Sh. Krishan Murari Lal Agarwal, Agra V. The Dy.C.I.T., Circle-4(1), Agra

ITA 295/AGR/2012

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0566 (ITAT-AGRA)
• Duration Of Justice: 6 year(s) 10 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-06-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 02-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Deemed dividend; TDS; Set aside
• Section: 2(22)(e); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 295/AGRA/ 2012 ASSESSMENT YEAR 2008-09 SHRI KRISHAN MURARI LAL AGARWAL VS. DEPUTY COMMISS IONER OF INCOME TAX 2/101, SURYA NAGAR, AGRA CIRCLE-4(1), INCOME TAX D EPARTMENT, AGRA. SANJAY PLACE, AGRA (PAN AANPA2746E) (APPELLANTS) (RESPONDENTS) APPELLANT BY : SHRI RAJENDRA SHARMA, ADVOCATE RESPONDENT BY : SHRI WASEEM ARSHAND, SR. D.R. DATE OF HEARING : 17.06.2013 DATE OF PRONOUNCEMENT : 05.07.2013 ORDER PER A.L. GEHLOT,ACCOUNTANT MEMBER: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 15.03.2012 PASSED BY THE LEARNED CIT(A)-II, AGRA FO R A.Y. 2008-09. 2. THE GROUNDS RAISED IN THIS APPEAL IS REPRODUCED AS BELOW:- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, AGRA HAS ERRED ON FACTS AS WELL AS IN LAW WHILE SUSTAINING T HE ADDITION OF RS.1,01,20,910/- MADE BY THE ASSESSING OFFICER U/S 56 READ WITH SECTION 2(22)(E) OF THE IN COME TAX ACT, 1961 WHICH IS SUSTAINED, WITHOUT TAKING IN TO CONSIDERATION THE MATERIAL FACTS AND CASE LAWS BROU GHT ON RECORD BY THE APPELLANT. AFTER TAKING INTO ITA NO.295 /AGRA./2012, A.Y. 2008-09 2 CONSIDERATION THE ABOVE, NO ADDITION IS LIABLE TO B E SUSTAINED, SAME IS LIABLE TO BE DELETED. (2) THAT WHILE SUSTAINING THE ADDITION AT RS.1,01, 20,910/- THE AUTHORITIES BELOW HAVE NOT REJECTED NOR REBUTTED TH E SUBMISSIONS MADE BEFORE THEM IN SUPPORT OF THEIR CONTENTION. AFTER TAKING INTO CONSIDERATION ALL THE SE DOCUMENTS NO ADDITION IS LIABLE TO BE SUSTAINED, SA ME IS LIABLE TO BE DELETED. (3) THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS)-II, AGRA HAS ERRED BOTH IN LAW AND ON FACTS IN CONFIRMI NG THE ADDITION OF RS.1,34,794/- MADE BY THE ASSESSING OFF ICER U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 COMPLETE LY IGNORING THE CASE LAWS AND OTHER MATERIAL FACTS BRO UGHT ON RECORD BY THE APPELLANT DURING THE COURSE OF APP ELLATE PROCEEDINGS. (4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, AGRA HAS ERRED BOTH ON LAW AND ON FACTS IN CONFIRMING THE AD DITION OF RS.10,00,000/- MADE U/S 28(IV) OF THE INCOME TAX ACT, 1961 COMPLETELY IGNORING THE MATERIAL FACTS AND PRONOUNCEMENTS RELIED UPON BY THE APPELLANT DURING THE COURSE OF APPELLATE POROCEEDINGS. 3. THE BRIEF FACTS OF FIRST AND SECOND GROUNDS OF THE APPEAL ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS MADE TRANSACTIONS WITH M/S BHOLE BABA BUILDCON P. L TD. AS UNDER:- DATE PARTICULARS DEBIT CREDIT 01.04.2007 OPENING BALANCE 2,50,55,357 10.07.2007 TDS A/C BEING THE AMOUNT OF TDS CHARGED ON INTEREST PAID BY BHOLE BABA BUILDCON P. LTD. 1,06,880 ITA NO.295 /AGRA./2012, A.Y. 2008-09 3 INTEREST RECEIVED A/C BEING THE AMOUNT OF INTEREST CHARGED ON LOAN 10,37,670 27.07.2007 STATE BANK OF INDIA (SIB BR.) CH. NO.798176 RECEIVED FROM BHOLE BABA BUILDCON P. LTD. 2,59,86,147 10.01.2008 STATE BANK OF INDIA (SIB BR.) CH. NO.798200 RECEIVED FROM BHOLE BABA BUILDCON LTD. 1,00,00,000 31.03.2008 INTEREST PAID BEING AMOUNT OF INTT. PID TO BHOLE BABA BNUILDCON P LTD. 1,34,794 PAYABLE TDS BEING THE AMOUNT OF TDS DEDUCTED ON INTEREST PAID ON RS.1,00,00,000/- @ 10.3%. 13,884 4. THE A.O. NOTICED THAT THE ASSESSEE HAS SHAREHOLD ER OF MORE THAN 10%. THE COMPANY HAS SUFFICIENT RESERVES AND SURPLUS. TH E COMPANY IS ONE WHERE PUBLIC IS NOT SUBSTANTIALLY INTERESTED. THE A.O. AF TER CONSIDERING ASSESSEE SUBMISSION FOUND THAT THE AMOUNT OF RS.1,01,20,910/ - IS HIT BY THE SECTION 2(22)(E) OF THE ACT. THE A.O. AFTER EXAMINING THE A CCUMULATE PROFIT AND OTHER CONDITION FOR SECTION 2(22)(E) OF THE ACT MAD E ADDITION OF RS.1,01,20,910/- ITA NO.295 /AGRA./2012, A.Y. 2008-09 4 5. THE CIT(A) CONFIRMED THE ORDER OF THE A.O. OBSER VING THAT THE ASSESSEE HAS MISERABLY FAILED TO PROVE THAT THE MON EY WAS ADVANCED BY M/S. BHOLE BABA BUILDCON PVT. LTD. FOR ANY BUSINESS CONS IDERATION. THE PLEA TAKEN BY THE ASSESSEE THAT THE ADVANCE WAS GIVEN BY M/S BHOLE BABA BUILDCON PVT. LTD. FOR PURCHASE OF COLD STORAGE BUI LDING REMAINS TOTALLY UNSUBSTANTIATED. THE CIT(A) AGREED WITH THE VIEW OF THE AO THAT PROVISIONS OF SEC. 2(22)(E) ARE SQUARELY APPLICABLE IN THE ASS ESSEES CASE AND HIS CASE IS NOT COVERED BY THE EXCEPTIONS AS PROVIDED IN SEC.2( 22)(E). ALSO, AS ON THE DATE OF GIVING THE LOAN THE COMPANY HAD SUFFICIENT ACCUMULATED PROFITS. THE ORDER PASSED BY THE AO DOES NOT CALL FOR ANY INTERF ERENCE, THEREFORE, THE ADDITION OF RS.1,01,20,910/- WAS SUSTAINED AND GROU ND WAS DISMISSED. 6. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE A.O. IS HIGHLY UNJUSTIFIED AND LEGALLY IN INCORRECT IN HOLDING THA T THE TRANSACTION BETWEEN ASSESSEE AND M/S BHOLE BABA BUILDCON PVT. LTD. IS C OVERED WITHIN THE MEANING OF SECTION 2(22)(E) OF THE I.T. ACT, 1961 A ND, HENCE THE SAME IS ADDED IN THE HANDS OF THE ASSESSEE U/S 56 OF THE AC T I.E. INCOME FROM OTHER SOURCES READ WITH SECTION 2(22)(E) OF THE ACT. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE OBSERVATION OF TH E ASSESSEE ARE WITHOUT ANY BASIS AND ARE BASED UPON MISINTERPRETATION OF T HE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE LD. AUTHORIZED REPRESENTAT IVE FURTHER SUBMITTED THAT ITA NO.295 /AGRA./2012, A.Y. 2008-09 5 DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS CLARIFIED TO THE ASSESSING OFFICER THROUGH WRITTEN SUBMISSION THAT THE ASSESSE E HAD TAKEN LOAN OF RS.1 CRORE FROM M/S BHOLE BABA BUILDCON PVT. LTD., ON TH E BASIS OF AN IKRARNAMA EXECUTED ON NON JUDICIAL STAMP PAPER OF RS.100/- WH EREIN, IT IS CLEARLY STATED ON A PIECE OF LAND (KHASRA NO.91, AREA 4-17-0 BIGHA STIATUED AT MAUZA BAROLI AHEER, SHAMSHADBAD ROAD, AGRA, A COLD STORAG E IS BUILT UP KNOWN AS BHOLE BABA ICE FACTORY AND COLD STORAGE. ON THE BAS IS OF THE AFORESAID IKRARNAMA IT HAS BEEN AGREED BETWEEN THE DIRECTOR, SHRI HARI SHANKAR