PRAVIN BHIMSHI CHHEDA, MUMBAI V. DCIT 22(1),

ITA 2483/MUM/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48907 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 30-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: HARESH V KAGRANA
• Keywords: Business income; Principle of natural justice; Additional evidence; Deemed dividend; Commercial expediency; Onus to prove
• Section: 147; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI, J. SUDHAKAR REDDY, ACCOUNTANT MEMBER A ND SMT. ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER ITA NO. 2483/MUM./2011 (ASSESSMENT YEAR : 2006-07 ) DATE OF HEARING: 4.5.2011 MR. PRAVIN BHIMSHI CHHEDA SHIVSADAN, RAJAWADI GHATKOPAR (E), MUMBAI 400 077 PAN AABPC0292R .. APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE-22(1), VASHI, NAVI MUMBAI .... RESPONDENT ITA NO. 6319/MUM./2009 (ASSESSMENT YEAR : 2006-07 ) M/S. SUJYOTI ENTERPRISES A/18, MATRUCHAYA, OPP. D COLONY VIDYAVIHAR (EAST), MUMBAI 400 077 PAN AAXFS7523B .. APPELLANT V/S INCOME TAX OFFICER WARD-22(1), VASHI, NAVI MUMBAI .... RESPONDENT REVENUE BY : MR. S.S. RANA ASSESSEE BY : MR. PRADIP KAPASI A/W MR. HARESH V. KAGRANA MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 2 O R D E R PER J. SUDHAKAR REDDY, A.M. APPEAL IN ITA NO.2483/MUM./2011, PREFERRED BY ASSES SEE, IS DIRECTED AGAINST THE ORDER DATED 17 TH FEBRUARY 2011, PASSED BY THE COMMISSIONER (APPEALS)-XXXIII, FOR ASSESSMENT YEAR 2006-07, AND THE APPEAL IN ITA NO.6319/MUM./2009, PREFERRED BY ASSESSEE, IS DIREC TED AGAINST THE ORDER DATED 29 TH SEPTEMBER 2009, PASSED BY THE COMMISSIONER (APPEAL S)-XXXIII, FOR ASSESSMENT YEAR 2006-07. THOUGH, THE ASSESSEES ARE DIFFERENT, SINCE THE ISSUES ARE COMMON, THESE APPEALS WERE CLUBBED AND A RE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. FIRST WE TAKE UP APPEAL IN ITA NO.2483/MUM./2011, MR. PRAVIN BHIMSHI CHHADA. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE MR. PRAVIN BHIMSHI CHHADA, IS AN INDIVIDUAL AND IS DIRECTOR IN M/S. SW ATI ENERGY & PROJECTS PVT. LTD. (SEPL), AS WELL AS A PARTNER IN M/S. M/S. SUJY OTI ENTERPRISES. HE HAS SUBSTANTIAL INTEREST IN BOTH THE CONCERNS. ONE MR. MANISH DEDHIA, IS AN EMPLOYEE OF M/S. SWATI ENERGY & PROJECTS PVT. LTD. HE IS ALSO THE PROPRIETOR OF M/S. M/S. POWER SERVICE CORPORATION. M/S. SWATI ENERGY & PROJECTS PVT. LTD., HAS GIVEN AN ADVANCE TO M/S. POWER SERVICE CO RPORATION (PCC), FOR THE PURCHASE OF GOODS ON 24 TH OCTOBER 2005. THE ADVANCE WAS OF ` 1,40,00,000. ON THE VERY SAME DAY I.E., 24 TH OCTOBER 2005, M/S. POWER SERVICE CORPORATION, GAVE A LOAN OF AN AMOUNT OF ` 1,40,00,000, TO M/S. SUJYOTI ENTERPRISE. M/S. SUJYOTI ENTERPRISE, HAS GIVEN BACK THE MONEY TO M/S. SWATI ENERGY & PROJECTS PVT. LTD. ON 24 TH OCTOBER 2005 ITSELF. THE ASSESSEE AS WELL AS MR. MANISH DEDHIA, CLAIMED THAT THE AMOUNT OF ` 1,40,00,000, WAS ADVANCED AGAINST THE PURCHASE ORDERS. IT IS ALSO ST ATED THAT THE PURCHASES HAD ULTIMATELY TAKEN PLACE. M/S. M/S. SUJYOTI ENTER PRISE, IS MAINLY IN THE MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 3 BUSINESS OF TAKING DEPOSITS AND GIVING FINANCE AND THAT MR. MR. MANISH DEDHIA, HAS DEPOSITED THE AMOUNT OF ` 1,40,00,000, RECEIVED BY HIM AS AN ADVANCE FOR PURCHASE OF GOODS WITH M/S. SUJYOTI ENT ERPRISES AS DEPOSIT CARRYING INTEREST @ 12% PER ANNUM. THE ASSESSING OF FICER OBSERVED AT PARAS-5.5 AND 5.6, AS FOLLOWS:- 5.5 FROM THE ABOVE, IT CAN BE SAFELY CONCLUDED THAT THE AMOUNT OF ` 1,40,00,000 GIVEN BY M/S. SWATI ENERGY AND PROJECTS PVT. LTD. TO SHRI MANISH DEDHIA IS NOT A PURCHASE ADVANCE BUT MONEY P ARKED INDIRECTLY IN THE BUSINESS CONTROLLED BY THE ASSESSEE AS A PAR TNER I.E., M/S. SUJYOTI ENTERPRISES, FOR THE FOLLOWING REASONS:- (A) NEITHER SHRI MANISH DEDHIA NOR THE ASSESSEE HAS EXP LAINED AS TO WHY ` 1.40 CRORES I.E., MORE THAN PURCHASE ORDER I.E., ` 1.03 CRORES WAS PAID BY M/S. SWATI ENERGY AND PROJECTS PVT. LTD . TO SHRI MANISH DEDHIA, WHICH IS NOT A PRUDENT BUSINESS ACT. THE AS SESSEE IN HIS SUBMISSION STATED THAT THE ADVANCE WAS GIVEN FOR PU RCHASE OF MATERIAL OF ` 2,01,75,535 IS NOT CORRECT, AS SHRI MANISH DEDHIA, ADMITTED IN HIS STATEMENT RECORDED UNDER SECTION 131 MENTIONED ABOV E THAT HE HAS RECEIVED PURCHASE ORDER OF ` 1,03,75,734 ONLY FROM M/S. SWATI ENERGY AND PROJECTS PVT. LTD. (B) THE AMOUNT OF ADVANCE RECEIVED WAS IMMEDIATELY GIVE N AS LOAN / DEPOSIT ON THE SAME DAY TO M/S. SUJYOTI ENTERPRIS ES, BY SHRI MANISH DEDHIA, WITHOUT FULFILLING THE SO CALLED PURCHASE O RDER. (C) THE ASSESSEE REMAINED SILENT ON THE CAPABILITY OF S HRI MANISH DEDHIA, FOR EXECUTING SUCH A HUGE ORDER, AS HE NEVE R DEALT SUCH BUSINESS EITHER AND HE DOES NOT POSSESS THE