE ENTRIES MADE IN THE REGULAR BOOKS OF ACCOUNTS. THIS IS A SETTLED POSITION BY THE APEX COURT. IT IS SUBMITTED THAT BOOK RESULTS MAY NOT BE DISTUR BED BY MAKING ADDITIONS ON ACCOUNT OF DEEMED DIVIDEND. COMING TO INVOKING THE PROVISIONS OF SECTION 2(22)( E), IT IS SUBMITTED THAT THE LEGISLATIVE INTENTION WAS COMPLETELY DIFFE RENT. IT WAS MEANT TO COUNTER THE DEVICE TO CIRCUMVENT AVOIDANCE OF PAYME NT OF TAX BY ADVANCING LOAN TO DIRECTORS AND THEREBY DECREASING THE DIVIDEND. A PERUSAL OF THE TRANSACTION WOULD SHOW THAT THE TRAN SACTIONS NEVER PARTOOK THE CHARACTER OF LOAN OR ADVANCE BETWEEN TH E COMPANY AND ITS DIRECTORS HAVING SPECIFIED SHARE HOLDING. THAT THE TRANSACTION RELATES TO PURCHASE AND SALE IS NOT IN DOUBT. THIS IS EVIDENT FROM THE ACCOUNTS OF BOTH PARTIES AS APPEARING IN THEIR RESP ECTIVE BOOKS. THIS IS THE UNALTERABLE POSITION. THE TRANSACTIONS ARE S TRAIGHTFORWARD, CLEAR AND SHORN OF ANY AMBIGUITY. THE SAME CANNOT B E CALLED A DEVICE MORE SO A COLORABLE DEVICE TO INVOKE THE DEEMING PR OVISIONS. IT IS WELL SETTLED THAT BUSINESS AND COMMERCIAL TRA NSACTIONS DO NOT FALL WITHIN THE AMBIT OF SECTION 2(22)(E). (318 ITR 476 RAJ). CIT V. NAGINDAS M. KAPADIA (1989) 177 ITR 393 (BOM). 'LOAN S OR ADVANCES', U/S 2(22)(E) CAN BE APPLIED TO 'LOANS' OR 'ADVANCES ' SIMPLICITOR AND NOT TO THOSE TRANSACTIONS CARRIED OUT IN COURSE OF BUSI NESS AS SUCH. IF THIS PURPOSE IS KEPT IN MIND THEN, THE WORD 'ADVANCE' HA S TO BE READ IN CONJUNCTION WITH THE WORD 'LOAN'. USUALLY ATTRIBUTE S OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDING COUPLED WITH AC CEPTANCE BY THE ITA NO. 2029/HYD/2017 :- 4 -: OTHER SIDE OF THE MONEY AS LOAN: IT GENERALLY CARRI ED AN INTEREST AND THERE IS AN OBLIGATION OF REPAYMENT. IN THE CASE OF THE ASSESSEE THERE IS NO POSITIVE ACT OF LENDING. IT IS A BUSINESS TRA NSACTION REFLECTED IN BOOKS OF ACCOUNTS, SUPPORTED BY BILLS AND VOUCHERS. IN SUCH A SITUATION, NO PRESUMPTION SHOULD BE MADE BY A STRAI NED INTERPRETATION OF THE SECTION. IT IS ALSO A SETTLED RULE OF INTERPRETATION THAT COURTS AND AUTHORITIES CANNOT LEGISLATE IN THE GUISE OF INTERPRETATION. IT IS THE FACTION OF THE LEGISLATU RE. A DEEMING PROVISION IS REQUIRED TO BE INTERPRETED W ITHIN ITS LEGITIMATE FIELD. IT IS NOT PERMITTED TO CREATE A FICTION WITH IN A FICTION. THE PROVISION CREATING AN ARTIFICIAL INCOME SHOULD NOT BE GIVEN A LIBERAL INTERPRETATION. THEREFORE A TRADING / BUSINESS TRAN SACTION CANNOT BE EQUATED WITH A LOAN OR ADVANCE. IT IS ALSO SUBMITTE D THAT MERELY BECAUSE, THERE IS A CREDIT