AGARWAL OF BHOLE BABA BUILDCON (P) LTD. THE OWNER O F THE SAID PIECE OF LAND, BHOLE BABA ICE FACTORY & COLD STORAGE, SHRI K RISHAN MURARI AGARWAL THE ASSESSEE, THAT THE SAID PIECE OF LAND WAS AGREE D TO BE SOLD FOR AN AMOUNT OF RS.2 CRORE AND HALF OF THE SAID SUM I.E. RS.1 CR ORE WAS GIVEN AS AN ADVANCE TO THE ASSESSEE WITH THE CLEAR UNDERSTANDIN G THAT REST OF THE SUM OF RS.1,00,00,000/-SHALL BE RECEIVED BY THE ASSESSEE O N MAKING A SALE DEED BEFORE THE SUB REGISTRAR, AGRA AND FAILURE TO DO SO THE FIRST PARTY I.E. THE DIRECTOR OF M/S BUILDCON PVT. LTD., SHALL BE ENTITL ED TO TAKE BACK THE SAID SUM OF RS.1 CRORE FROM THE ASSESSEE AFTER CHARGING THE INTEREST AS STIPULATED IN THE SAID IKRARNAMA. THE LD. AUTHORIZED REPRESENT ATIVE SUBMITTED THAT THESE TRANSACTIONS WERE RECORDED IN THE BOOKS OF AC COUNT WHICH WERE PRODUCED BEFORE THE ASSESSING OFFICER. ITA NO.295 /AGRA./2012, A.Y. 2008-09 6 7. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THEREAFTER, DUE TO SOME DISPUTE BETWEEN THE ASSESSEE AND M/S BABA DAIR Y BUILDCON PVT. LTD., THE SAID IKRARNAMA WAS CANCELLED AND A SETTLEMENT D EED WAS EXECUTED BETWEEN THE ASSESSEE AND M/S BHOLE BABA BUILDCON PV T. LTD., THROUGH ITS DIRECTOR SHRI HARI SHANKAR AGARWAL THAT THE ADVANCE MONEY OF RS.1 CRORE GIVEN BY M/S BHOLE BABA BUILDCON PVT. LTD., TO THE ASSESSEE SHALL BE REFUNDED BY THE ASSESSEE TO M/S BHOLE BABA BUILDCON PVT. LTD., TILL MARCH, 2009 INCLUDING INTEREST @ 6% PER ANNUM. IT WAS FUR THER STIPULATED IN THE SAID SETTLEMENT DEED THAT IF SAID REPAYMENT OF RS.1 CRORE IS NOT PAID TILL 31 ST MARCH, 2009 BY THE ASSESSEE THEN THE RATE OF INTERE ST SHALL BE INCREASED TO 18% PER ANNUM. IN THE SAID SETTLEMENT DEED, IT WAS SPECIFICALLY MENTIONED THAT THE IKRARNAMA DATED 07.01.2008 BE TREATED AS C ANCELLED. 8. THE LD. D.R. ON THE OTHER HAND, RELIED UPON THE ORDER OF CIT(A) AND SUBMITTED THAT IT IS A CASE OF ADVANCE OR LOAN IN A CCORDANCE WITH SECTION 2(22)(E) OF THE ACT. THE LD. D.R. SUBMITTED THAT TH IS FACT SUPPORTED BY AUDITED BALANCE SHEET WHEREIN THE AUDITOR HAS SHOWN THIS AMOUNT AS UNSECURED LOAN. THEREFORE, THE SAID LOAN CANNOT SAI D TO BE A LOAN FOR BUSINESS PURPOSES. AS REGARDS THE AGREEMENT AND MOU, THE LD. D.R. SUBMITTED THAT IT IS AFTER THOUGHT. ITA NO.295 /AGRA./2012, A.Y. 2008-09 7 9. WE HAVE HEARD LD. REPRESENTATIVES OF THE PARTIES AND RECORDS PERUSED. THE ISSUE UNDER CONSIDERATION IS PERTAINING TO SECT ION 2(22)(E) OF THE ACT. TO APPRECIATE THE ISSUE. WE WOULD LIKE TO REPRODUCE TH E SAID SECTION 2(22)(E) OF THE ACT AS UNDER :- (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) [MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF AD VANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFIC IAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN P ROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUS E REFERRED TO AS THE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY O N BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER , TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULA TED PROFITS; BUT 'DIVIDEND' DOES NOT