KNOWLED GE OF THE PRODUCT. (D) SHRI MANISH DEDHIA ACTUALLY STARTED ACTIVITIES IN T HE BOOKING PURCHASE ORDER IN JANUARY 2006 BY GIVING 10% ADVANC E ONLY, BUT M/S. SWATI ENERGY AND PROJECTS PVT. LTD. HAS GIVEN MORE THAN 100% ADVANCE WHICH IS NOT JUSTIFIABLE. (E) SHRI MANISH DEDHIA HAS NOT SUPPLIED / PURCHASED ANY MATERIAL AGAINST THE PURCHASE ORDER OF ` 1.03 CRORES, FOR WHICH HE RECEIVED ADVANCE OF ` 1.40 CRORES. IN FACT AS PER ASSESSEES OWN SUBMISS ION TILL DATE HE HAD SUPPLIED MATERIALS OF ` 5.28 LAKHS AGAINST SUCH HUGE ADVANCE OF ` 1.40 CRORES. (F) THE ASSESSEE REMAINED SILENT WHY THE SAID ADVANCE W AS NOT RECEIVED BACK FROM SHRI MANISH DEDHIA, AS HE GROSSL Y FAILED TO FULFILL THE SO CALLED PURCHASE ORDER MADE BY M/S. SWATI ENE RGY AND PROJECTS PVT. LTD. 5.6 IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE AMOU NT OF ADVANCE GIVEN OF ` 1,40,00,000 M/S. SWATI ENERGY AND PROJECTS PVT. LT D. IS MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 4 NOTHING BUT TRANSFER OF MONEY INDIRECTLY IN M/S. SU JYOTI ENTERPRISES, WHERE THE DIRECTOR OF THE COMPANY I.E., THE ASSESSE E IS A PARTNER. 3. THEREAFTER, HE RELIED ON THE JUDGMENT OF HON'BLE SU PREME COURT IN L. ALAGUSUNDARAM CHETTIAR V/S CIT, (2002) 252 ITR 893, AND MRS. TARULATA SHYAM & ORS. V/S CIT, (1977) 108 ITR 345 (SC), AND CAME TO A CONCLUSION THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE INCO ME TAX ACT, 1961 (FOR SHORT 'THE ACT' ), ARE ATTRACTED IN THE INSTANT CASE. AT PARA-5.11, HE REFERRED TO THE ORDER OF THE COMMISSIONER (APPEALS) IN THE C ASE OF M/S. SUJYOTI ENTERPRISES, WHEREIN IT WAS OBSERVED THAT THIS AMOU NT HAS TO BE TAKEN IN THE HANDS OF THE PARTNER OF THE FIRM MR. PRAVIN BHIMSHI CHHADA. HE ASSESSED THE AMOUNT OF ` 1,40,00,000, AS DEEMED DIVIDEND UNDER THE PROVISIO NS OF SECTION 2(22)(E) OF THE ACT. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L, WHEREIN HE CHALLENGED THE VALIDITY OF RE-OPENING AS WELL AS TH E APPLICATION OF THE PROVISIONS OF SECTION 2(22)(E). THE COMMISSIONER (A PPEALS), VIDE PARA-7.2 OF HIS ORDER, OBSERVED AS FOLLOWS:- 7.2 COMING TO THE MERIT APPELLANT HAS SAID THAT TH E TRANSACTION OF ` 1.40 CRORES GIVEN TO SHRI MANISH DEDHIA BY SWATI EN ERGY AND PROJECTS PVT. LTD. WAS IN THE NATURE OF ADVANCES FOR MATERIA LS SUPPLIED. THE ASSESSING OFFICER HAS COMMENTED AT LENGTH ON THE SA ME IN ASSESSMENT ORDER AS WELL AS IN REMAND REPORT AND APPELLANT HAS REITERATED HIS COMMENTS IN REPLY. I HAVE ALSO GONE THROUGH DOCUMEN TS AND I FIND THAT APPELLANTS PLEA IS NOT SUPPORTED BY FACT. FRO M THE ADDITIONAL EVIDENCES FURNISHED ALSO IT IS SEEN THAT DURING THE ASSESSMENT YEAR 2007-08, THERE ARE TWO ACCOUNTS OF SWATI ENERGY AND PROJECTS P. LTD. THEY ARE (I) SWATI ENERGY AND PROJECTS P. LTD. AND (II) SWATI ENERGY AND PROJECTS P. LTD. ADVANCE FOR A.Y. 2006-07 MAINT AINED IN THE BOOKS OF POWER SERVICE CORP; PROPRIETARY CONCERN OF SHRI MANISH DEDHIA AS PER THE ADDITIONAL DOCUMENTS FILED DURING APPELLATE PROCEEDINGS. THE TRANSACTION OF ` 2,56,500 HAS BEEN RECORDED AS SALES AGAINST AN AMOUNT OF ` 2,00,000 RECEIVED ON 17.01.2006, WHICH IS NATURALL Y AN AMOUNT IN THE NATURE OF ` 2,00,000 RECEIVED ON 17.01.2006, WHICH IS NATURALLY AN AMOUNT IN THE NATURE OF ADVANCE AGAINS T THE SALES BUSINESS TRANSACTIONS OF ` 2,56,500. AGAIN THIS SWATI ENERGY AND PROJECTS P. LTD. ADVANCE ACCOUNT SHOWS CREDIT OF ` 1.40 CRORES ALONG WITH INTEREST PAID @ 12% I.E., ` 7,31,836. SUBSEQUENTLY, FOR THE ASSESSMENT YEAR 2007-08, SOME SALES HAVE BEEN SHOWN TOTALING TO ` 2,12,463 AND SWATI ENERGY AND PROJECTS P. LTD. ADVA NCE ACCOUNT FURTHER SHOWS AN INTEREST AMOUNT OF ` 16,80,000 ON THE BALANCE MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 5 OUTSTANDING OF ` 1,47,31,836 OUT OF WHICH EARLIER YEARS INTEREST OF ` 7,31,836 HAS BEEN PAID. BY THE THIRD ASSESSMENT YEA R I.E., 2008-09, THE ACCOUNT IS SHOWING THE REMAINING INTEREST BEARI NG ADVANCE AMOUNT OF ` 1,56,80,000 ADJUSTED TOWARDS THE SALE BILLS. SUDDE NLY, THE SALES HAVE INCREASED AS SHOWN BY BILL NO.4 AT ` 47,25,928 WHICH IS ADJUSTED FROM ADVANCES. THEN BILL NO.3 ` 14,99,400, BILL NO.5 ` 23,21,494 AND BILL NO.9 ` 39,47,625 AND SO ON; WHICH ALL ARE ADJUSTED FROM T HE ADVANCE PAYMENTS ALREADY RECEIVED. AS A RESULT IN T HE END THE BALANCE ACCOUNT IS SQUARED UP WITH ZERO BALANCE. NATURALLY SWATI ENERGY & PROJECTS P. LTD. ADVANCE ACCOUNT IS REFLECTING THE DIRECT ENTRY OF SALES, SALE BILL NUMBER, AMOUNT WHICH WERE ADJUSTED AGAINS T THESE ADVANCES LEAVING THE BALANCE AT ZERO AT THE END. THUS THE FA CT EMERGES THAT THE SO CALLED ADVANCES REFLECTED AS ADVANCE FOR SUPPLY OF MATERIAL WERE ACTUALLY LOANS GIVEN TO SHRI MANISH DEDHIA ON WHICH