OR DEBIT BALANCE AT A PA RTICULAR POINT OF TIME IN A CURRENT ACCOUNT, WHICH IS ALWAYS BOUND TO BE T HERE, WOULD CONVERT A BUSINESS / TRADING TRANSACTION INTO A LOA N OR ADVANCE. IN THE PRESENT CASE, A PERUSAL OF THE LEDGER ACCOUN T SHOWS THAT THE ASSESSEE MADE ADVANCE PAYMENTS FOR PURCHASE OF COTT ON SEED IN CERTAIN INSTANCES AND IN SOME OTHER INSTANCES THE C OMPANY MADE ADVANCE PAYMENTS FOR THE PURCHASE OF COTTON SEED OI L. THIS IN FACT HAS LED TO A SITUATION WHERE THE ACCOUNT OF THE COMPANY IN THE BOOKS OF THE ASSESSEE IS NOT ALWAYS IN CREDIT BUT ALSO IN CO NSIDERABLE AMOUNT OF DEBIT DURING THE YEAR. IT IS CLEARLY EVIDENT THA T THE TRANSACTIONS IN THE ACCOUNT ARE RUNNING, MUTUAL AND SOLELY FOR THE PURPOSE OF GIVING EFFECT TO THE BUSINESS TRANSACTED BETWEEN THE PARTI ES. IT IS NOT THE CASE THAT THERE ARE NO BUSINESS DEALINGS BETWEEN TH E PARTIES AND THE ASSESSEE HAS SIMPLY OBTAINED ADVANCES FROM THE COMP ANY. THE PURPOSE OF ENACTING SECTION 2(22)(E) IS ENSURE THAT CLOSELY HELD COMPANIES DO NOT RESORT TO DISTRIBUTION OF ACCUMULA TED PROFITS IN THE FORM OF LOANS AND ADVANCES WITH THE INTENTION OF EV ADING DIVIDEND DISTRIBUTION TAX. IF THE INTENTION OF THE ASSESSEE WAS TO DIVERT THE ACCUMULATED PROFITS IN THE GUISE OF ADVANCE, THE FL OW OF FUNDS WOULD HAVE BEEN ONLY FROM THE COMPANY TO THE ASSESSEE AND WITHOUT ANY BUSINESS EXPEDIENCY. HOWEVER, THIS IS NOT THE SITUA TION IN THE PRESENT CASE. THE FLOW OF FUNDS HAS BEEN MUTUAL AND THE SOL E PURPOSE FOR WHICH THE FUNDS WERE RECEIVED AND PAID WAS TO FACIL ITATE THE BUSINESS TRANSACTIONS CARRIED ON BETWEEN THE PARTIE S AND AS DEMANDED BY THE BUSINESS NEEDS. THE PARTIES HAVE NE VER INTENDED TO SIPHON OFF THE ACCUMULATED PROFITS OF THE COMPANY B Y EVADING TAX THEREON. IN SUCH AN EVENT, THE CASE DOES NOT ATTRAC T THE PURPOSE FOR WHICH SECTION 2(22)(E) HAS BEEN ENACTED. ITA NO. 2029/HYD/2017 :- 5 -: THUS A RUNNING ACCOUNT MAINTAINED BY TWO CONCERNS E VEN IF THEY ARE RELATED CONCERNS DOES NOT FALL WITHIN THE PURVIEW O F SECTION 2(22)(E) OF THE ACT AS ENTRIES THEREIN ARE IN THE NORMAL COURSE OF THE BUSINESS WHICH CANNOT BE TREATED AS LOANS/ADVANCES CONTEMPLA TED BY SECTION 2(22)(E). RELIANCE IN THIS REGARD IS ALSO PLACED ON THE FOLLO WING DECISIONS: 1. THE HONOURABLE DELHI HIGH COURT IN THE CASE OF C IT V. RAJ KUMAR (2009) 181 TAXMANN 155 / 318 ITR 462, HELD THAT TRA DE ADVANCE WHICH ARE IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTIONS WOULD NOT, IN OUR VIEW, FAL L WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2(22)(2) OF THE ACT . 2. THE HONOURABLE DELHI HIGH COURT IN THE CASE OF C IT V AMBASSADOR TRAVELS (P) LIMITED 318 ITR 376 HELD THAT IT IS QUI TE CLEAR THAT THE ASSESSEE WAS A TRAVEL AGENCY AND THE ABOVE TWO CONC ERNS THAT IT HAD DEALINGS WITH, THAT IS, MIS HOLIDAY RESORT (P) LTD. AND M/S AMBASSADOR TOURS (INDIA) (P) LTD. WERE ALSO IN THE TOURISM BUSINESS. THE ASSESSEE WAS INVOLVED IN THE BOOKING OF RESORTS FOR THE CUSTOMERS OF THESE COMPANIES AND ENTERED INTO NORMAL BUSINESS TRANSACTIONS AS A PART OF ITS DAY-TO-DAY BUSINESS ACTIVITIES. THE F INANCIAL TRANSACTIONS CANNOT IN ANY CIRCUMSTANCES BE TREATED AS LOANS OR ADVANCES RECEIVED BY THE ASSESSEE FROM THESE TWO CONCERNS. 3. THE HONOURABLE MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SHRI MADURAI CHETTIYAR KARTIKEYAN IN TAX CASE (APPEAL) NO.898 OF 2013, IN ITS DECISION DATED 16.4 .2014 WHILE DEALING WITH THE ISSUE OF ADVANCE GIVEN BY THE CLOS ELY HELD COMPANY TO THE ASSESSEE, HELD THAT GOING BY THE UNDISPUTED FACT THAT THE REVENUE HAD NOT DISPUTED THE FACT THAT THE ASSESSEE HAD EXECUTED WORK FOR THE COMPANY IN THE NATURE OF CONSTRUCTION OF BUILDINGS AND THE SAID TRANSACTION BEING IN THE NATURE OF A SIMPL E BUSINESS TRANSACTION, WE DO NOT FIND ANY JUSTIFIABLE GROUND TO BRING THE CASE OF THE ASSESSEE WITHIN THE DEFINITION OF DEEMED DIVIDE ND UNDER SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961. 4. IN THE CASE OF MR. PURUSHOTTAM DAS MIMANI VS DY. COMMISSIONER IN ITA # IT(SS)A NOS.60-62/KOL/2011, ITAT, KOLKATA IN ITS DECISION DATED 17.10.2014, WHILE DEALING WITH THE ISSUE OF F LOW OF FUNDS BETWEEN THE APPELLANT AND THE CLOSELY HELD COMPANY OBSERVED THAT 'ON PERUSAL OF THE LEDGER ACCOUNT OF THE ASSESSEE I N THE BOOKS OF M/S.MIMA FLOUR MILLS (P) LTD. IT IS SEEN THAT ON SE VERAL DATES THERE WERE SHIFTING BALANCES. ON MANY OCCASIONS THE BALAN CE WAS IN FAVOUR OF THE ASSESSEE AND ON SOME OTHER OCCASIONS THE BALANCE WAS ITA NO. 2029/HYD/2017 :- 6 -: IN FAVOUR OF GANESH WHEAT PRODUCTS (P) LTD. IT IS T HUS EVIDENT THAT THERE WERE RECIPROCAL DEMANDS BETWEEN THE PARTIES A ND THUS MUTUAL IN CHARACTERISTIC. THE ACCOUNT SO MAINTAINED IN RES PECT OF SUCH MUTUAL TRANSFER OF AMOUNT BY WAY OF GIVING AND TAKING FINA NCIAL ASSISTANCE IS, THEREFORE, A CURRENT ACCOUNT AND THIS CURRENT A CCOUNT IS DIFFERENT FROM A LOAN ACCOUNT FOR THE SOLE REASON THAT, FEATU RE OF MUTUALITY IS NOT PRESENT IN A LOAN TRANSACTION. HAVING OBSERVED AS ABOVE, THE HON. ITAT HELD THAT 'IT IS PERTINENT' TO NOTE HERE THAT WHEN DIVIDENDS ARE DECLARED BY A COM PANY, IT IS SOLELY THE SHAREHOLDERS WHO BENEFIT FROM THE TRANSACTION. NO B ENEFITS ACCRUE TO THE COMPANY BY WAY OF DIVIDEND DISTRIBUTION. THUS, SECTION 2(22 )(E) OF THE ACT COVERS ONLY SUCH SITUATIONS, WHERE THE SHAREHOLDER ALONE BENEFITS FR OM THE LOAN TRANSACTION, BECAUSE IF THE COMPANY ALSO BENEFITS FROM THE SAID TRANSACTION, IT WILL TAKE THE CHARACTER OF A COMMERCIAL TRANSACTION AND HENCE WIL L NOT QUALIFY TO BE DIVIDEND. IN THE CASE OF THE ASSESSEE, BY GIVING AND TAKING FINA NCIAL ASSISTANCE FROM EACH OTHER, BOTH THE ASSESSEE AND THE COMPANY WERE BENEFITED AN D SUCH TRANSACTIONS BETWEEN THEM WERE NOTHING BUT COMMERCIAL TRANSACTIONS AND D IVIDEND ATTRIBUTABLE TO THE SHAREHOLDER IS NOTHING TO DO WITH SUCH BUSINESS TRA NSACTION. FROM THE ABOVE DISCUSSIONS IT CAN BE SAID THAT SEC, 2(22)(E) OF TH E ACT COVERS ONLY THOSE TRANSACTIONS WHICH BENEFIT THE SHAREHOLDER ALONE AN D RESULTS IN NO BENEFIT TO THE COMPANY. ON THE OTHER HAND, IF THE TRANSACTION IS M UTUAL BY WHICH BOTH SIDES ARE BENEFITED, IT IS UNDOUBTEDLY OUTSIDE THE PURVIEW OF PROVISIONS OF SEC. 2(22)(E) OF THE ACT' 5. IN THE CASE OF DCIT VS M/S VIPPY INDUSTRIES LTD IN ITA# 140/IND/2013, ITAT, INDORE IN ITS DECISION DATED 19 .6.2013 HAS HELD THAT TRADE ADVANCES WHICH ARE IN THE NATURE OF MONE Y TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTION; WOULD NOT FALL WITHIN THE AMBIT OF PROVISION OF SECTION 2(22)(E) OF THE ACT. IT CAN BE SEEN FROM THE ABOVE JUDICIAL PRONOUNCEMEN TS THAT SEVERAL HIGH COURTS AND INCOME TAX TRIBUNALS HAVE CONCURRED AND UPHELD THE VIEW THAT TRADE ADVANCES MADE FOR THE PURPOSE OF EF FECTING BUSINESS AND COMMERCIAL TRANSACTIONS ARE OUTSIDE THE PURVIEW OF DEEMING PROVISIONS OF SECTION 2(22)(E). THE LAW LAID DOWN B Y THE ABOVE MENTIONED PRONOUNCEMENTS HAS BEEN FOLLOWED BY SEVER AL JUDICIAL AUTHORITIES, FROM TIME TO TIME, IN A SPATE OF DECIS IONS RENDERED ON SIMILAR ISSUES. IT WOULD NOT BE OUT OF PLACE TO MENTION THAT THE JU RISDICTION HYDERABAD TRIBUNAL HAS ENDORSED AND UPHELD THE SAME VIEW AND THE SAME IS BINDING ON THE PRESENT CASE. ITA NO. 2029/HYD/2017 :- 7 -: ACCORDINGLY, THE PROVISIONS OF SECTION 2(22)(E) ARE NOT ATTRACTED IN THE CASE OF THE ASSESSEE. IN THE LIGHT OF THE ABOVE, IT IS HUMBLY REQUESTED T HAT THE PROPOSAL TO TREAT THE TRANSACTION UNDER THE HEAD OF DEEMED DIVI DEND MAY KINDLY BE DROPPED. 3. ASSESSING OFFICER DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND OBSERVED AS BELOW: 3.2.1. THE ASSESSEE IS HAVING 12.42% OF THE SHAREH OLDING IN M/S. MALPANI COTTONS PVT. LTD., ADILABAD AND THE COMPANY IS NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTER ESTED. THE ASSESSEE IS A REGISTERED SHAREHOLDER. 3.2.2. M/S. MALPANI COTTONS PVT. LTD., ADILABAD HAS ACCUMULATED PROFIT OF RS. 2,84,32,901/- AS ON 31.03.2014. 3.1. FURTHER HE OBSERVED THAT THE ASSESSEE IS A PROPRIE TOR IN SRI VINAYAKA INDUSTRIES, MUKUTBAN, ADILABAD. ASSESS EE SOLD COTTON SEED OIL TO MALPANI COTTONS PVT. LTD., AND MALPAN I COTTONS PVT. LTD., SOLD COTTON SEED TO THE ASSESSEE. THE COMPANY, MALPANI COTTONS PVT. LTD., MAINTAINED TWO BOOKS OF ACCOUNT SEPARATELY FOR THE ABOVE TRANSACTIONS. ASSESSIN G OFFICER FELT THAT TO DETERMINE THE EXACT POSITION OF CRED IT/DEBIT BALANCE AND TO ASCERTAIN WHETHER ANY LOAN OR ADVANCE I S PAID. ACCORDINGLY, HE CONSOLIDATED BOTH THE ACCOUNTS. ASSESSI NG OFFICER FURTHER OBSERVED THAT THE ABOVE CONSOLIDATED ACC OUNTS MAINTAINED BY THE ASSESSEE ARE NOT ONLY FOR THE BUSINES S TRANSACTION BUT ALSO FOR LOAN TRANSACTIONS BETWEEN THEM. HE DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE THAT THE TRANSACTIONS WITH THE COMPANY ARE OF BUSINESS NATURE AN D THE ADVANCES RECEIVED ARE PURELY BUSINESS ADVANCES IS N OT PROPER ITA NO. 2029/HYD/2017 :- 8 -: AND CORRECT. ACCORDINGLY, HE SEPARATED THE BUSINESS TRANSACTION AND ADVANCES AND MADE AN ADDITION AS DEEM ED DIVIDEND. 4. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERRE D AN APPEAL BEFORE THE CIT(A) IN TURN, LD.CIT(A) HAS CONFI RMED THE FINDINGS OF THE ASSESSING OFFICER. AGGRIEVED WITH THE SAME, ASSESSEE PREFERRED AN APPEAL BEFORE US, RAISING FIV E GROUNDS OF APPEAL. OUT OF THOSE FIVE GROUNDS OF APPEAL, ONLY GR OUND NO. 1 IS THE EFFECTIVE GROUND AND ALL THE REMAINING GROUNDS ARE ARGUMENTATIVE, WHICH NEEDS NO ADJUDICATION. 1. THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITIO N OF RS.2,62,26,581 AS DEEMED DIVIDEND U/S 2(22)(E) WITH OUT PROPER APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SUBMISSIONS MADE BY THE APPELLANT. 2. THE LEARNED CIT (APPEALS) HAVING NOTED IN PARA 5 .3 OF THE APPELLATE ORDER THAT, THE PAYMENTS FOR PURCHASES MADE ON 26.0 4.2013 OF RS. 35,00,000, ON 29.04.2013 OF RS. 26,82,951, ON 23.05 .2013 OF RS. 23,02,652, ON 21.12.2013 OF RS. 25,74,200, ON 02.01 .2014 OF RS. 11,87,375, ON 09.01.2014 OF RS. 23,46,759, ON 27.01 .2014 OF RS. 12,12,162 AND ON 30.01.2014 OF RS. 11,86,989, AGGRE GATING TO RS. 1,69,93,088 IS TOWARDS PURCHASES ON A BILL TO BILL BASIS, HAS COMPLETELY ERRED IN TREATING THE SAME AS LOANS AND INCLUDING THEM IN THE COMPUTATION OF DEEMED DIVIDEND VIDE PARA NO. 6. 5, CHART AT PAGE NO. 24 OF THE APPELLATE ORDER. THE LEARNED CIT (APP EALS) OUGHT TO HAVE NOTED THAT THE PAYMENTS MADE TOWARDS SPECIFIC PURCH ASE TRANSACTIONS, AFTER THE PURCHASES ARE COMPLETED AND TOWARDS SPECIFIC PURCHASE BILLS, AS LISTED ABOVE, ARE NOT AT ALL IN THE NATURE OF 'LOANS OR ADVANCES' AND HENCE THE PROVISIONS OF DEEMED DIVIDE ND U/S 2(22)(E) ARE NOT AT ALL ATTRACTED TO THESE PAYMENTS. 3. THE LEARNED CIT(APPEALS) OUGHT TO HAVE NOTED THA T THE PAYMENT ON 26.11.2013 OF RS. 40,00,000 AND PAYMENT ON 31.01.20 14 OF RS. 75,00,000 ARE NOT LOANS BY THE COMPANY TO THE ASSES SEE, ON THE CONTRARY ARE REPAYMENT OF LOANS EARLIER GIVEN BY TH E ASSESSEE TO THE ITA NO. 2029/HYD/2017 :- 9 -: COMPANY AS CAN BE SEEN FROM THE CHART AT PAGE NO. 1 7 OF THE APPELLATE ORDER, AND HENCE THE PROVISIONS OF DEEMED DIVIDEND U/S 2(22)(E) ARE NOT AT ALL ATTRACTED TO THESE PAYMENTS . 4. THE LEARNED CIT (APPEALS) HAS FAILED TO TAKE INT O ACCOUNT THE GROUNDS OF APPEAL FILED BY THE APPELLATE NAMELY THA T EVEN IF THE PAYMENTS BETWEEN THE PARTIES ARE TREATED AS NON-BUS INESS AND AS LOANS, THE ADVANCES TO THE EXTENT OF RS. 2,70,00,00 0 WERE MADE FIRST BY THE APPELLATE TO THE COMPANY AND THEN RETURNED B ACK BY THE COMPANY AND HENCE THE PROVISIONS OF DEEMED DIVIDEND U/S 2(22)(E) ARE NOT AT ALL ATTRACTED TO THESE PAYMENTS. 5. THE LEARNED CIT (APPEALS) OUGHT TO HAVE APPRECIA TED THE CONTENTION OF THE ASSESSEE THAT BOTH THE ASSESSEE AND THE COMP ANY HAVE CONTINUOUS BUSINESS TRANSACTIONS RELATING TO COTTON BUSINESS BEING CARRIED OUT BY BOTH OF THEM, IN THE PROCESS OF WHIC H VARIOUS AMOUNTS ARE RECEIVED OR PAID AS PER THE BUSINESS REQUIREMEN TS, ALL OF WHICH ARE TRADE ADVANCES IN THE NATURE OF COMMERCIAL TRAN SACTIONS WHICH WOULD NOT FALL WITHIN THE AMBIT OF THE WORD 'ADVANC E' IN SECTION 2(22)(E) OF THE ACT AND HENCE ARE NOT TO BE TREATED AS DEEMED DIVIDEND AS INSTRUCTED BY THE CBDT VIDE CIRCULAR NO . 19/2017 DATED 12.06.2017, AND AS DECIDED BY THE VARIOUS CASES LAW CITED AND RELIED BY THE CBDT IN THE ABOVE SAID CIRCULAR. 4.1. THE MAIN GRIEVANCE OF THE ASSESSEE IS THAT THE AD VANCES RECEIVED BY THE ASSESSEE IS RELATING TO BUSINESS CONNE CTION WITH THE COMPANY, MALPANI COTTONS PVT. LTD., AND NOT A SEPARATE LOAN OR ADVANCE TRANSACTION. 5. LD.AR SUBMITTED THAT THE ASSESSEE IS HAVING REGULAR BUSINESS CONNECTION IN HER INDIVIDUAL CAPACITY AND B UYING COTTON SEEDS FROM THE COMPANY, MALPANI COTTONS PVT. LTD ., AND SELLS COTTON SEED OIL TO THEM. THIS ASPECT WAS ALSO AC CEPTED BY THE LD.AO AND THERE IS NO DISPUTE IN THE REGULAR BUSINE SS OF COTTON SEEDS IN WHICH IT IS NORMAL THAT ADVANCES ARE RE CEIVED AND MATERIALS ARE DISPATCHED SUBSEQUENTLY. IN THIS RE GARD, HE SUBMITTED A CHART IN THE FORM OF PAPER BOOK WHICH IS PL ACED AT ITA NO. 2029/HYD/2017 :- 10 -: PAGE NO. 1 OF THE PAPER BOOK. AS PER WHICH HE HAS S EPARATED THE PURCHASE AND PAYMENT RELATING TO SUCH PURCHASES, S ALES AND RELEVANT RECEIPTS OF SALES BY THE ASSESSEE. THE OTH ER PAYMENTS WHICH ARE NOT RELATING TO PURCHASE OR SALES AR E EXPLAINED IN THE ABOVE CHART. LD.AR BROUGHT TO OUR NOTI CE THAT THE PAYMENTS RECEIVED BY THE ASSESSEE ARE SUBSEQUENT TO PAYMENT OF SAME AMOUNT BY THE COMPANY. HE SUBMITTED THA T IT CANNOT BE TREATED AS A LOAN OR ADVANCE, SIMPLY BECA USE THE ASSESSEE HAS PAID THE ADVANCE TO THE COMPANY AND RECEI VED SUBSEQUENTLY. IT WILL NOT FALL IN THE CATEGORY OF LOAN S OR ADVANCES, WHICH WILL ATTRACT THE PROVISIONS OF DEEMED DIVIDEND. 6. LD.DR RELIED ON THE ORDERS OF THE ASSESSING OFFICE R AND SUBMITTED THAT EACH ENTRY IN THE BOOKS OF ACCOUNT SHOULD B E SUBSTANTIATED. IF IT IS IN THE NATURE OF LOAN OR A DVANCE, IT HAS TO BE TREATED IN THE SAME WAY. 7. IN THE REJOINDER, LD.AR SUBMITTED THAT RECEIVING OF ADVANCE IS NORMAL IN COTTON SEEDS BUSINESS AND IT IS IN THE NATURE OF TRADE ADVANCE. 8. CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD. WE NOTICED THAT THERE IS NO DISPUTE WITH REGARD TO BUSINE SS CONNECTION ENJOYED BY THE ASSESSEE AND THE COMPANY, MA LPANI COTTONS PVT. LTD. DURING THIS YEAR, ASSESSEE HAS PURCH ASED AND SOLD MATERIALS TO MALPANI SEEDS. FURTHER IT IS NOT ICED THAT ASSESSEE HAS PAID AND RECEIVED CERTAIN AMOUNTS WHICH ARE GIVEN BELOW: ITA NO. 2029/HYD/2017 :- 11 -: PAYMENTS OTHER THAN FOR PURCHASE AMOUNT RECEIVED OTHER THAN FOR SALE DATE AMOUNT RS. DATE AMOUNT RS. 05.04.2013 10,301 06.04.2013 14,09,450 23.04.2013 1,535 25.07.2013 65,00,000 26.04.2013 4,390 14.08.2013 45,00,000 29.04.2013 38,340 29.08.2013 1,00,00,000 06.05.2013 13,484 10.09.2013 50,00,000 17.05.2013 12,825 19.09.2013 25,000 16.07.2013 1,213 26.09.2013 10,00,000 23.07.2013 750 31.01.2014 1,33,121 31.08.2013 65,00,000 13.09.2013 25,000 04.10.2013 13,483 17.10.2013 16,800 26.10.2013 20,000 22.11.2013 60,00,000 26.11.2013 40,00,000 18.01.2014 30,00,000 31.01.2014 75,00,000 8.1. FROM THE ABOVE CHART IT IS NOTICED THAT THE BULK AMO UNTS WHICH WERE PAID AND RECEIVED BY THE ASSESSEE ARE RS . 65 LAKHS, RS. 45 LAKHS, RS. 1 CRORE, RS. 50 LAKHS AND RS. 10 LAKHS. FROM THE ABOVE TABLE, IT CLEARLY INDICATES THAT TH E ASSESSEE HAS PAID THOSE ADVANCES INITIALLY AND RECEI VED BACK THE SAME SUBSEQUENTLY. FURTHER, WE ALSO NOTICED THAT THE CONSOLIDATED LEDGER ACCOUNTS COMPILED BY THE ASSESSING OFFICER WHICH HAS OPENING DEBIT BALANCE OF RS. 1,05,15,883/- AND CLOSING BALANCE OF RS. 85,56,232/-, AS NOTICED FROM THE ORDER OF LD.CIT(A) AT PAGE NO. 21. HOWEVER, WE NOTICED THAT W HEN THE ASSESSEE IS HAVING A REGULAR BUSINESS CONNECTION WITH THE COMPANY AND IN THAT PROCESS, ASSESSEE RECEIVES OR PAY S CERTAIN ADVANCES, THEY CAN BE CONSIDERED AS TRADE ADVANCES AND NOT OTHERWISE. IN THE GIVEN CASE, CERTAIN TRANSACTIONS WHIC H WERE TREATED BY THE ASSESSING OFFICER AS LOANS AND ADVANCE S AS HIGHLIGHTED BY THE LD.AR, THE INITIAL PAYMENTS WERE MADE BY ITA NO. 2029/HYD/2017 :- 12 -: THE ASSESSEE AND SUBSEQUENTLY THE COMPANY HAS REPAID TH E SAME. TO ATTRACT THE DEEMED DIVIDEND PROVISION, IT SHO ULD BE OTHERWISE AROUND. FURTHER, WE NOTICED THAT THE OPENING BALANCE STOOD AS ON 01-04-2003 WAS RS.1,05,15,883/- AS DEBIT BALANCE WHICH MEANS ASSESSEE OWES TO THE COMPANY AND AT THE END OF THE YEAR, CLOSING BALANCE STOOD AT RS. 85,56,232/- DEBIT BALANCE WHICH MEANS STILL ASSESSEE OWES TO THE COMPANY. WHILE COMPARING OPENING AND CLOSING BA LANCES, IT IS NOTICED THAT ABOUT RS. 20 LAKHS WAS REDUCED THAT MEA NS ASSESSEE HAS REPAID RS. 20 LAKHS TO THE COMPANY. IT CL EARLY SHOWS THAT ASSESSEE HAS NOT TAKEN ANY FRESH LOAN FROM THE COMPANY DURING THE CURRENT ASSESSMENT YEAR. 8.2. ON THE OTHER HAND, TO INVOKE SECTION 2(22)(E) OF TH E ACT DURING THIS YEAR, ASSESSEE SHOULD HAVE RECEIVED LOAN S OR ADVANCES AND PAYS THE SAME SUBSEQUENTLY. IN THE GIVEN CASE, NO SUCH THINGS WERE NOTICED. THEREFORE, IN OUR CONSI DERED VIEW, ASSESSEE IS HAVING BUSINESS CONNECTION AND IN THAT PROCESS, ASSESSEE MAY HAVE RECEIVED CERTAIN ADVANCES WHICH CAN BE TREATED AS TRADE ADVANCES. THEREFORE, WE CA NNOT CHERRY PICK CERTAIN TRANSACTIONS AND TERM THEM AS LOANS AND ADVANCES IN ORDER TO INVOKE THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THEREFORE, THE GROUND RAISED BY ASSESSEE I S ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER, 2018 SD/- SD/- (P. MADHAVI DEVI) (S. RIF AUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT M EMBER HYDERABAD, DATED 9 TH NOVEMBER, 2018 TNMM ITA NO. 2029/HYD/2017 :- 13 -: COPY TO : 1. NUTAN MALPANI, SY NO. 26/A, MUKUTBAN, RAMPUR ROA D, ADILABAD. 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, NIZAMABAD. 3. CIT(APPEALS)-5, HYDERABAD. 4. PR.CIT-5, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.