INCLUDE (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CL AUSE (C) OR SUB- CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSIDERATION, WHERE THE HOLDER OF THE SHARE IS NOT ENTITLED IN THE EVENT OF LIQUIDATION TO PARTICIPATE IN THE SURPLUS ASSETS ; [(IA) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-C LAUSE (C) OR SUB- CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS ATTRIB UTABLE TO THE CAPITALISED PROFITS OF THE COMPANY REPRESENTING BON US SHARES ALLOTTED TO ITS EQUITY SHAREHOLDERS AFTER THE 31ST DAY OF MARCH, 1964, [AND BEFORE THE 1ST DAY OF APRIL, 1965] ;] (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER [OR THE SAID CONCERN] BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY ; ITA NO.295 /AGRA./2012, A.Y. 2008-09 8 (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET OFF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PREVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEANING OF SUB-CLA USE (E), TO THE EXTENT TO WHICH IT IS SO SET OFF; [(IV) ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PROVISION S OF SECTION 77A OF THE COMPANIES ACT, 1956 (1 OF 1956); (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMER GER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERG ED COMPANY (WHETHER OR NOT THERE IS A REDUCTION OF CAPITAL IN THE DEMERGED COMPANY).] EXPLANATION 1.THE EXPRESSION 'ACCUMULATED PROFITS' , WHEREVER IT OCCURS IN THIS CLAUSE, SHALL NOT INCLUDE CAPITAL GA INS ARISING BEFORE THE 1ST DAY OF APRIL, 1946, OR AFTER THE 31ST DAY O F MARCH, 1948, AND BEFORE THE 1ST DAY OF APRIL, 1956. EXPLANATION 2.THE EXPRESSION 'ACCUMULATED PROFITS' IN SUB- CLAUSES (A), (B), (D) AND (E), SHALL INCLUDE ALL PR OFITS OF THE COMPANY UP TO THE DATE OF DISTRIBUTION OR PAYMENT REFERRED TO IN THOSE SUB- CLAUSES, AND IN SUB-CLAUSE (C) SHALL INCLUDE ALL PR OFITS OF THE COMPANY UP TO THE DATE OF LIQUIDATION, [BUT SHALL N OT, WHERE THE LIQUIDATION IS CONSEQUENT ON THE COMPULSORY ACQUISI TION OF ITS UNDERTAKING BY THE GOVERNMENT OR A CORPORATION OWNE D OR CONTROLLED BY THE GOVERNMENT UNDER ANY LAW FOR THE TIME BEING IN FORCE, INCLUDE ANY PROFITS OF THE COMPANY PRIOR TO THREE SUCCESSIVE PREVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS Y EAR IN WHICH SUCH ACQUISITION TOOK PLACE]. [EXPLANATION 3.FOR THE PURPOSES OF THIS CLAUSE, (A) 'CONCERN' MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY ; (B) A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIA L INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIM E DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS TH AN TWENTY PER CENT OF THE INCOME OF SUCH CONCERN ;] ITA NO.295 /AGRA./2012, A.Y. 2008-09 9 10. ON PLAIN READING OF AFORESAID SECTION WE FIND T HAT SUB-CLAUSE (E) OF SECTION 2(22) LAYS DOWN THAT DIVIDEND INCLUDES ANY PAYMENT BY A CLOSELY HELD COMPANY OF ANY SUM BY WAY OF ADVANCE OR LOAN T O A SHAREHOLDER WHO COMES IN THE CATEGORY DESCRIBED IN THAT SUB-CLAUSE OR TO A CONCERN IN WHICH SUCH SHAREHOLDER HAS A SUBSTANTIAL INTEREST. DIVIDE ND UNDER THE SUB-CLAUSE ALSO INCLUDES ANY PAYMENT BY SUCH COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER. DEEMED DIVIDEND U NDER THIS SUB-CLAUSE WOULD BE TO THE EXTENT TO THE COMPANY IN EITHER CAS E POSSESSES ACCUMULATED PROFITS. THE SHAREHOLDER REFERRED TO HERE SHOULD BE BENEFICIAL OWNER OF SHARES HOLDING NOT LESS THAN 10% OF THE VOTING POWE R BUT THOSE SHARES SHOULD NOT BE SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS. 11. OBJECT OF THIS SUB CLAUSE IS THAT A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED MAY NOT DECLARE DIVIDENDS OR ADEQUATE DIVIDENDS AND MAY NOT MERELY GIVE LOANS TO SHAREHOLDERS AND SUCH LOANS NOT BEING DIVIDENDS UNDER THE GENERAL LAW, WOULD NOT BE TAXAB LE AS INCOME IN THE HANDS OF SHAREHOLDERS. AS THE PUBLIC WOULD NOT HAVE SUBSTANTIAL INTEREST IN SUCH COMPANY, THOSE SUBSTANTIALLY INTERESTED IN THE COMPANY MAY NOT RECOVER THE LOANS OR ALLOW THEM TO BE BARRED BY TIM E. THE RESULT WOULD BE THAT AMOUNTS WHICH WERE OSTENSIBLY RECEIVED AS LOAN S OR ADVANCES BECOME IN ITA NO.295 /AGRA./2012, A.Y. 2008-09 10 THE INCOME OF SHAREHOLDERS AND YET THEY WOULD NOT B E REQUIRED TO PAY ANY TAX ON SAID INCOME UNDER THE LAW. IT IS TO AVOID TH E EVIL OF THIS NATURE THAT SUB-CL.(E) OF SECTION 2(22) HAS BEEN ENACTED. THIS SUB-CLAUSE CREATED A FICTION THAT THE AMOUNT IN QUESTION WAS DIVIDEND. NORMALLY LEGAL FICTIONS ARE CREATED FOR A DEFINITE PURPOSE AND THEY ARE LIMITED TO THE PURPOSE FOR WHICH THEY ARE CREATED AND SHOULD NOT BE EXTENDED BEYOND THEIR LEG ITIMATE FILED. HOWEVER, LEGAL FICTIONS OUGHT TO BE CARRIED TO ITS LOGICAL C ONCLUSION WITHIN THE FRAMEWORK OF THE PURPOSE FOR WHICH IT WAS CREATED. 12. THE EXPRESSION USED IN FIRST PART OF SECTION 2( 22)(E) IS ADVANCE OR LOAN. THE WORD ADVANCE HAS NOT BEEN DEFINED. IT ORD INARILY MEANS PAYMENT OF CASH OR TRANSFER OF GOODS FOR WHICH ACCOUNTING M UST BE RENDERED BY THE RECIPIENT AT SOME LATER DATE. THE TRANSACTION OF LO AN INVOLVES LENDING AND DELIVERY BY ONE PARTY AND RECEIPT BY ANOTHER PARTY OF SUM MONEY UPON EXPRESS OR IMPLIED AGREEMENT TO REPAY IT WITH OR WI THOUT INTEREST. THE PHRASE BY WAY OF ADVANCE OR LOAN APPEARING IN SECTION 2 (22)(E) OF THE ACT BE CONSTRUED TO MEAN THOSE ADVANCES OR LOANS WHICH A S HARE HOLDER ENJOYS FOR SIMPLY ON ACCOUNT OF BEING A PESON WHO IS THE BENEF ICIAL OWNER OF SHARES, BUT IF SUCH LOAN OR ADVANCE IS GIVN TO SUCH SHAREHO LDER AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO TH E COMPANY RECEIVED FROM A SHAREHOLDER, IN SUCH CASE, SUCH ADVANCE OR LOAN CAN NOT BE SAID TO A DEEMED ITA NO.295 /AGRA./2012, A.Y. 2008-09 11 DIVIDEND WITHIN THE MEANING OF THE ACT. THUS, GRATU ITOUS LOAN OR ADVANCE GIVEN BY A COMPANY TO THOSE CLASSES OF SHAREHOLDERS WOULD COME WITHIN THE PURVIEW OF SECTION 2(22) OF THE ACT BUT NOT THE CAS ES WHERE THE LOAN OR ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFIRME D UPON THE COMPANY BY SUCH SHAREHOLDER. 13. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. CREATIVE DYEING & PRINTING (P) LTD. (2009) 318 ITR 476 (DEL.) WHEREIN IT HAS BEEN HELD THAT THE AMOUNT ADVANCED TO THE ASSESSEE COMPANY BY ANOTHER COMPANY HAVING COMMON DIRECTORS NOT BEING A LOAN TO ADVANCE FOR BU SINESS TRANSACTION WHICH IS TO BE ADJUSTED AGAINST THE MONEYS PAYABLE BY THE LATTER TO THE ASSESSEE COMPANY IN THE SUBSEQUENT YEARS, SAME DID NOT FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND UNDER SECTION 2(22)(E ) OF THE ACT. 14 HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. RAJ KUMAR (2009) 318 ITR 462 WHEREIN IT HAS BEEN HELD THAT TR ADE ADVANCE WHICH IS IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO CO MMERCIAL TRANSACTION DOES NOT FALL WITHIN THE AMBIT OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 15. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS . AMBASSADOR TRAVELS P. LTD. [2009] 318 ITR 376 (DELHI) WHEREIN IT HAS BEEN HELD THAT IN CASE OF NORMAL COURSE OF BUSINESS TRANSACTIONS IT S HOULD NOT BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. ITA NO.295 /AGRA./2012, A.Y. 2008-09 12 16. HONBLE CALCUTTA HIGH COURT IN THE CASE OF PRAD EEP KUMAR MALHOTRA VS. CIT (2011) 338 ITR 538 (CAL.) WHEREIN IT HAS BE EN HELD THAT LOAN ADVANCED BY COMPANY TO SHAREHOLDER IN COMPENSATION OF SHAREHOLDER MORTGAGING HIS IMMOVABLE PROPERTY FOR ENABLING COMP ANY TO SECURE BANK LOAN CANNOT BE TREATED AS DEEMED DIVIDEND UNDER SEC TION 2(22)(E) OF THE ACT. 17. IN THE LIGHT OF THE ABOVE DISCUSSIONS, IF WE CONSIDER THE FACTS OF THE CASE UNDER CONSIDERATION, WE NOTICE THAT THE ASSESS EE WAS HAVING RUNNING ACCOUNT WITH THE COMPANY HAVING OPENING DEBIT BALAN CE OF RS.2,50,55,357/- AS ON 01.04.2007. RS.2,59,86,147/- RECEIVED FROM TH E COMPANY, BHOLE BABA BUILDCON (P) LTD. ON 27.07.2007. SIMILARLY ON 10.01 .2008, A SUM OF RS.1,00,00,000/- RECEIVED FROM BHOLE BABA BUILDCON P. LTD. THE CONTENTION OF THE ASSESSEE WAS THAT THE BUSINESS TRANSACTION W AS DONE WITH THE ASSESSEE IN THIS ACCOUNT AND A SUM OF RS.1,00,00,000/- WAS R ECEIVED TO THE ASSESSEE AGAINST TRANSACTION OF SALE OF COLD STORAGE OF THE ASSESSEE. THE ASSESSEE WAS HAVING COLD STORAGE AT 91, MAUZA BAROLI AHEER, SHAM SABAD ROAD, AGRA KNOWN AS BHOLE BABA ICE FACTORY & COLD STORAGE. THE ASSESSEE HAS FURNISHED THE AGREEMENT DATED 07.01.2008 BETWEEN TH E DIRECTOR OF THE SAID COLD STORAGE AND DIRECTOR, BHOLE BABA BUILDCON (P) LTD. COPY OF THE SAID AGREEMENT HAS BEEN PLACED AT PAGE NOS. 2 & 3 OF THE ASSESSEES PAPER BOOK. THE ASSESSEE HAS ALSO FURNISHED THE COPY OF RESOLUT ION OF BOARD MEETING ITA NO.295 /AGRA./2012, A.Y. 2008-09 13 DATED 05.01.2008. THE ABSTRACT OF THE BOARD RESOLUT ION IS REPRODUCED AS BELOW:- RESOLVED THAT, BOARD OF DIRECTORS BE AND IS HEREBY AUTHORIZED TO PURCHASES THE COLD STORAGE PROPERTY S ITUATED AT KHASRA NO. 91, MAUZA BAROLI AHEER, SHAMSABAD ROAD,A GRA FROM SHRI KIRSHNA MURARI LAL AGARWAL FOR THE PURPOSE OF BUSINESS ACTIVITIES OF THE COMPANY UP TO MAXIMUM AMOUNT OF R S.2.00 CRORE. FURTHER RESOLVED THAT, SHRI HARI SHANKAR AGARWAL, DIRECTOR, BE AND IS HEREBY AUTHORIZED BY A ND ON BEHALF OF THE BOARD TO GIVE EFFECT TO THE ABOVE RES OLUTION AND ALSO TO DO ALL SUCH ACTS, DEEDS AND THINGS AS MAY BE DEEMED NECESSARY IN RELATION TO THE PURCHASE ABOVE PROPERTY. 18. HOWEVER, THE MATTER COULD NOT BE MATERIALIZED A ND MOU WAS EXECUTED ON 28.03.2008 CANCELLING THE SAID TRANSACT ION, A COPY OF MOU HAS BEEN PLACED AT PAGE NOS. 4 & 5 OF THE ASSESSEES PA PER BOOK. 19. CONSIDERING THE FACTS OF THE CASE AND MATERIAL ON RECORD, WE NOTICE THAT THE ASSESSEE HAS PRIMA FACIE DISCHARGED THE BU RDEN IN ESTABLISHING THAT THE AMOUNT RECEIVED WAS A COMMERCIAL TRANSACTION, T HEREFORE, THE TRANSACTION IS NOT COVERED BY SECTION 222(E) OF THE ACT. 20. AS REGARDS, THE CONTENTION OF THE LD. D.R. THAT THE ASSESSEE HAS SHOWN THIS AMOUNT AS UNSECURED LOAN IN THE BOOKS OF ACCOU NT, IN THIS REGARD, IT IS RELEVANT TO STATE THAT FOR THE PURPOSE OF INCOME-TA X MATTER THE ENTRIES IN THE ITA NO.295 /AGRA./2012, A.Y. 2008-09 14 BOOKS OF ACCOUNT CANNOT BE SAID TO BE A FINAL ENTRY OR TRANSACTION. FOR THE PURPOSE OF INCOME-TAX, ONE IS TO EXAMINE THE NATURE OF TRANSACTION IN ACCORDANCE WITH LAW. IN THE LIGHT OF THE FACTS, THE SAME IS TO BE DECIDED IN ACCORDANCE WITH LAW. IN THE CASE UNDER CONSIDERATIO N AS STATED ABOVE, THE ASSESSEE HAS DEMONSTRATED THAT THE AMOUNT WAS RECEI VED FOR THE PURPOSE OF COMMERCIAL TRANSACTION. AS REGARDS, THE SECOND OBJE CTION, WHICH IS AGREEMENT AND MOU AS AFTER THOUGHT, IN THIS REGARD, WE ARE OF THE VIEW THAT THESE DOCUMENTS ARE ALREADY ON RECORD AND THE REVEN UE DID NOT POINT OUT ANY CONTRARY MATERIAL TO THESE DOCUMENTS. THEREFORE, ME RELY BY STATING THAT THIS IS AFTER THOUGHT, SUCH ARGUMENT OF THE REVENUE WITH OUT SUPPORTING MATERIAL/EVIDENCE IS NOT SUSTAINABLE, THEREFORE, TH E SAME IS REJECTED. 21. IN THE LIGHT OF ABOVE DISCUSSIONS, WE FIND THAT THE AMOUNT OF RS.1,00,00,000/- RECEIVED TO THE ASSESSEE IS ON ACC OUNT OF COMMERCIAL TRANSACTION, THEREFORE, THE SECTION 2(22)(E) IS NOT APPLICABLE. WE, THEREFORE, DELETE THE ADDITION OF RS.1,01,20,910/- MADE BY THE A.O. AND SUSTAINED BY THE CIT(A). 22. THE THIRD GROUND IS IN RESPECT OF ADDITION OF R S.1,34,794/- BY DISALLOWING INTEREST UNDER SECTION 36(1)(III) OF TH E ACT. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE A SSESSEE HAS TAKEN INTEREST BEARING LOAN ON WHICH INTEREST HAS BEEN PAID. THE A .O. FURTHER NOTICED THAT ITA NO.295 /AGRA./2012, A.Y. 2008-09 15 TOTAL AMOUNT OF RS.1,73,38,986/- WAS GIVEN TO FAMIL Y MEMBERS BY THE ASSESSEE WITHOUT CHARGING INTEREST. THE A.O. HELD T HAT THE ASSESSEE HAS DIVERTED INTEREST BEARING FUND TO INTEREST FREE FUN D TO HIS FAMILY MEMBERS. THE A.O. DISALLOWED THE INTEREST CLAIM OF THE ASSES SEE RS.1,34,794/- DISALLOWING INTEREST UNDER SECTION 36(1)(III) OF TH E ACT. THE CIT(A) CONFIRMED THE ORDER OF THE A.O. 23. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THA T THE ASSESSEE WAS HAVING SUFFICIENT CAPITAL TO COVER THE INTEREST FRE E FUND GIVEN BY THE ASSESSEE. THE ASSESSEE WAS HAVING OWN CAPITAL RS.1,78,85,290/ - WHEREAS ADVANCE TO FAMILY MEMBERS WAS RS.1,73,38,986/-. THE. LD. AUTHO RIZED REPRESENTATIVE RELIED UPON THE ORDER OF THE ITAT, AGRA BENCH IN IT A NO. 44/AGRA/2012 VIDE ORDER DATED 20 TH JULY, 2012, ITA NO. 142/AGRA/2011 ORDER DATED 22.06.2012 AND ITA NO. 58/AGRA/2012 ORDER DATED 20. 07.2012. 24. WE HAVE HEARD LD. REPRESENTATIVES OF THE PARTIE S AND RECORDS PERUSED. WE NOTICED THAT ON IDENTICAL SET OF FACTS, THE ITAT , AGRA BENCH HAS ADOPTED A FORMULA FOLLOWING CERTAIN ORDERS OF OTHER BENCHES OF ITAT THAT TO THE EXTENT OF THE OWN FUND IF THE ASSESSEE DIVERTED THE INTEREST-FREE FUND, TO THAT EXTENT NO DISALLOWANCE OF INTEREST CAN BE MADE UNDE R SECTION 36(1)(III) OF THE ACT. IN THE CASE UNDER CONSIDERATION, THE ASSES SEE HAS DEMONSTRATED THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN CAPITAL RS.1 ,78,85,290/- AS AGAINST ITA NO.295 /AGRA./2012, A.Y. 2008-09 16 INTEREST-FREE LOAN GIVEN RS.1,73,38,986/-. TO MAINT AIN CONSISTENCY WE FOLLOW THE SAID ORDER OF THE ITAT (SUPRA). IN VIEW OF THAT , WE SET ASIDE THE ORDER OF THE REVENUE AUTHORITIES AND DELETED THE ADDITION OF RS.1,34,794/- 25. THE FOURTH GROUND IS IN RESPECT OF ADDITION OF RS.10,00,000/-. THE A.O. MADE ADDITION OF RS.10,00,000/- ON THE GROUND THAT ASSESSEE HAS SHOWN RS.10,00,000/- AS LIABILITY FORGONE. THE SAID AMOUN T HAS BEEN CREDITED TO CAPITAL ACCOUNT. THE ADDITION MADE BY THE A.O. HAS BEEN CONFIRMED BY THE CIT(A) OBSERVING THAT THE A.O. HAS RIGHTLY MADE ADD ITION INVOKING SECTION 28(IV) OF THE ACT. 26. WE HAVE HEARD LD. REPRESENTATIVES OF THE PARTIE S AND RECORDS PERUSED. THE ADMITTED FACTS OF THE CASE ARE THAT THERE IS FO RFEITED LIABILITY AND THE ASSESSEE HAS CREDITED THE AMOUNT TO THE CAPITAL ACC OUNT. SECTION 28(IV) OF THE ACT IS CLEARLY APPLICABLE TO THE CASE UNDER CONSIDE RATION. THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT THE AMOU NT WAS NOT ARISING FROM BUSINESS OR PROFESSION. THIS CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE IS NOT ACCEPTABLE AS EVIDENT FROM THE FACTS THAT TH IS AMOUNT HAS BEEN CREDITED TO CAPITAL ACCOUNT ON ACCOUNT OF LIABILITY FORGONE IN HIS BALANCE SHEET OF BUSINESS TRANSACTION. THE ASSESSEE FAILED TO FURNIS H ANY CONTRARY EVIDENCE. WHEN THIS WAS NOT RELATED TO BUSINESS, WHY THIS AMO UNT HAS BEEN CREDITED TO ITA NO.295 /AGRA./2012, A.Y. 2008-09 17 CAPITAL ACCOUNT. THE ASSESSEE WAS HAVING NO SUCH EX PLANATION TO THIS QUESTION. 27. IN THE LIGHT OF VARIOUS JUDGMENTS INCLUDING THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. AR IES ADVERTISING PVT. LTD. (2002) 255 ITR 510, JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. T.V. SUNDARAM IYENGAR AND SONS LTD. (1996) 222 ITR 344 AND THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE O F CIT VS. RAJASTHAN GOLDEN TRANSPORT CO. (P.) LTD. (2001) 249 ITR 723, THIS AMOUNT IS LIABLE TO TAX. WE, THEREFORE, FIND THAT THE CIT(A) HAS RIGHTL Y CONFIRMED THE ADDITION OF RS.10,00,000/-. THE ORDER OF THE CIT(A) IS CONFIRME D ON THE ISSUE. 28. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT.) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTA NT MEMBER AMIT/ COPY OF THE ORDER FORWARDED TO:- APPELLANT/RESPONDENT/CIT (APPEALS) CONCERNED CIT CONCERNED/D.R., ITAT, AGRA BENCH, AGRA GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, AGRA TRUE COPY