AS PER THE RETURN FILED BY WAY OF ADDITIONAL EVIDENCE BY THE APPELLAN T DURING THE APPELLATE PROCEEDINGS ONLY INTEREST ACCRUED AND PAI D ALSO. THIS AMOUNT HAS NOT BEEN REFLECTED AS ADVANCE IN SALES ACCOUNT IN ASSESSMENT YEAR 2007-08 WHERE ALREADY THE ONLY ADVANCE OF ` 2,00,000 IS APPEARING ON 17.1.2006 AGAINST THE SALES MADE ON 21.1.2006 FOR ` 2.56,500. IN VIEW OF THIS FACT AT THE END OF THIRD ASSESSMENT YE AR THIS ADVANCE HAS BEEN SQUARED UP FROM SALES BILL AND ENTRIES WITH ZE RO CLOSING BALANCE, THE WHOLE PURPOSE BEING SERVED BY THEM. 7.3 HAVING FOUND THAT THE ADVANCES MADE WHERE VIDE IN THE NATURE OF LOAN BEARING INTEREST AND NOT ADVANCES FOR ANY M ATERIAL SUPPLIED ONLY BECAUSE THE ACCOUNT OF ITS EMPLOYEE SHRI MANIS H DEDHIA, PROPRIETARY CONCERN WAS UTILISED TO GIVE THE AMOUNT TO APPELLANT, PARTNER OF SUJYOTI ENTERPRISES PROVISIONS OF SECTIO N 2(22)(E) ARE CLEARLY ATTRACTED AS DECIDED BY HON'BLE SUPREME COURT IN L. ALAGUSUNDARAM CHETTIAR V/S CIT (2001) 252 ITR 893 (SC) WHERE IN A PEX COURT HELD AS UNDER:- LOAN OF LARGE AMOUNT WAS ADVANCED BY THE COMPANY T O A LOW PAID EMPLOYEE WHO IN TURN ADVANCED THE SAME TO THE MANAGING DIRECTOR (THE ASSESSEE). IT WAS HELD THAT THE LOAN WAS ADVANCED FOR THE BENEFIT OF THE ASSESSEE A ND HENCE WAS DEEMED DIVIDEND UNDER SECTION 2(6A)(9E) O F THE OLD ACT CORRESPONDING TO SECTION 2(22)(E) OF TH E I.T. ACT, 1961. 5. ON THE OTHER PLEAS TAKEN BY THE ASSESSEE, THE COMMI SSIONER (APPEALS) RELIED ON THE DECISIONS OF TRIBUNAL AS WELL AS THE HIGH COURTS AND NEGATED THE PLEAS. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US, ON THE FOLLOWING ISSUES:- A) VALIDITY OF RE-OPENING OF ASSESSMENT U/S 147 OF THE ACT; MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 6 B) VALIDITY OF AN ADDITION OF ` 1,40,00,000 AS DEEMED DIVIDEND UNDER SECTION 2(22)(E); C) VIOLATION OF PRINCIPLES NATURAL JUSTICE; AND D) LEVY OF INTEREST UNDER SECTION 234B, 234C OF THE AC T. 6. BEFORE US, LEARNED COUNSEL, MR. PRADIP KAPASI, APPE ARING ON BEHALF OF THE ASSESSEE, AT THE OUTSET, CONTENDS THAT HE DID N OT WISH TO PRESS THE ISSUES (A) VALIDITY OF RE-OPENING OF ASSESSMENT U /S 147; (C) VIOLATION OF NATURAL JUSTICE; AND (D) LEVY OF INTEREST UNDER SEC TION 234B, 234C. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, DID NOT OBJECT TO THESE SUBMISSIONS MADE BY THE LEARNED COUNSEL. CONSEQUENT LY, THE AFORESAID GROUNDS ARE DISMISSED AS NOT PRESSED . 7. LEARNED COUNSEL, CONTENDS THAT THE ASSESSEE HOLDS 3 3.34% OF THE SHARES IN THE FIRM M/S. SUJYOTI ENTERPRISES AND THA T THE OTHER BROTHERS, MR. SHANTILAL B. CHHEDA AND SHRI MAVJI B. CHHEDA, HOLDS SIMILAR SHARES OF 33.33% EACH. HE SUBMITS THAT THE ISSUE WHETHER THE COMPANY M/S. SWATI ENERGY & PROJECTS PVT. LTD., HAS ACCUMULATED PROFIT IS NOT IN DISPUTE. IN SHORT, HE SUBMITS THAT EXCEPT FOR THE ISSUE THAT HE WOULD RAISE IN HIS ARGUMENT, THE OTHER CONDITIONS LAID DOWN IN SECTION 2(22)(E) ARE FULFILLED. LEARNED COUNSEL, SUBMITS THAT M/S. POWER SERVICE CO RPORATION, IS A PROPRIETARY CONCERN OF MR. MR. MANISH DEDHIA AND M/ S. SWATI ENERGY & PROJECTS PVT. LTD., HAS ISSUED A CHEQUE OF ` 1,40,00,000, IN FAVOUR OF M/S. POWER SERVICE CORPORATION ON 24 TH OCTOBER 2005, AS TRADE ADVANCE FOR SUPPLYING GOODS. HE SUBMITS THAT THE GOODS WERE ACT UALLY SUPPLIED BY M/S. POWER SERVICE CORPORATION TO M/S. SWATI ENERGY & PR OJECTS PVT. LTD. ACCORDING TO LEARNED COUNSEL, THE ENTIRE ISSUE REVO LVES AROUND THE QUESTION WHETHER THE TRANSACTIONS ENTERED INTO BY M/S. SWATI ENERGY & PROJECTS PVT. LTD., AND M/S. POWER SERVICE CORPORATION, IS GENUIN E TRANSACTION OR NOT AND WHETHER THE AMOUNT GIVEN TO M/S. POWER SERVICE CORP ORATION IS A LOAN OR NOT. MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 7 8. HE SUBMITS THAT THE GOODS WERE ACTUALLY SUPPLIED BY M/S. POWER SERVICE CORPORATION TO M/S. SWATI ENERGY & PROJECTS PVT. LTD. HE FURTHER SUBMITS THAT INTEREST HAS BEEN PAID ON THE AMOUNT D EPOSITED BY M/S. POWER SERVICE CORPORATION WITH M/S. SUJYOTI ENTERPRISES A ND M/S. POWER SERVICE CORPORATION HAS OFFERED TO TAX, THE INTEREST INCOME EARNED FROM M/S. SUJYOTI ENTERPRISES AND IN THE HANDS OF M/S. SUJYOTI ENTERP RISES, THE INTEREST PAID WAS ALLOWED AS EXPENDITURE. IT WAS FURTHER SUBMITTE D THAT THE COMPENSATION WAS PAID FOR DELAY IN SUPPLY OF GOODS BY M/S. POWER SERVICE CORPORATION TO M/S. SWATI ENERGY & PROJECTS PVT. LTD. HE POINTS OU T THAT THE PURCHASES HAVE BEEN ACCEPTED BY THE REVENUE. LEARNED COUNSEL FILED PAPER BOOK CONTAINING 416 PAGES AND DREW THE ATTENTION OF THE BENCH TO TH E STATEMENT OF MR. MR. MANISH DEDHIA FROM PAGES-6 TO 10 AND AFFIDAVIT FILE D BY MR. MR. MANISH DEDHIA AT PAGES-11 TO 15 AND SUBMITS THAT MR. MR. M ANISH DEDHIA WAS CONSISTENT IN HIS STATEMENT AND HAD CONFIRMED THE F ACTS STATED BY THE ASSESSEE AND IT IS NOT CORRECT TO SAY THAT THE TRAN SACTION WAS NOT GENUINE. HE REFERRED TO THE ASSESSEES PAPER BOOK PAGE-323, WHICH CONSIST OF RESOLUTION PASSED BY THE BOARD OF DIRECTORS OF M/S. SWATI ENERGY & PROJECTS PVT. LTD., LEDGER ACCOUNT COPIES OF M/S. POWER SERV ICE CORPORATION. HE ARGUED THAT, OTHER THAN BEING AN EMPLOYEE, IT WAS S UBMITTED THAT MR. MR. MANISH DEDHIA, WAS A PARTNER IN CERTAIN FIRMS AND S ALES OF M/S. POWER SERVICE CORPORATION, WAS MORE THAN ` 39,00,00,000 IN THE YEAR 2010. EFFORTS WERE MADE BEFORE US TO DEMONSTRATE THAT, THE TURNOV ER OF FIRMS, IN WHICH MR. MR. MANISH DEDHIA WAS A PARTNER, WAS SUBSTANTIA L AND, HENCE IT CANNOT BE SAID THAT MR. MR. MANISH DEDHIA, IS A MAN OF NO MEANS OR HIS INCAPABILITY OF EXECUTING THE CONTRACT. HE TOOK THIS BENCH TO TH E VARIOUS DOCUMENTS SUCH AS PURCHASE ORDER, CORRESPONDENCE, BANK GUARANTEE F URNISHED, INVOICES, ETC., TO DEMONSTRATE HIS CASE THAT THE TRANSACTION IS GENUINE. HE SUBMITS THAT THE APPARENT IS TO BE CONSIDERED AS REAL, UNLE SS IT IS PROVED OTHERWISE. FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING CA SE LAWS:- O CIT V/S DURGA PRASAD MORE (1971) 82 ITR 540 (SC), O KALWA DEVADATTAM & ORS. (1963) 49 ITR 165 (SC), AND MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 8 O CIT V/S CENTURY BUILDING INDUSTRIES PVT. LTD., (200 7) 293 ITR 194 (SC) 9. ON THE RELIANCE PLACED BY THE COMMISSIONER (APPEALS ) ON THE JUDGMENT OF L. ALAGUSUNDARAM CHETTIAR (SUPRA). HE S UBMITS THAT, ON FACTS, THE CASE IS DIFFERENT AS BOTH THE EMPLOYEES AS WELL AS THE FINANCE DIRECTOR HAD, IN THAT CASE, ADMITTED ON OATH THAT THE EMPLOY EES WERE USED AS CONDUIT FOR THE SHAREHOLDERS TO TAKE LOANS FROM THE COMPANY . HE SUBMITS THAT NO SUCH ADMISSION IS AVAILABLE IN THIS CASE. ON THE RE LIANCE PLACED BY THE COMMISSIONER (APPEALS) IN MRS. TARULATA SHYAM & ORS . (SUPRA), LEARNED COUNSEL DISTINGUISHED THE CASE AND SUBMITS THAT THE JUDGMENT WOULD BE APPLICABLE IN A CASE WHERE THE ASSESSEE CLAIMS THAT THE AMOUNT HAS BEEN RE- PAID. HE SUBMITS IN THIS CASE OF THE ASSESSEE, THER E WAS NO LOAN TAKEN FROM THE COMPANY AND THERE IS NO REPAYMENT. ALTERNATIVEL Y AND WITHOUT PREJUDICE, THE LEARNED COUNSEL SUBMITS THAT THE ENTIRE AMOUNT CANNOT BE TAXED IN HIS HAND AS HE WAS PARTNER OF ONLY 1/3 RD SHARE IN M/S. SUJYOTI ENTERPRISE. 10. COMING TO THE DECISION OF TRIBUNAL IN 6319/MUM./200 9, LEARNED COUNSEL SUBMITS THAT M/S. SUJYOTI ENTERPRISES IS NO T A PARTNER IN M/S. SWATI ENERGY & PROJECTS PVT. LTD., AND HENCE, ADDITION CA NNOT BE MADE IN VIEW OF THE MUMBAI SPECIAL BENCH DECISION IN ACIT V/S BHAUM IK COLOUR P. LTD., 118 ITD 001 (SB). HE SUBMITS THAT THE COMMISSIONER (APP EALS) ACCEPTED THIS POSITION. 11. HE SUBMITS THAT THOUGHT HE COMMISSIONER (APPEALS) H AD DELETED THE ADDITION OF ` 1,40,00,000, THE ASSESSEE HAS FILED THE APPEAL DIS PUTING THE OBSERVATIONS MADE BY THE COMMISSIONER (APPEALS) THA T M/S. POWER SERVICE CORPORATION IS A CONDUIT. AGGRIEVED BY THESE FINDIN GS, AN APPEAL WAS FILED. LEARNED COUNSEL SUBMITS THAT THESE OBSERVATIONS HAV E TO BE EXPUNGED IN THE CASE OF M/S. SUJYOTI ENTERPRISES, FOR THE REASONS A LREADY SUBMITTED AND ADDITION OF ` 1,40,00,000 UNDER SECTION 2(22)(E) IN THE CASE OF MR. PRAVIN BHIMSHI CHHADA, HAS TO BE DELETED. MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 9 12. LEARNED DEPARTMENTAL REPRESENTATIVE, MR. S.S. RANA, ON THE OTHER HAND, SUBMITS THAT ALL THE BASIC REQUIREMENTS OF SE CTION 2(22)(E) HAVE BEEN SATISFIED IN THIS CASE. HE RELIED BASICALLY ON THE ORDER OF THE ASSESSING OFFICER AND POINTED OUT THAT MR. MR. MANISH DEDHIA, WAS A S MALL TIME ACCOUNTANT WITH M/S. SWATI ENERGY & PROJECTS PVT. LTD. HE TOOK THIS BENCH TO QUESTION NO.9 OF THE STATEMENT OF MR. MR. MANISH DEDHIA, WHE REIN HE STATED THAT HE WORKS BETWEEN 03:00 PM AND 07:00 PM AND THE WORK AS SIGNED TO HIM IS BANK ENTRY, CASH ENTRY AND FILING OF JOURNAL VOUCHE RS IN RESPECTIVE FOLDERS AND THAT HE RECEIVES ` 8,000 PM FROM M/S. SWATI ENERGY & PROJECTS PVT. LT D., AND ANNUALLY ` 1,42,866 FROM SHEETAL AGENCY AND THAT HE WORKS FOR SHEETAL AGENCY FROM 07:00 PM TO 10:00 PM. HE ALSO REFERRED TO ANSWERS TO QUESTIONS 27 TO 29, TO EMPHASIS THE POINT THAT MR. MR. MANISH DEDHIA, HAD ON THE SAME DAY, DEPOSITED ` 1,40,00,000, IN M/S. SUJYOTI ENTERPRISES, BECAUSE THE DIRECTORS OF HIS EMPLOYER COMPANY WERE PARTNERS IN M/S. SUJYOTI ENTERPRISES. HE ALSO POINTES OUT THAT THE CLAIM OF M/S. POWER SERVICE CORPORATION THAT MR. CHIRAG K. MEHTA, WAS AN EMPLOY EE, WAS FOUND TO BE FALSE AND IT WAS ESTABLISHED THAT HE WAS NOT WORKIN G FOR M/S. POWER SERVICE CORPORATION, DURING THE PERIOD IN WHICH THE PURCHAS E ORDER WAS GIVEN TO IT BY M/S. SWATI ENERGY & PROJECTS PVT. LTD. HE POINTS OU T THAT IT IS UNNATURAL FOR M/S. SWATI ENERGY & PROJECTS PVT. LTD., TO HAVE PLA CED THE ORDER FOR SUPPLY OF EQUIPMENT THROUGH ONE OF ITS EMPLOYEES INSTEAD OF P LACING ORDER DIRECTLY WITH THE SUPPLIER. HE REFERS TO PARA-7.2 OF COMMISS IONER (APPEALS)S ORDER AND SUBMITS THAT DUE TO CIRCUITOUS ENTRIES, THE ADV ANCE REFLECTED AS ADVANCE FOR SUPPLY OF MATERIAL WERE ACTUALLY A LOAN GIVEN T O MR. MANISH DEDHIA. HE REFERRED TO THE CONTRADICTORY STAND TAKEN BY THE AS SESSEE, THE FIRST BEING THAT THIS IS AN ADVANCE FOR PURCHASE OF MACHINERY A ND IN ALTERNATIVE STAND THAT THE CYCLE OF FUND FLOW IS COMPLETED AND THE SA ME WAS DONE TO INCREASE CREDIT LIMIT FROM PUNJAB NATIONAL BANK AND SO IT IS OUT OF COMMERCIAL EXPEDIENCY AND OUTSIDE THE AMBIT OF SECTION 2(22)(E ) OF THE ACT. HE POINTS OUT THAT THE COMMISSIONER (APPEALS) HAS RIGHTLY REJ ECTED THIS PLEA OF THE ASSESSEE BY FOLLOWING THE JUDGMENT OF THE HON'BLE S UPREME COURT IN MRS. TARULATA SHYAM & ORS. (SUPRA). HE SUBMITS THAT THE ORDER OF THE MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 10 COMMISSIONER (APPEALS) SHOULD BE UPHELD AND THE APP EAL OF THE ASSESSEE BE DISMISSED. 13. RIVAL CONTENTIONS WERE HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS F OLLOWS:- I) THE COMMISSIONER (APPEALS), AT PAGE-12, FIRST TWO P ARAGRAPHS, OBSERVED AS FOLLOWS:- FURTHER, ON PERUSAL OF THE BANK STATEMENT OF M/S. SUJYOTI ENTERPRISES, IT IS FOUND THAT THE SAME ` 1.40 CRORES WHICH WAS RECEIVED FROM M/S. POWER SERVICE CORPORATION, WAS AGAIN TRANSFERRED IN TO THE ACCOUNT OF M/S. SWATI ENERGY & PROJECTS PVT. LTD. BY M/S. SUJY OTI ENTERPRISES, ON THE SAME DATE I.E., 24.10.2005. HENCE, THE CLAIM OF THE ASSESSEE THAT M/S. POWER SE RVICE CORPORATION WAS ENGAGED IN THE BUSINESS IS NOT CORRECT, GIVEN T HE FACT THAT THE AMOUNT OF ` 1.40 CRORES ORIGINATED FROM THE ACCOUNT OF M/S. SW ATI ENERGY & PROJECTS PVT. LTD. WAS ULTIMATELY RECEIVED BACK INTO ITS OWN ACCOUNT ON THE SAME DATE I.E., 24.1.2005, THROUGH T HE ACCOUNTS OF M/S POWER SERVICE CORPORATION AND M/S. SUJYOTI ENTERPRI SES. THE SAME IS ALSO ESTABLISHED BY THE LEDGER ACCOUNTS FILED BY TH E ASSESSEE. II) THIS SHOWS THAT THE TRANSACTION WAS A CIRCUITOUS TR ANSACTION AND THE MONEY WHICH INITIALLY BELONGED TO M/S. SWATI ENERGY & PROJECTS PVT. LTD., WAS RETURNED TO THE SAME COMPANY ON THE VERY SAME DAY T HROUGH M/S. POWER SERVICE CORPORATION AND, THEREAFTER, M/S. SWATI ENE RGY & PROJECTS PVT. LTD. AS ON 24 TH OCTOBER 2005, THERE IS NO NET OUTFLOW OF FUNDS FRO M M/S. SWATI ENERGY & PROJECTS PVT. LTD. WHEN THERE IS NO NET OU TFLOW, THERE IS NO INTENTION TO GIVE THE MONEY AS A LOAN OR AN ADVANCE . SECTION 2(22)(E), HAS BEEN BROUGHT INTO THE ACT WITH AN OBJECT TO CURB TH E PRACTICE OF COMPANIES, WHICH HAD ACCUMULATED PROFITS FROM GIVING LOANS TO SHAREHOLDERS HAVING SUBSTANTIAL INTEREST WITH AN OBJECT OF AVOIDING PAY MENT OF DIVIDEND. IN THOSE YEARS, WHEN THE PROVISION WAS BROUGHT, DIVIDENDS WE RE TAXEBLE. THIS HAS BEEN BROUGHT OUT IN THE BOOK CHATURVEDI AND PITHISA RIAS INCOME TAX LAW, 5 TH EDN., AT PAGE-197, PARA-3, WHICH READS AS FOLLOWS: - MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 11 THE MISCHIEF SOUGHT TO BE OCCURRED BY SECTION 2(22) (E) THE COMPANIES TO WHICH SECTION 2(22)(E) APPLIES ARE (UP TO 1.4.1983), INTER-ALIA, COMPANIES IN WHICH MAJORITY (MORE THAN 50 PER CENT) OF THE VOTING POWER LIES IN THE HANDS OF PERSONS OTHER THA N THE PUBLIC, ETC., AND THAT MEANS THAT THE COMPANIES ARE CONTROLLED BY A GROUP OF PERSONS ALLIED TOGETHER AND HAVING THE SAME INTERES T. IT IS FOR THIS GROUP TO DETERMINE WHETHER THE PROFITS MADE BY THE COMPANY SHOULD BE DISTRIBUTED AS DIVIDENDS OR NOT. WHEN THE LEGISL ATURE REALISED THAT THOUGH MONEY WAS REASONABLY AVAILABLE WITH THE COMP ANY IN THE FORM OF PROFITS, THOSE IN CHARGE OF THE COMPANY DELIBERA TELY REFUSED TO DISTRIBUTE IT AS DIVIDENDS TO THE SHAREHOLDERS, BUT ADOPTED THE DEVICE OF ADVANCING THE SAID ACCUMULATED PROFITS BY WAY OF LOAN OR ADVANCE WAS TO EVADE THE PAYMENT OF TAX ON ACCUMULATED PROF ITS. IT WAS WITH INTENTION OF CURING SUCH AN SIMILAR MISCHIEFS THAT THESE PROVISIONS WERE ENACTED. [SEE. NAVNIT LAL C. JAVERI V. K.K. SEN (19 65) 56 ITR 198, 207-8 (SC). III) LOOKING AT THE TRANSACTION FROM THIS ANGLE, IT IS C LEAR THAT THERE IS NO DIVERSION OF DIVIDEND OR IN FACT ANY FUNDS FROM THE COMPANY AS ON THE SAME DAY, THE VERY SAME AMOUNT OF ` 1,40,00,000 AS COME BACK INTO THE COFFERS OF M/S. SWATI ENERGY & PROJECTS PVT. LTD. IF THE INTEN TION WAS TO GIVE A LOAN OR AN ADVANCE, THE QUESTION OF THE MONEY BEING RETURNE D TO M/S. SWATI ENERGY & PROJECTS PVT. LTD., ON THE SAME DAY DOES NOT ARIS E. IV) IF THE THEORY OF THE REVENUE THAT THE AMOUNT GIVEN TO M/S. POWER SERVICE CORPORATION BY M/S. SWATI ENERGY & PROJECTS PVT. LTD., IS A NON- GENUINE TRANSACTION IS TRUE, THEN THIS FACT, IF TAK EN TO ITS LOGICAL END, LEADS US TO AN INEVITABLE CONCLUSION THAT NO FUNDS WHATSOEVE R HAVE GONE OUT FROM M/S. SWATI ENERGY & PROJECTS PVT. LTD. AND HENCE, T HERE IS NO LOAN GIVEN BY THE COMPANY. THERE IS NO FLOW OF FUND OR ANY BENEFI T FROM M/S. SWATI ENERGY & PROJECTS PVT. LTD. TO M/S. SUJYOTI ENTERPRISES OR TO ITS PARTNER MR. PRAVIN BHIMSHI CHHADA. SUCH A CIRCUITOUS ENTRIES PASSED, I N OUR HUMBLE OPINION, CANNOT BE CONSIDERED AS EITHER LOANS OR ADVANCES SO AS TO ATTRACT SECTION 2(22)(E). THE CO-ORDINATE BENCH OF THE TRIBUNAL IN G.M.J. THAMPY, ITA NO.1275 TO 1277/MUM./2009, ORDER DATED 25 TH AUGUST 2010, VIDE PARA-23 TO 25, HELD AS FOLLOWS:- 23. COMING TO THE ASSESSMENT YEAR 2004-05, A LOOK A T THE LEDGER COPY CLEARLY SHOWS THAT THE AMOUNTS RECEIVED FROM T HE COMPANY BY MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 12 THE SOLE PROPRIETARY CONCERN ON 13-09-2003 AND ON 1 5-09-2003 OF RS.2.5 CRORES EACH WERE SIMULTANEOUSLY AND INSTANTA NEOUSLY TRANSFERRED BACK TO THE PROPRIETARY CONCERN. THE AS SESSEE HAS NOT DERIVED ANY BENEFIT WHATSOEVER FROM THIS TRANSACTIO N. WHEN THE ADMITTED FACT IS THAT BOTH THE ASSESSEE AND THE COM PANY ARE HAVING AN OPEN AND MUTUAL CURRENT ACCOUNT AND THAT THE FINANC IAL TRANSACTIONS BETWEEN THE TWO ENTITIES ARE MUTUAL TRANSACTIONS DO NE OUT OF COMMERCIAL EXPEDIENCY AND BUSINESS NECESSITY, EACH AND EVERY TRANSACTION CANNOT BE CONSIDERED AS A LOAN OR AN AD VANCE. WHEN AN AMOUNT IS NOT KEPT IN THE SOLE PROPRIETARY CONCERN FOR A DAY AND WHEN THE SOLE PROPRIETARY CONCERN NOT USED IT, IT CANNOT BE CALLED A LOAN OR AN ADVANCE. WE HOLD THAT THE ADDITION OF AN AMOUNT OF RS.2,06,12,533/- MADE U/S 2(22)(E) HAS TO BE NECESS ARILY DELETED AS THERE IS NO LOAN OR AN ADVANCE AS CONTEMPLATED WITH IN THE SECTION 2(22)(E). THERE WAS NEITHER A LOAN NOR A REPAYMENT ON FACTS. 24. COMING TO THE ASSESSMENT YEAR 2005-06, THE TRAN SACTIONS WERE ALSO IN THE FORM OF CURRENT ACCOUNT TRANSACTIONS, W HICH WERE UNDERTAKEN DURING THE ORDINARY COURSE OF BUSINESS. AMOUNTS WERE EXCHANGED BETWEEN THE PARTIES AND THERE IS NO FINDI NG THAT A PARTICULAR TRANSACTION IS A LOAN TRANSACTION. WHEN THERE IS AN ATTEMPT TO BRING TO TAX A PARTICULAR AMOUNT, THE BURDEN OF PROOF LIES O N THE REVENUE TO PROVE THAT THE SAME IS INCOME AS CONTEMPLATED UNDER THE ACT. IN THIS CASE THE REVENUE HAS NOT DISCHARGED ITS BURDEN THAT A PARTICULAR AMOUNT RECEIVED BY M/S RIYA TRAVELS, A PROPRIETARY CONCERN, IS A LOAN OR ADVANCE. ON THE OTHER HAND, THE ASSESSEE HAS LAI D EVIDENCE TO PROVE THAT THIS IS NEITHER A LOAN NOR AN ADVANCE. T HESE FINDINGS OF US ARE BASED ON THE PROPOSITION LAID DOWN IN CASE LAWS , WHICH WILL BE DISCUSSED IN THIS ORDER. 25. ON FACTS WE FIND THAT ON 2ND JUNE, 2004, THE PR OPRIETARY CONCERN HAD GIVEN AN AMOUNT OF RS.15 LAKHS TO THE C OMPANY AND THIS WAS REPAID BY THE COMPANY ON 08-06-2004. SIMILARLY AN AMOUNT OF RS.15 LAKHS WAS ONCE AGAIN ADVANCED BY THE SOLE PRO PRIETARY CONCERN ON 17-06-2004 AND THIS WAS REPAID BY THE PRIVATE LI MITED COMPANY TO RIYA TRAVELS ON 12-07-2004. SIMILARLY AN AMOUNT TAK EN BY THE COMPANY ON 19-11-2004 FROM THE PROPRIETARY CONCERN AMOUNTING TO RS.10 LAKHS WAS RETURNED TO THE PROPRIETARY CONCERN ON 22-02-2004. THUS ON THESE FACTS, BY NO STRETCH OF IMAGINATION, THESE TRANSACTIONS CAN BE TREATED AS LOANS OR ADVANCES COVERED U/S 2(2 2)(E). THIS LEAVES US WITH ONLY TWO TRANSACTIONS OF 17-11-2004 AND 18- 11-2004 AMOUNTING TO RS.2.75 CRORES AND RS.4.25 CRORES RESP ECTIVELY. HERE ALSO THE AMOUNT RECEIVED BY THE PROPRIETARY CONCERN M/S RIYA TRAVELS, WAS INSTANTANEOUSLY, ON THE SAME DAY TRANSFERRED BA CK TO THE COMPANY. THE EXPLANATION IS THAT THE COMPANY IS A M EMBER OF THE INTERNATIONAL AIR TRAVELS ASSOCIATION (IATA) AND AS PER THE TERMS AND CONDITIONS, THE ASSESSEE WAS REQUIRED TO PROVIDE BA NK GUARANTEE TO IATA. THE GUARANTEE AMOUNT WAS CALCULATED BY TAKING THE TOTAL TURNOVER AS REDUCED BY THE AMOUNT OF PAID UP SHARE CAPITAL AND RESERVES. IT IS WELL KNOWN THAT, HIGHER AMOUNT OF B ANK GUARANTEE, HIGHER IS THE FIXED DEPOSITS THAT ARE REQUIRED TO K EPT WITH THE BANKERS TO OBTAIN GUARANTEE, AS THE BANK INSISTS ON ADEQUAT E MARGIN. HIGHER MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 13 AMOUNT OF FIXED DEPOSITS INVOLVES BLOCKING OF SUBST ANTIAL FUNDS. THE COMPANY FOR ITS OWN PURPOSES, ROUTED THE AMOUNT THR OUGH THE PROPRIETARY CONCERN, WITH AN INTENTION TO INCREASE ITS PAID UP OF SHARE CAPITAL AND TO MINIMIZE THE INSTANCE OF BANK GUARAN TEE TO BE PROVIDED TO IATA AND CONSEQUENTLY REDUCE THE BLOCKING OF FUN DS. THE QUESTION TO BE ANSWERED IS, CAN THIS BE CALLED A LOAN OR AN ADVANCE. THE MONEY IS NOT GONE OUT OF THE COFFER OF THE COMPANY, NOR H AS RIYA TRAVELS USED THE AMOUNT FOR ITS PURPOSES. A LOAN OR ADVANCE PRE-SUPPOSES THE MONEY OF THE COMPANY IS OUT OF THE COMPANY, FOR BEI NG USED BY THE OTHER PERSON FOR ITS USE. WHEN THE MONEY IS SIMPLY CIRCULATED AND HAS COME BACK TO THE COFFER OF THE COMPANY, SIMULTANEOU SLY, WE FIND DIFFICULTY IN ACCEPTING THE THEORY THAT A PERSON HA S LENT MONEY TO ANOTHER . IN THIS CASE THE COMPANY SOUGHT TO ACHIEVE ITS OB JECT BY USING THE SOLE PROPRIETARY CONCERN. ON THIS FACTUAL MATRIX, WE ARE OF THE CONSIDERED OPINION, THAT THE AMOUNT ROUTED BY T HE COMPANY, THROUGH THE SISTER CONCERN RIYA TRAVELS, CANNOT BE CONSIDERED AS A LOAN OR AN ADVANCE GIVEN BY THE COMPANY TO THE SOLE PROPRIETARY CONCERN. WE RELY ON THE FINDING OF THE HONBLE DELH I HIGH COURT IN THE CASE OF CIT VS. RAJ KUMAR (2009) 181 TAXMAN 155 WHE RE IT HAS BEEN HELD AS FOLLOWS : 10.5 IF THIS PURPOSE IS KEPT IN MIND THEN, IN OUR V IEW, THE WORD ADVANCE HAS TO BE READ IN CONJUNCTION WITH THE WO RD LOAN . USUALLY ATTRIBUTES OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDING COUPLED WITH ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS L OAN : IT GENERALLY CARRIES AN INTEREST AND THERE IS AN OBLIGATION OF R EPAYMENT . ON THE OTHER HAND, IN ITS WIDEST MEANING THE TERM ADVANCE MAY OR MAY NOT INCLUDE LENDING. THE WORD ADVANCE IF NOT FOUND IN THE COMPANY OF OR IN CONJUNCTION WITH A WORD LOAN MAY OR MAY NOT IN CLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES THEN IT WOULD BE A LOAN. T HUS, ARISES THE CONUNDRUM AS TO WHAT MEANING ONE WOULD ATTRIBUTE TO THE TERM ADVANCE . THE RULE OF CONSTRUCTION TO OUR MINDS W HICH ANSWERS THIS CONUNDRUM IS NOSCITUR A SOCIIS. THE SAID RULE HAS B EEN EXPLAINED BOTH BY THE PRIVY COUNCIL IN THE CASE OF ANGUS ROBERTSON VS. GEORGE DAY (1879) 5 AC 63 (PC) BY OBSERVING 'IT IS A LEGITIMAT E RULE OF CONSTRUCTION TO CONSTRUE WORDS IN AN ACT OF PARLIAM ENT WITH REFERENCE TO WORDS FOUND IN IMMEDIATE CONNECTION WITH THEM' A ND OUR SUPREME COURT IN THE CASES OF ROHIT PULP & PAPER MILLS LTD. VS. CCE AIR 1991 SC 754 AND STATE OF BOMBAY VS. HOSPITAL MAZDOOR SABHA AIR 1960 SC 610. 10.7 IMPORTANTLY, THE BROAD PRINCIPLES WHICH EMERGE FROM THE JUDGMENT OF THE SUPREME COURT WITH REGARD TO THE APPLICABILITY OF THE SAID RULE OF CONSTRUCTION ARE BRIEFLY AS FOLLOWS : (I) DOES THE TERM IN ISSUE HAVE MORE T HAN ONE MEANING ATTRIBUTED TO IT I.E., BASED ON THE SETTING OR THE CONTEXT ONE COULD APPLY THE NARROWER OR WIDER MEANI NG; (II) ARE WORDS OR TERMS USED FOUND IN A GROUP TOTAL LY DISSIMILAR OR IS THERE A COMMON THREAD RUNNING THROUGH THEM; (III) THE PURPOSE BEHIND INSERTION OF THE TER M. MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 14 10.8 LETS EXAMINE AS TO WHETHER BASED ON THE AFORE SAID TESTS THE SAID RULE OF CONSTRUCTION NOSCITUR A SOC IIS OUGHT TO BE APPLIED IN THE INSTANT CASE. (I) THE TERM A DVANCE HAS UNDOUBTEDLY MORE THAN ONE MEANING DEPENDING ON THE CONTEXT IN WHICH IT IS USED; (II) BOTH THE TERM S, THAT IS, ADVANCE OR LOAN ARE RELATED TO THE ACCUMULATED PRO FITS OF THE COMPANY; (III) AND LAST BUT NOT THE LEAST THE P URPOSE BEHIND INSERTION OF THE TERM ADVANCE WAS TO BRING W ITHIN THE TAX NET PAYMENTS MADE IN GUISE OF LOAN TO SHAREHOLDERS BY COMPANIES IN WHICH THEY HAVE A SUBSTANTIAL INTEREST SO AS TO AVOID PAYMENT OF TAX BY THE SHAREHOLDERS. 10.9 KEEPING THE AFORESAID RULE IN MIND WE ARE OF T HE OPINION THAT THE WORD ADVANCE WHICH APPEARS IN TH E COMPANY OF THE WORD LOAN COULD ONLY MEAN SUCH ADVANCE WHICH CARRIES WITH IT AN OBLIGATION OF REPA YMENT. TRADE ADVANCE WHICH IS IN THE NATURE OF MONEY TRANS ACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTION WOULD NO T, IN OUR VIEW, FALL WITHIN THE AMBIT OF THE PROVISIONS O F S. 2(22)(E) OF THE ACT. THIS INTERPRETATION WOULD ALLO Y THE RULE OF PURPOSIVE CONSTRUCTION WITH NOSCITUR A SOCI IS, AS WAS DONE BY THE SUPREME COURT IN THE CASE OF LIC OF INDIA VS. RETD. LIC OFFICERS ASSOCIATION (2008) 3 S CC 321. THE OBSERVATIONS IN PARA 24 OF THE REPORT BEING APP OSITE ARE EXTRACTED HEREINBELOW : 'EACH WORD EMPLOYED IN A STATUTE MUST TAKE COLOUR F ROM THE PURPORT AND OBJECT FOR WHICH IT IS USED. THE PR INCIPLE OF PURPOSIVE INTERPRETATION, THEREFORE, SHOULD BE T AKEN RECOURSE TOE. ' [EMPHASIS ADDED] IV) IN THE PRESENT CASE, ALL THE TRANSACTIONS HAVE TAKE N PLACE ON THE SAME DAY AND THE MONEY GIVEN BY M/S. SWATI ENERGY PROJEC TS P. LTD. CAME BACK TO IT ON THE SAME DAY AND THE INTENTION OF THE PART IES, AS GATHERED FROM FACTS DOES NOT REFLECT THAT, IT WAS TO ADVANCE OR L OAN OR A DEPOSIT. HENCE, IN VIEW OF THE FINDING OF THE REVENUE THAT THE TRANSAC TION IS NOT A GENUINE ADVANCE FOR PURCHASE OF GOODS, WE HAVE TO TAKE THE CONCLUSION TO THE LOGICAL END AND HOLD THAT, IN SUCH A VIEW OF THE MA TTER, IT IS ALSO NOT A LOAN OR AS ADVANCE, SO AS TO ATTRACT SECTION 2(22)(E). V) COMING TO THE ISSUE WHETHER THE ADVANCE GIVEN TO M/ S. POWER SERVICE CORPORATION, A PROPRIETARY CONCERN OF MR. MR. MANIS H DEDHIA, IT CAN BE MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 15 NOTICED THAT THE YEAR-WISE TURNOVER OF M/S. POWER S ERVICE CORPORATION IS AS FOLLOWS:- 2005-06 2,56,500 2006-07 2,12,463 2007-08 3,14,17,338 2008-09 1,78,34,311 2009-10 1,80,25,578 2010-11 1,37,16,896 WE ALSO FIND THAT MR. MR. MANISH DEDHIA, IS A PARTN ER IN SHEETAL AGENCIES, WHICH HAS THE FOLLOWING TURNOVER:- SHEETAL AGENCY TURNOVER AMOUNT IN CR. PROFIT AMOUNT IN ` 2003-04 4.16 36239 2004-05 82.32 1580853 2005-06 216.48 4667756 2006-07 51.10 1053071 TOTAL 354.06 HE IS ALSO A PARTNER IN ANOTHER FIRM SHEETAL GAMING PVT. LTD. SHEETAL GAMINGS PVT. LTD. TURNOVER AMOUNT IN CR. AMOUNT IN ` . PROFIT BEFORE TAX 2006-07 189.14 3184156 2007-08 211.52 4281701 2008-09 208.45 3823490 2009-10 209.65 3583543 TOTAL 818.76 TOTAL SALES 1172.82 MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 16 FROM THE ABOVE FIGURES, IT CANNOT BE SAID THAT M/S. POWER SERVICE CORPORATION IS BOGUS ENTITY OR A PAPER ENTITY. FROM THE COPIES OF PURCHASE ORDER, BANK GUARANTEE, SUPPLIES DOCUMENTATION, ETC. , AVAILABLE IN THE PAPER BOOK, IT CANNOT BE SAID THAT THE ADVANCE OR LOAN WA S GIVEN FOR THE BENEFIT OF M/S. SUJYOTI ENTERPRISES, OR ITS PARTNER. THE UNDIS PUTED FACT IS THAT, THE MACHINERY WAS ULTIMATELY SUPPLIED. IT IS NOT A CASE WHERE M/S. POWER SERVICE CORPORATION TOOK A LOAN AND HAS RE-PAID THE SAME. HE TOOK A TRADE ADVANCE AND SUPPLIED MACHINERY. THERE IS NO REPAYME NT IN CASH WITH INTEREST.. THOUGH THE FACT THAT MR. MR. MANISH DEDH IA, WAS AN ACCOUNTANT WITH THE ASSESSEE FIRM DRAWING SMALL AMOUNTS AS SAL ARY, PROMPTS US TO AGREE WITH THE FINDINGS OF THE ASSESSING OFFICER, W E ARE ALSO INFLUENCED BY THE FACT THAT THE MONEY WAS NOT RETURNED BUT MACHIN ERY WAS ULTIMATELY SUPPLIED. IN ANY EVENT, WE RESTRAIN OURSELVES FROM GIVING A DEFINITE FINDING ON THIS ISSUE AS IT WOULD NOT MAKE A DIFFERENCE. VI) LOOKING AT THE ISSUE FROM ANY ANGLE, IF IT IS HELD THAT THE LOAN WAS GIVEN TO THE PARTNERSHIP FIRM IN WHICH THE SHAREHOL DERS WERE HAVING SUBSTANTIAL INTEREST THROUGH A CONDUIT I.E., M/S. P OWER SERVICE CORPORATION, THEN, AS THE MONEY WAS RETURNED ON THE VERY SAME DA Y TO THE COMPANY, IT CANNOT BE SAID THAT A LOAN STILL EXISTS. WE HAVE TO TAKE THE TRANSACTION TO THE LOGICAL CONCLUSION. IF, ON THE OTHER HAND, IT IS SA ID THAT THIS IS A TRADE ADVANCE GIVEN TO M/S. POWER SERVICE CORPORATION, WH ICH HAD ULTIMATELY SUPPLIED MACHINERY TO THE ASSESSEE, THEN, SUCH AN A DVANCE CANNOT BE TERMED AS A LOAN SO AS TO BRING IT WITHIN THE AMBIT OF SECTION 2(22)(E). VII) COMING TO THE CASE LAWS, IN OUR OPINION, THE JUDGME NTS RELIED UPON BY THE REVENUE ARE NOT RELEVANT TO THE FACTS OF THE CA SE, AS THERE IS NO REPAYMENT OF A LOAN AND ALSO THERE IS NO LOAN AT AL L, WHICH IS USED BY THE SHAREHOLDERS OR THE FIRM M/S. SUJYOTI ENTERPRISES. VIII) KEEPING VIEW OF THE AFORESAID DISCUSSIONS, WE DELET E THE ADDITION IN THE HANDS OF THE ASSESSEE. MR. PRAVIN BHIMSHI CHHEDA M/S. M/S. SUJYOTI ENTERPRISES ITA NO.2483/MUM./2011 ITA NO.6319/MUM./2009 17 14. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED IN PART . 15. NOW, COMING TO THE APPEAL IN ITA NO.6319/MUM./2009, M/S. SUJYOTI ENTERPRISES, THE ONLY GRIEVANCE OF THE ASSESSEE IS AGAINST THE FINDINGS OF THE COMMISSIONER (APPEALS) ON THE ISSUE WHETHER THE TRA NSACTION WITH M/S. POWER SERVICE CORPORATION IS GENUINE OR NOT. 16. IN VIEW OF OUR FINDINGS IN MR. PRAVIN BHIMSHI CHHAD A, IN ITA NO.2483/ MUM./2011, VIDE PARA-13 OF THIS ORDER, WE DO NOT AD JUDICATE THE SAME AS IT WOULD BE AN ACADEMIC EXERCISE. 17. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. 18. TO SUM UP, ASSESSEES APPEAL IN ITA NO.2483/MUM./20 11, IS ALLOWED IN PART AND APPEAL IN ITA NO.6319/MUM./2009, IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY 2011 SD/- ASHA VIJAYRAGHAVAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 31 ST MAY 2011 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, C BENCH, ITAT, MUMBAI TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI