PASL Windtech Pvt.Ltd., Ahmedabad V. ITO, Ward-3(1)(2), Ahmedabad

ITA 2302/AHD/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7782 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-11-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 16-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Keywords: Question of law; Initiation of penalty proceedings; Fair market value; Deemed dividend; Tax effect
• Section: 2(22)(e); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NOS: 2302 & 2366/AHD/2017 (ASSESSMENT YEAR: 2014-15) PASL WINDTECH PVT. LTD. PLOT NO. 37B, PHSE-1, GIDC, VATVA, AHMEDABAD- 382445 INCOME TAX OFFICER, WARD- 3 (1)(2), AHMEDABAD V/S VS INCOME TAX OFFICER, WARD- 3 (1)(2), AHMEDABAD PASL WINDTECH PVT. LTD. PLOT NO. 37B, PHSE-1, GIDC, VATVA, AHMEDABAD- 382445 (APPELLANT) (RESPONDENT) PAN: AABCA 3022G APPELLANT BY : SHRI BANDISH SOPARKAR, AR RESPONDENT BY : SHRI L.P. JAIN, SR. D.R. ( )/ ORDER DATE OF HEARING : 21 -11-201 9 DATE OF PRONOUNCEMENT : 16 -01-2020 PER MAHAVIR PRASAD, JUDICIAL MEMBER ITA NOS. 230 2 & 2366/AHD/2017 . A.Y. 2014- 15 2 1. THIS TWO CROSS APPEALS HAVE BEEN FILED BY THE ASSE SSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-9, AHM EDABAD DATED 01.08.2017 PERTAINING TO A.Y. 2014-15. SINCE FACTS AND ASSESSM ENT YEAR ARE COMMON FOR THE SAKE OF BREVITY, WE WOULD LIKE TO DISPOSE OF BO TH THE APPEALS BY WAY OF COMMON ORDER. 2. IN ITA NO. 2302/AHD/2017, THE ASSESSEE HAS TAKEN FO LLOWING GROUNDS OF APPEAL: 1.LD. CIT (A) ERRED IN LAW AND ON FACTS CONFIRMING ADDITION MADE BY AO OF RS. 83, 00, 000/- SECURITY DEPOSIT RECEIVED FROM THE USER O F THE PROPERTY IN THE YEAR OF AGREEMENT U/S 2(22)(E) OF THE ACT. LD. CIT (A) OUGH T TO HAVE DELETED ADDITION WHEN AMOUNT TAKEN IS NOT A LOAN BUT SECURITY DEPOSI T. LD. 2.LD. CIT (A) ERRED IN LAW AND ON FACTS TO HOLD THAT THE APPELLANT RECEIVE D AN AMOUNT OF RS. 83, 00, OOO/- IN THE FORM OF LOANS/ ADVANCES FROM PASPL. 3. LD. CIT (A) ERRED IN LAW AND ON FACTS IN HOLDING RECEIPT OF RS. 83,00, 000/- AS DEEMED DIVIDEND ON THE BASIS OF THE APPELLANT BEING A SHAREHOLDER OF A COMPANY ADVA NCING THE AMOUNT & SECONDLY IN ABSENCE OF ANY BUSINESS BEING TRANSACTE D BETWEEN THE TWO ENTITIES. 4.LD. CIT (A) ERRED IN LAW AND ON FACTS CONFIRMING ADDITION MADE BY AO NOT APPRECIATING THE FACT THAT THERE IS NO APPLICABILIT Y OF SEC 2 (22)(E) OF THE ACT WITHOUT THERE BEING ANY TRANSACTION OF SECURITY DEP OSIT WITH THE USER OF THE PROPERTY DURING THE YEAR UNDER CONSIDERATION. 5.LD. CIT (A) ERRED IN LAW AND ON FACTS CONFIRMING ADDITION MADE BY AO OF RS. 83,00, OOO/- AS DEEMED DIVIDEND THOUGH AO HIMSELF E STIMATED ALV &ASSESSED ADDITIONAL RENTAL INCOME BUT REFUSED TO ACKNOWLEDGE THE SECURITY DEPOSIT FOR THE SAME RENTED PREMISES RETAINED BY THE APPELLANT. 6.LEVY OF INTEREST U/S 234A/ 234B/234/C & 234D OF T HE ACT IS NOT JUSTIFIED. 7.INITIATION OF PENALTY PROCEEDINGS U/S 271 (L)(C) OF THE ACT IS NOT JUSTIFIED. 3. IT WAS NOTICED THAT ASSESSEE COMPANY HAS TAKEN LOAN OF RS. 83,00,000/- FROM M/S. PATEL ALLOY STEEL PVT. LTD. (PASPL). AS PER TH E DATA AVAILABLE THE ASSESSEE COMPANY WAS ITSELF HOLDING 22.19% SHARES OF PASPL. IT WAS FURTHER NOTICED THAT THE REMAINING 72.67% SHARES OF PASPL WERE HELD BY SHRI KAMALNAYAN H. ITA NOS. 230 2 & 2366/AHD/2017 . A.Y. 2014- 15 3 JAVERI . ASSESSEE CONTENTION IS THAT RS. 83,00,000/ - IS NOT A LOAN TAKEN FROM PASPL RATHER SAID AMOUNT IS A SECURITY DEPOSIT RECE IVED IN TERMS OF AGREEMENT DATED 09.09.2004 UNDER WHICH THE INDUSTRIAL LAND WA S GIVEN FOR INDUSTRIAL USE TO PASPL. HE FURTHER STATED THE SAID SECURITY DEPOSIT WAS GIVEN WAY BACK IN F.Y. 2004-05 AND SAME SECURITY DEPOSIT WAS TAKEN TO SAFE GUARD INTEREST OF THE OWNER FROM ANY MISUSE OF THE PROPERTY BY THE TENANT WHERE AS IN THIS CASE AGREEMENT IS AMONG TWO COMPANIES BOTH OF WHICH ARE OWNED BY SHRI KAMALNAYAN H. JAVERI. AND LD. A.O. MADE ADDITION OF RS. 83.00.000 /- U/S 2(22)(E) OF THE ACT. ACCORDING TO A.O., THE APPELLANT HAS RECEIVED LOAN OF RS. 83,00,000/- FROM M/S. PATEL ALLOW STEEL PVT. LTD.. AS APPELLANT COMP ANY IS HAVING HOLDING OF 22.12% OF SHARES IN PASPL. ASSESSEE CONTENTION WAS OF THAT SAID TRANSACTION WAS FOR BUSINESS EXPEDIENCY BUT LOWER AUTHORITIES W ERE NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND ADDITION OF RS. 83,0 0,000/- WAS MADE AND CONFIRMED BY THE LD. CIT(A). 4. NOW APPELLANT HAS COME BEFORE US BY WAY OF SECOND S TATUTORY APPEAL. 5. ASSESSEE STATED THAT IT IS NOT A CASE OF DEEMED DIV IDEND U/S 2(22)(E) RATHER ASSESSEE FIRM ENTERED INTO AN AGREEMENT WITH THE SI STER CONCERN TO LET OUT THE PROPERTY. 6. IN SUPPORT OF ITS CONTENTION, LD. A.R. CITED A JUDG MENT OF ALLAHABAD HIGH COURT IN THE CASE OF CIT, AGRA VS. ATUL ENGINEERING UDYOG [2014] 51 TAXMANN.COM 569 (ALLAHABAD) WHEREIN IN SIMILAR FACTS AND CIRCUM STANCES MATTER WAS DECIDED IN FAVOUR OF THE ASSESSEE WITH FOLLOWING OBSERVATIO N: ITA NOS. 230 2 & 2366/AHD/2017 . A.Y. 2014- 15 4 2.THE FACTS LEADING TO THE FILING OF THE APPEAL IS, THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND ALSO HAS A SISTER CONCERN, WHICH IS A PRIV ATE LIMITED COMPANY KNOWN AS M/S ATUL GENERATORS PVT. LTD. 3.THE ASSESSEE WAS INCURRING HEAVY LOSSES. ON THE O THER HAND, THE SISTER CONCERN WAS UNABLE TO UTILISE THE NATURAL GAS THAT WAS BEIN G SUPPLIED BY M/S GAS AUTHORITY OF INDIA LIMITED (HEREINAFTER REFERRED TO AS 'GAIL') UNDER A CONTRACT WHEREIN THE SISTER CONCERN WAS UNDER AN OBLIGATION TO OBTAIN 80% OF THE QUANTITY OF GAS AS A MINIMUM GUARANTEE. THE ASSESSEE HAD GEN ERATORS WORTH RS.93 LACS FOR THE PURPOSE OF GENERATING POWER, BUT HAD NO GAS . ACCORDINGLY, AN AGREEMENT WAS EXECUTED BETWEEN THE ASSESSEE AND ITS SISTER CO NCERN WHEREBY GENERATORS WERE SUPPLIED BY THE ASSESSEE FOR WHICH A FLOATING SECURITY DEPOSIT OF RS.80 LACS WAS GIVEN BY THE SISTER CONCERN. IN THIS AGREEMENT, THE SISTER CONCERN WAS TO USE THE GENERATORS AND GENERATE ELECTRICITY ON THE BASI S OF THE GAS SUPPLIED BY THE GAIL. IN RETURN, THE SISTER CONCERN WOULD SUPPLY EL ECTRICITY TO THE ASSESSEE AT CONCESSIONAL RATE. THE DEPOSIT WAS MADE BY THE SIST ER CONCERN TO THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS. THE ASSESSEE FIRM IS NOT A SHAREHOLDER IN THE COMPANY THOUGH ITS PARTNERS ARE SHAREHOLDERS IN THE COMPANY. THE PAYMENT RECEIVED BY THE ASSESSEE WAS UTILISED FOR PAYMENT T O THE CREDITORS FROM WHOM THE ASSESSEE HAD PURCHASED THE RAW MATERIAL FOR MANUFAC TURE OF ITS PRODUCTS AND OTHER STATUTORY LIABILITIES. 4.THE ASSESSING OFFICER DID NOT AGREE WITH THE CONT ENTION OF THE ASSESSEE THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM ITS SISTER CON CERN WAS A SECURITY DEPOSIT FOR THE LOAN OF THE GENERATOR. THE ASSESSING OFFICER HE LD, THAT EVEN THOUGH THE RELATIONSHIP BETWEEN THE ASSESSEE FIRM AND ITS SIST ER CONCERN WAS SYMBIOTIC AND NOT UNILATERAL SINCE BOTH THE CONCERN WERE TAKING A DVANTAGE BY WAY OF THIS BUSINESS TRANSACTION, THE AMOUNT GIVEN BY THE SISTE R CONCERN WAS NOT A FLOATING DEPOSIT, BUT WAS A DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE UNDER SECTION 2(22)(E) OF THE ACT. THE ASSESSING OFFICER CONSEQUE NTLY ADDED THE SAID AMOUNT IN THE INCOME OF THE ASSESSEE. THE ASSESSEE, BEING AGG RIEVED, FILED AN APPEAL, WHICH WAS ALLOWED AND THE ADDITION WAS DELETED. THE DEPAR TMENT THEREAFTER FILED A SECOND APPEAL BEFORE THE TRIBUNAL, WHICH WAS DISMIS SED. THE DEPARTMENT HAS NOW FILED THE PRESENT APPEAL, URGING THAT A SUBSTAN TIAL QUESTION OF LAW ARISES FOR CONSIDERATION, NAMELY- (I) 'WHETHER HON'BLE TRIBUNAL WAS JUSTIFIED IN LAW HOLDING THAT THE SECURITY DEPOSIT OF RS.80,00,000/- RECEIVED THROUGH MUTUAL A GREEMENT BY THE ASSESSEE WITH ITS SISTER CONCERN CANNOT BE ASSESSED U/S 2(22 )(E) OF THE ACT, IGNORING THAT THE SAID AGREEMENT IS NOTHING BUT A COLOURABLE DEVI CE ADOPTED TO AVOID THE INCIDENCE OF TAX ?' (II) WHETHER HON'BLE TRIBUNAL WAS JUSTIFIED IN LAW IN DIFFERENTIATING THE SECURITY DEPOSIT FROM LOAN/ADVANCE ?' ITA NOS. 230 2 & 2366/AHD/2017 . A.Y. 2014- 15 5 5.THE TRIBUNAL HELD, THAT THE AMOUNT GIVEN BY THE S ISTER CONCERN TO THE ASSESSEE WAS NOT A LOAN OR AN ADVANCE, BUT WAS A SECURITY DE POSIT. FURTHER, THE AMOUNT GIVEN BY THE SISTER CONCERN TO THE ASSESSEE WAS GIV EN IN THE COURSE OF BUSINESS AND WAS NOT GIVEN TO A SHAREHOLDER AND, CONSEQUENTL Y, THE PROVISION OF SECTION 2(22)(E) WAS NOT APPLICABLE. 6.IN THIS BACKDROP WE HAVE HEARD SRI DHANANJAI AWAS THI, THE LEARNED COUNSEL FOR THE APPELLANT AND SRI RAHUL AGARWAL, THE LEARNED CO UNSEL FOR THE ASSESSEE. 7.THE SHORT POINT INVOLVED IS, WHETHER THE AMOUNT O F RS.80 LACS GIVEN BY THE SISTER CONCERN TO THE ASSESSEE IS A DEEMED DIVIDEND UNDER SECTION 2(22)(2) OF THE ACT. FOR FACILITY, THE SAID PROVISION IS EXTRACTED HEREU NDER: '2 (22) 'DIVIDEND' INCLUDES (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY I N WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS RE PRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) [MADE AFTER THE 31ST D AY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOL DER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S; (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER [OR THE SAID CONCERN] BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHE RE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY; FROM A PERUSAL OF THE AFORESAID PROVISION 'DIVIDEND' INCLUDES ANY PAYMENT BY A COMPANY BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER OR TO ANY CONCERN IN WHICH SUCH HOLDER IS A MEMBER OR A PARTNER AND IN WHICH H E HAS A SUBSTANTIAL INTEREST WOULD BE A DEEMED DIVIDEND, BUT SUCH DIVIDEND WOULD NOT INCLUDE ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER BY A COMPANY IN THE ORDI NARY COURSE OF ITS BUSINESS. 8.THE ESSENTIAL INGREDIENT IS A 'LOAN' OR AN 'ADVANCE' TO A SHAREHOLDER OR TO A CONCERN IN WHICH SUCH SHAREHOLDER HAS A SUBSTANTIAL INTEREST. UNDER THIS PROVISION A DEEMED FICTION IS CREATED WHEREBY THE SCOPE AND A MBIT OF DIVIDEND HAS BEEN ENLARGED TO COVER 'LOAN' AND 'ADVANCE' GRANTED BY CLOS ELY HELD COMPANIES TO THEIR SHAREHOLDERS. ITA NOS. 230 2 & 2366/AHD/2017 . A.Y. 2014- 15 6 9.FROM A READING OF SECTION 2(22)(E) OF THE ACT, IT IS APPARENT THAT IT HAS THE EFFECT OF BRINGING TO TAX AS DIVIDEND WHERE ANY PAY MENT OF ANY SUM IS MADE BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER IN WHICH A SHAREHOLDER HOLDS A SUBSTANTIAL INTEREST OR ANY PAYMENT IS MADE ON BEHA LF OF A SHAREHOLDER OR ANY PAYMENT IS MADE FOR THE INDIVIDUAL BENEFIT OF A SHA REHOLDER. ANY OF THE ABOVE THREE CONDITIONS WOULD BE TAXED IF THE 'ADVANCE' OR 'LOAN' IS MADE TO A SHAREHOLDER AND THE COMPANY POSSESSES A CUMULATIVE PROFIT AT THE TIME IT MAKES THE PAYMENT AND, THEREFORE, SUCH PAYMENT WOULD BE D EEMED TO BE A DIVIDEND ONLY TO THE EXTENT OF SUCH PROFITS. 10.THE TRIBUNAL, AFTER CONSIDERING THE MATTER IN DE TAIL FOUND THAT THE ASSESSEE FIRM WAS HAVING A BUSINESS DEALING WITH ITS SISTER CONCERN, WHICH WAS APPARENT FROM THE BOOKS OF ACCOUNT OF THE ASSESSEE, WHICH SH OWED VARIOUS JOB WORKS BEING CARRIED OUT BY THE SISTER CONCERN. THE TRIBUNAL ALS O FOUND THAT THE SISTER CONCERN WAS BOUND TO MAKE PAYMENT TO M/S GAS AUTHORITY OF I NDIA LTD. OF THE MINIMUM CONTRACTED QUANTITY TO THE EXTENT OF 80% OF THE NAT URAL GAS IRRESPECTIVE OF ITS USE. THE TRIBUNAL FURTHER FOUND THAT A COMMERCIAL TRANSA CTION HAD TAKEN PLACE BETWEEN THE ASSESSEE AND ITS SISTER CONCERN WHEREBY THE ASSESSEE WAS GETTING IN RETURN CONCESSIONAL RATE OF ELECTRICITY @ RS.2/- PE R UNIT AND, FOR SUCH BUSINESS EXPEDIENCY, THE SISTER CONCERN HAD FURNISHED A REFU NDABLE INTEREST FREE SECURITY DEPOSIT TO THE ASSESSEE. THE TRIBUNAL FOUND, THAT O N ACCOUNT OF THIS COMMERCIAL TRANSACTION THE SISTER CONCERN HAD PAID RS.80 LACS TO THE ASSESSEE AS INTEREST FREE REFUNDABLE SECURITY DEPOSIT, WHICH WAS SUBSEQUENTLY REFUNDED BY THE ASSESSEE TO THE SISTER CONCERN AND, CONSEQUENTLY, HELD THAT THE SAID AMOUNT GIVEN BY THE SISTER CONCERN WAS A SECURITY DEPOSIT AND NOT A LOA N OR AN ADVANCE. THE FINDING ARRIVED AT BY THE TRIBUNAL IS A FINDING OF FACT BAS ED ON APPRECIATION OF EVIDENCE, WHICH HAS NOT BEEN DOUBTED BY THE APPELLANT. 11.THE ONLY GROUND URGED THAT SINCE THE PARTNERS OF THE ASSESSEE FIRM HAD WORKED AS SHAREHOLDERS IN THE COMPANY AND HAD A SUB STANTIAL INTEREST, SUCH DEPOSIT OF LOAN WAS BY WAY OF DIVERSION OF THE PROF ITS OF THE COMPANY AND, THEREFORE, SUCH DEPOSIT HAS TO BE TREATED AS A DEEM ED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT, IN VIEW OF THE RATIO LAID DOWN IN COMMISSIONER OF INCOME TAX VS. SUNIL CHOPRA, (2011)201 TAXMAN 316(DELHI), COMM ISSIONER OF INCOME TAX VS. NATIONAL TRAVEL SERVICES, (2011)202 TAXMAN 327(DELH I), P.K.BADIANI VS. COMMISSIONER OF INCOME TAX, I.T.R. 105 (SC)642, SAD HANA TEXTILES MILLS PVT. LTD. VS. COMMISSIONER OF INCOME TAX, I.T.R.188 (BOMBAY H IGH COURT) 318, M.D.JINDAL VS. COMMISSIONER OF INCOME TAX, I.T.R. 164(CALCUTTA HIGH COURT)28, COMMISSIONER OF INCOME TAX VS. P.K.ABUBUCKER, I.T.R. 259 (MADRAS HIGH COURT)507, COMMISSIONER OF INCOME TAX, ANDHARA PRADESH VS. C.P . SARATHY MUDALIAR, I.T.R. 83 (S.C.)170. ITA NOS. 230 2 & 2366/AHD/2017 . A.Y. 2014- 15 7 WE FIND THAT THE AFORESAID DECISIONS ARE DISTINGUIS HABLE AND NOT APPLICABLE AS IN THESE CASES THE ADVANCE WAS MADE TO A SHAREHOLDER A ND, THEREFORE, A FINDING WAS GIVEN THAT IT WAS A DEEMED DIVIDEND. 12.IN COMMISSIONER OF INCOME TAX VS. CREATIVE DYEIN G AND PRINTING PVT. LTD., 318 ITR 476, AN ADVANCE WAS GIVEN TO THE SAID ASSESSEE BY THE SISTER CONCERN, WHICH HELD 50% OF THE SHARE HOLDING IN THE ASSESSEE CONCE RN FOR MORDENISATION PROJECT. THE ADVANCE SO GIVEN WAS ADJUSTED AGAINST THE DUES FOR JOB WORK TO BE DONE BY THE ASSESSEE. THE DELHI HIGH COURT HELD THAT IT WAS A BUSINESS TRANSACTION AND THE ADVANCE WAS NOT ASSESSABLE AS A DEEMED DIVIDEND UND ER SECTION 2(22)(E) OF THE ACT. THE SAID DECISION WAS AFFIRMED BY THE SUPREME COURT WHEN THE APPEAL OF THE DEPARTMENT IN S.L.P. NO.8558 OF 2010 WAS DISMISSED BY THE SUPREME COURT ON 7.7.2010. THE SAID DECISION IS SQUARELY APPLICABLE IN THE INSTANT CASE. 13.APART FROM THE AFORESAID, THE WORD 'LOAN' MEANS AN YTHING LENT, ESPECIALLY MONEY ON INTEREST. ON THE OTHER HAND, 'DEPOSIT' MEANS SOMETHING WHICH IS DEPOSITED OR PUT DOWN, NAMELY, A SUM OF MONEY PAID TO SECURE AN ARTICLE, SERVICE, ETC. THE LEGISLATURE HAS MADE A CONSCIOUS DISTINCTI ON BETWEEN THE EXPRESSION 'LOAN' AND 'DEPOSIT'. THE TWO ARE NOT IDENTICAL IN MEA NING. 14.IN THE CASE OF A DEPOSIT THE DELIVERY OF MONEY I S USUALLY AT THE INSTANCE OF THE GIVER AND IT IS FOR THE BENEFIT OF THE PERSON WHO D EPOSITS THE MONEY. THE BENEFIT NORMALLY BEING EARNING OF INTEREST FROM THE PARTY W HO ACCEPTS THE DEPOSIT. THE DEPOSIT COULD ALSO BE FOR SAFE KEEPING OR AS A SECU RITY FOR THE PERFORMANCE OF AN OBLIGATION UNDERTAKEN BY THE DEPOSITOR. ON THE OTHE R HAND, IN THE CASE OF A LOAN, IT IS THE BORROWER AT WHOSE INSTANCE AND FOR WHOSE NEEDS THE MONEY IS ADVANCED. THE BORROWING IS PRIMARILY FOR THE BENEFIT OF THE B ORROWER ALTHOUGH THE PERSON, WHO LENDS THE MONEY, MAY ALSO STAND TO GAIN BY EARN ING INTEREST ON THE AMOUNT LENT. ANOTHER DISTINCTION IS THE OBLIGATION TO RETU RN THE MONEY SO RECEIVED. IN THE CASE OF A DEPOSIT, THE DEPOSIT BECOMES PAYABLE WHEN A DEMAND IS MADE AND, IN THE CASE OF THE 'LOAN', THE OBLIGATION TO REPAY THE AMOUNT ARISES IMMEDIATELY ON RECEIPT OF THE LOAN. 15.IN THE LIGHT OF THE AFORESAID, WE FIND THAT THE DEPOSIT MADE BY THE SISTER CONCERN WAS A BUSINESS TRANSACTION ARISING IN THE N ORMAL COURSE OF BUSINESS BETWEEN THE TWO CONCERNS. THIS IS A FINDING OF FACT , WHICH IS BASED ON THE APPRECIATION OF EVIDENCE. 16.CONSEQUENTLY, WE FIND THAT THE ORDER OF THE TRIB UNAL DOES NOT SUFFER FROM ANY MANIFEST ERROR OF LAW. NO SUBSTANTIAL QUESTION OF L AW ARISES FOR CONSIDERATION. 17.THE APPEAL FAILS AND IS DISMISSED. ITA NOS. 230 2 & 2366/AHD/2017 . A.Y. 2014- 15 8 7. APART FROM THAT LD. A.R. ALSO CITED A BOARD CIRCULA R NO. 19/2017 DATED 12.06.2017 WHEREIN IT IS HELD THAT SOME TRADE ADVAN CES/COMMERCIAL TRANSACTIONS HELD TO BE NOT COVERED UNDER SECTION 2 (22)(E) OF THE ACT ARE AS FOLLOWS: I. ADVANCES WERE MADE BY A COMPANY TO A SISTER CONCERN AND ADJUSTED AGAINST THE DUES FOR JOB WORK DONE BY THE SISTER CO NCERN. IT WAS HELD THAT AMOUNTS ADVANCED FOR BUSINESS TRANSACTIONS DO NOT T O FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND UNDER SECTION 2(22) ( E) OF THE ACT. (CIT V.CREATIVE DYEING & PRINTING PVT. LTD. , DELHI HIGH COURT). II. ADVANCE WAS MADE BY A COMPANY TO ITS SHAREHOLDER TO INSTALL PLANT AND MACHINERY AT THE SHAREHOLDER'S PREMISES TO ENABLE H IM TO DO JOB WORK FOR THE COMPANY SO THAT THE COMPANY COULD FULFILL AN EX PORT ORDER. IT WAS HELD THAT AS THE ASSESSEE PROVED BUSINESS EXPEDIENCY, TH E ADVANCE WAS NOT COVERED BY SECTION 2(22)(E) OF THE ACT. (CITV. AMRI KSINGH, P&H HIGH COURT). III. A FLOATING SECURITY DEPOSIT WAS GIVEN BY A COMPANY TO ITS SISTER CONCERN AGAINST THE USE OF ELECTRICITY GENERATORS BELONGING TO THE SISTER CONCERN. THE COMPANY UTILISED GAS AVAILABLE TO IT FROM GAIL TO GENERATE ELECTRICITY AND SUPPLIED IT TO THE SISTER CONCERN AT CONCESSION AL RATES. IT WAS HELD THAT THE SECURITY DEPOSIT MADE BY THE COMPANY TO ITS SIS TER CONCERN WAS A BUSINESS TRANSACTION ARISING IN THE NORMAL COURSE O F BUSINESS BETWEEN TWO CONCERNS AND THE TRANSACTION DID NOT ATTRACT SECTIO N 2(22) (E) OF THE ACT. (CIT, AGRA V. ATUL ENGINEERING UDYOG, ALLAHABAD HIG H COURT) 3. IN VIEW OF THE ABOVE IT IS, A SETTLED POSITION T HAT TRADE ADVANCES, WHICH ARE IN THE NATURE OF COMMERCIAL TRANSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE WORD 'ADVANCE1 IN SECTION 2(22)(E) OF THE ACT. ACCO RDINGLY, HENCEFORTH, APPEALS MAY NOT BE FILED ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND THOSE ALREADY FILED, IN COURTS TRIBUNALS MAY BE WITHDRAWN/NOT PRE SSED UPON. 4. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CO NCERNED. 8. APART FROM ABOVE SAID TWO JUDGMENTS, LD. A.R. ALSO CITED AN ORDER OF CALCUTTA HIGH COURT IN THE MATTER OF PRADIP KUMAR MALHOTRA V S. CIT, WEST BENGAL-V [2011] 15 TAXMANN.COM 66 (CALCUTTA). IN THIS CASE A S WELL HONBLE HIGH COURT HAS DECIDED IN FAVOUR OF THE ASSESSEE WITH FOLLOWIN G HEADNOTE: ITA NOS. 230 2 & 2366/AHD/2017 . A.Y. 2014- 15 9 SECTION 2(22) OF THE INCOME-TAX ACT, 1961 - DEEMED DIVIDEND - ASSESSMENT YEAR 1999-2000 - WHETHER PHRASE 'BY WAY OF ADVANCE OR LOAN' APPEARING IN SECTION 2(22)(E) MUST BE CONSTRUED TO MEAN THOSE AD VANCES OR LOANS WHICH A SHAREHOLDER ENJOYS FOR SIMPLY ON ACCOUNT OF BEING A PERSON WHO IS BENEFICIAL OWNER OF SHAREHOLDING NOT LESS THAN 10 PER CENT OF VOTING POWER, BUT IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER AS A CONSEQ UENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO COMPANY RECEIV ED FROM SUCH A SHAREHOLDER, SUCH ADVANCE OR LOAN CANNOT BE SAID TO BE DEEMED DI VIDEND WITHIN MEANING OF ACT - HELD, YES WHETHER ADVANCE GIVEN BY COMPANY TO ASSESSEE-SHAREHOLDER BY WAY OF COMPENSATION FOR KEEPING HIS PROPERTY AS MORTGAGE ON BEHALF OF COMPANY TO REAP BENEFIT OF LOAN COULD BE TREATED AS DEEMED DIVIDEND WITHIN MEANING OF SECTION 2(22)(E)- HELD, NO [IN FAVOUR OF ASSESSEE] WORDS AND PHRASE : PHRASE BY WAY OF ADVANCE OR LOAN AS OCCURRING IN SE CTION 2(22)(E) OF THE INCOME- TAX ACT, 1961. 9. SINCE FACTS AND CIRCUMSTANCES ARE SIMILAR TO AFORES AID JUDGMENTS AND ASSESSEE HAS TAKEN RS. 83,00,000/- SECURITY DEPOSITS FROM HI S SISTER CONCERN. IN OUR CONSIDERED OPINION, SAME WILL NOT BE COVERED UNDER SECTION 2(22)(E) OF THE ACT AND WE HOLD ADVANCES WERE GIVEN FOR BUSINESS PURPOS E ONLY. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALL OWED. 11. NOW WE COME TO ITA NO. 2366/AHD/2017 REVENUES APPE AL, THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS BY D ELETING THE ADDITION OF INCOME OF RS. 84,88,368/- FROM INDUSTRIAL SHED 'A' & 'B' U NDER THE HEAD HOUSE PROPERTY INCOME TAKING ALV @ 8.5% OF THE COST OF THE BUILDIN G LET OUT BY THE ASSESSEE INSTEAD OF CALCULATING ALV ON THE FAIR MARKET VALUE BASIS AS PER SECTION 23(1) (A) OF THE ACT. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS BY NOT TAKING COGNIZANCE OF AO'S OBSERVATION ON THIS ISSUE AND PLACING RELIANCE ON T HE HON'BLE GUJAFAT HIGH COURT'S DECISION IN THE CASE OF M/S. SAKARLAL BALABHAI WHIC H IS BASED ON DIFFERENT FACTS. ITA NOS. 230 2 & 2366/AHD/2017 . A.Y. 2014- 15 10 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS BY DELETING THE ADDITION OF RS. 87,687/- MADE U/S 14A OF THE ACT ON ACCOUNT OF THE ASSESSEE COMPANY'S INVESTMENT OF RS. 1,75,37,495/- IN EQUITY SHARES OF M/S. PASPL. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. COMMISSIONER OF INCOME- TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSES SING OFFICER IN RESPECT OF ABOVE ISSUES. 5. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (A) MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 12. THIS APPEAL IS COVERED BY THE CBDT CIRCULAR NO. CIRCULAR NO.17 OF 2019 DATED 08/08/2019. IN VIEW OF THE SAID CIRCULAR, WE DISMI SS THE APPEAL OF THE REVENUE. 13. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED AND APPEAL FILED BY THE REVENUE IS DISMISSED ON ACCOUNT OF LOW TAX EFFECT V IDE CBDT CIRCULAR. ORDER PRONOUNCED IN OPEN COURT ON 16- 01- 2020 SD/- SD/- (PRADIP KUMAR KEDIA) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 16 /01/2020 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD