DCIT, New Delhi V. M/s. Regent Automobiles Pvt. Ltd., New Delhi

ITA 3524/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3725 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 30-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 20-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KISHORE
• Keywords: Additional evidence; Wholly owned subsidiary; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI K.D. RANJAN ITA NO. 3524/DEL/2010 ASSESSMENT YEAR: 2006-07 DY. COMMISSIONER OF IT, VS. REGENT AUTOMOBIL ES PVT. LTD., CIRCLE 15(1), B-1/H-I, MOHAN COOPERATIVE NEW DELHI. INDUSTRIAL AREA, MATHURA RD. NEW DELHI (PAN: AACCR5352H) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI B. KISHORE, SR. DR RESPONDENT BY: SHRI MP RASTOGI, AD V. ORDER PER RAJPAL YADAV: JUDICIAL MEMBER PER RAJPAL YADAV: JUDICIAL MEMBER PER RAJPAL YADAV: JUDICIAL MEMBER PER RAJPAL YADAV: JUDICIAL MEMBER THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LEARNED CIT(APPEALS) DATED 23.04.2010 PASSED FOR ASSESSMENT YEAR 2006-07. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT LEARNED C IT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.85,81,348 WHICH WAS ADD ED BY THE ASSESSING OFFICER WITH THE AID OF SECTION 2(22)(E) OF THE INC OME-TAX ACT, 1961 AS DEEMED DIVIDEND. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED ITS RETURN OF INCOME ON 30 TH NOVEMBER 2006 DECLARING AN INCOME OF RS.25,16,870. THE ASSESSEE COMPANY AT THE RELEVANT TIME WAS WORKING A S A DEALER OF GENERAL 2 MOTORS. IT ENGAGED IN THE BUSINESS OF TRADING AND S ERVICE STATION OF THE CARS. ON SCRUTINY OF THE ACCOUNT, ASSESSING OFFICER FOUND THAT ASSESSEE HAS TRANSACTION WITH ITS SISTER CONCERN I.E. M/S. EXCEL CARS PVT. LTD. WHEN THE ASSESSING OFFICER PROBED THE ISSUE FURTHER, HE FOUN D THAT A SUM OF RS.1,37,00,000 HAS BEEN RECEIVED AS ADVANCE FROM M/ S. M/S. EXCEL CAR PVT. LTD. ACCORDING TO THE ASSESSING OFFICER, THE ASSESS EE WAS HOLDING 5,25,000 SHARES OF FACE VALUE OF RS.10 EACH OF M/S. EXCEL CA RS PVT. LTD. IN TERMS OF PERCENTAGE, IT IS 26.64% OF THE TOTAL SHARES. SIMIL ARLY, M/S. EXCEL CARS PVT. LTD. IS HOLDING 4,54,500 SHARES OF THE ASSESSEE COM PANY HAVING FACE VALUE OF RS.10 EACH. IN TERMS OF PERCENTAGE, IT COMES OUT TO 25.82%. ASSESSING OFFICER FURTHER NOTICED THAT BOTH THE COMPANIES ARE HOLDING SHARES OF EACH OTHER MORE THAN 10%. THE ASSESSEE IS A RECIPIENT CO MPANY AND PUBLIC ARE NOT SUBSTANTIALLY INTERESTED IN THE ASSESSEE COMPANY WI THIN THE MEANING OF SEC. 2(18) OF THE ACT. THUS, SECTION 2(22)(E) IS ATTRACT ED ON THIS ADVANCE RECEIVED BY THE ASSESSEE. HE CONFRONTED THE ASSESSEE AS TO W HY SECTION 2(22)(E) IS NOT APPLIED ON THIS TRANSACTION AND WHY IT SHOULD NOT B E CONSTRUED AS A DEEMED DIVIDEND. SHRI GAGAN GOEL, CA APPEARED BEFORE THE ASSESSING OFFICER AND FAILED TO GIVE ANY EXPLANATION. ASSESSING OFFICER H AS WORKED OUT THE AMOUNT OF DEEMED DIVIDEND AT RS.83,81,348 AND MADE THE ADD ITION. 3 3. DISSATISFIED WITH THE ACTION OF THE ASSESSING OF FICER, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(APPEALS ). IT WAS CONTENDED BEFORE THE LEARNED CIT(APPEALS) THAT ASSESSEE HAS H ANDED OVER ALL THE PAPERS TO SHRI GAGAN GOEL, CA WHO FAILED TO HANDLE THE PROCEEDINGS APPROPRIATELY, RATHER HE DID NOT APPEAR ON THE RELE VANT DATE AND THE ASSESSING OFFICER HAS DRAWN ADVERSE INFERENCE. THE ASSESSEE F ILED AN APPLICATION UNDER RULE 46A FOR LEADING ADDITIONAL EVIDENCE. IT HAS CO NTENDED THAT THE AMOUNT OF RS.1,37,00,000 ALLEGED TO HAVE BEEN RECEIVED FROM T HE SISTER CONCERN M/S. EXCEL CARS PVT. LTD. WAS NOT RECEIVED BY THE ASSESS EE AS LOAN AND ADVANCES.. IN FACT, IT WAS RECEIVED AS AN AMOUNT TOWARDS SALES CONSIDERATION AGAINST SHARES OF M/S. ANOOP KOTHARI (P) LTD., WHICH IS A 1 00% SUBSIDIARY OF THE ASSESSEE COMPANY AND ALL THE SHARES THEREOF WERE OW NED BY THE ASSESSEE. IT WAS ALSO CONTENDED THAT THE LAND ON WHICH SHOWROOM OF THE CAR WAS EXISTING BELONGED TO M/S. ANOOP KOTHARI PVT. LTD., HOWEVER, BUILDING WAS CONSTRUCTED BY M/S. EXCEL CARS PVT. LTD. THE SUBSC RIBED CAPITAL COMPRISING OF 2000 SHARES HAVING FACE VALUE OF RS.100 EACH OF M/S. ANOOP KOTHARI WAS OWNED AND POSSESSED BY THE ASSESSEE. IT HAS AGREED TO SELL SUCH SHARES TO M/S. EXCEL CARS PVT. LTD. FOR A SUM OF RS.5 CRORES VIDE AGREEMENT DATED 4.5.2005. AS PER THE AGREEMENT M/S. EXCEL CARS PVT. LTD. HAD PAID A SUM OF RS.20 LACS AS ADVANCE ON THE DATE OF AGREEMENT AND THE BALANCE WAS PAYABLE 4 BY 30.4.2006. THUS, ACCORDING TO THE ASSESSEE, THE AMOUNT OF RS.1,37,00,000 WAS NOT AS LOAN OR ADVANCE RATHER IT WAS TOWARDS TH E SALES CONSIDERATION OF THE SHARES OF M/S. ANOOP KOTHARI PVT. LTD.. THE ASS ESSEE FURTHER APPRAISED THE LEARNED CIT(APPEALS) ABOUT THE DIFFERENCE BETWE EN THE MEANING OF EXPRESSION LOAN AND ADVANCES. IT ALSO FILED THE COP Y OF THE AGREEMENT AND THE DETAILS OF PAYMENT RECEIVED BY IT. ON THE STRENGTH OF HON'BLE DELHI HIGH COURTS DECISION RENDERED IN THE CASE OF CIT VS. RA J KUMAR REPORTED IN 318 ITR 462 AS WELL AS IN THE CASE OF CIT VS. CREATIVE DYING & PRINTING (P) LTD. REPORTED IN 318 ITR 476, IT WAS CONTENDED BY THE AS SESSEE THAT IF THE AMOUNT WAS RECEIVED IN THE ORDINARY COURSE OF BUSINESS FRO M THE SISTER CONCERN THOUGH OTHERWISE COVERED WITHIN THE AMBIT OF SECTIO N 2(22)(E) OF THE ACT THEN ALSO IT WOULD NOT BE CONSIDERED AS A DEEMED DI VIDEND. LEARNED CIT(APPEALS) HAS CALLED FOR A REMAND REPORT FROM TH E ASSESSING OFFICER. ASSESSING OFFICER DID NOT MAKE ELABORATE COMMENTS O N THE MATERIAL SUPPLIED BY THE ASSESSEE DURING THE APPELLATE PROCEEDINGS RA THER HE HARPED UPON THE FINDINGS OF THE ASSESSING OFFICER GIVEN IN THE ASSE SSMENT ORDER AS WELL AS SUBMITTED THAT ASSESSEE HAD AGREED FOR THE ADDITION . HE MADE A REFERENCE TO THE LETTER DATED 4.8.2009. THE ASSESSEE HAS REBUTTE D THIS ALLEGATION OF THE ASSESSING OFFICER. HE SUBMITTED THE COPY OF THE LET TER DATED 4.8.2009 AND CONTENDED THAT THIS LETTER NOWHERE DISCLOSES THAT ASSESSEE HAS AGREED FOR THE 5 ADDITION. LEARNED CIT(APPEALS) HAS GONE THROUGH THE CONTENTIONS OF THE ASSESSEE AND DELETED THE ADDITION. THE ELABORATE FI NDINGS MADE BY THE LEARNED CIT(APPEALS) ON THE STRENGTH OF LEARNED JUR ISDICTIONAL HON'BLE HIGH COURTS DECISION READ AS UNDER: 5. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE R, REMAND REPORT AND THE SUBMISSIONS MADE BY THE LEARNED AR. AS PER THE FACTS OF THIS CASE, THE APPELLANT COMPANY HAD RECEIVED AMOUNTS TO TALING RS.1,37,00,000 DURING THIS YEAR AS ADVANCE FROM ITS SISTER CONCERN, M/S. EXCEL CARS PVT. LTD. ON A QUERY RAISED BY THE A.O. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS ON THE ABOVE PAYMENT, SHRI GAGAN GOYAL, CA APPEARED ON 11.11.2008 BUT DID NOT OFFER ANY EXPLANATION. SUBSEQUENTLY, THE A.O. ISSUED A SHOW-CAUSE NOTICE D ATED 12.11.2008 FIXING THE CASE ON 17.11.2008. HOWEVER, NOBODY ATTE NDED ON THE ABOVE DATE. IN VIEW OF THE ABOVE, THE A.O. ADDED AN AMOUNT OF RS.85,81,348 REPRESENTING THE ABOVE ADVANCE IN THE HANDS OF THE APPELLANT COMPANY AS DEEMED DIVIDEND U/S. 2(22)(E) TO THE EXTENT OF RESERVES AND SURPLUS IN THE ACCOUNTS OF M/S. EXCEL CARS PVT. LTD. AS ON 31.03.2005. 5.1 IN THE COURSE OF THE APPELLATE PROCEEDINGS, IT IS ARGUED BY THE LEARNED AR THAT THE ABOVE AMOUNT HAD BEEN RECEIVED BY THE APPELLANT COMPANY FROM M/S. EXCEL CARS PVT. LTD. TOWARDS PART PAYMENT OF SALE CONSIDERATION OF THE SHARES OF M/S. ANOOP KOTHARI P VT. LTD. HELD BY THE APPELLANT COMPANY. IT IS ARGUED THAT THE APPELL ANT COMPANY HAD AGREED TO SELL 2,000 SHARES OF M/S. ANOOP KOTHARI P VT. LTD. TO M/S. 6 EXCEL CARS PVT. LTD. FOR A CONSIDERATION OF RS.5,00 ,00,000 AS PER AGREEMENT DATED 04.05.2005. AS PER THE ABOVE AGREEM ENT, M/S. EXCEL CARS PVT. LTD. PAID AN AMOUNT OF RS.20,00,000 AS A DVANCE ON THE DATE OF AGREEMENT AND THE BALANCE AMOUNT WAS PAYABLE BY 30.04.2006. IT IS ARGUED THAT THE AMOUNTS TOTALING RS.1,37,00,000 WAS RECEIVED BY THE APPELLANT COMPANY AS PART PAYMENT OF THE ABOVE CONS IDERATION. THE LEARNED AR HAS FILED COPY OF THE SAID AGREEMENT DAT ED 04.05.2005 EXECUTED ON STAMP PAPER AND DULY NOTARIZED BY NOTAR Y PUBLIC ON 04.05.2005 AS ADDITIONAL EVIDENCE UNDER RULE 46A. I T IS ARGUED THAT THE ASSESSEE COMPANY HAD TWO TYPES OF ACCOUNTS WITH M/ S. EXCEL CARS PVT. LTD. ONE IN RESPECT OF THE WORKSHOP BUSINESS AND ANOTHER IN RESPECT OF THE AMOUNT PERTAINING TO THE ABOVE SALE AS INVESTMENT, ALTHOUGH A CONSOLIDATED STATEMENT WAS GIVEN TO THE A.O. AS REQUIRED. IT IS ARGUED THAT SHRI GAGAN GOYAL, CA HAD BEEN BRI EFED BY THE APPELLANT TO PRODUCE THE ABOVE DETAILS BEFORE THE A .O. ADVERSE INFERENCE WAS DRAWN BY THE A.O. AND THE IMPUGNED AD DITION WAS MADE BY DEEMING THE AMOUNT AS DIVIDEND U/S. 2(22)(E ) IN AN EX PARTE MANNER. IT IS ARGUED THAT THE ASSESSEE COMPANY HAD PURCHASED 2,000 SHARES OF M/S. ANOOP KOTHARI LTD., WHICH IS A 100% SUBSIDIARY OF THE ASSESSEE COMPANY, IN THE YEAR 2001 AT THE RATE OF R S.17,500 PER SHARE. THE TOTAL PURCHASE CONSIDERATION IN THE HANDS OF TH E ASSESSEE COMPANY WAS RS.3,51.75,000 INCLUDING THE SHARE PRICE AND IN CIDENTAL EXPENSES. THE SAID INVESTMENT IS DULY REFLECTED IN THE BALANC E SHEET OF THE ASSESSEE COMPANY UNDER THE HEAD INVESTMENTS. IT I S ARGUED THAT THE ABOVE SHARES WERE AGREED TO BE SOLD TO M/S. EXCEL C ARS PVT. LTD. AT THE RATE OF RS.25,000 PER SHARE AS PER MUTUAL AGREEMENT HAVING REGARD TO THE MARKET VALUE OF THE PROPERTY OWNE4D BY M/S. ANO OP KOTHARI PVT. 7 LTD. IT IS ARGUED THAT DUE TO SUBSEQUENT FAILURE ON THE PART OF THE BUYER TO FULFILL ITS PART OF THE OBLIGATION AS PER THE AG REEMENT DATED 04.05.2005, THE AGREED TRANSFER OF SHARES DID NOT T AKE PLACE. IT IS ARGUED THAT THE ASSESSEE COMPANY SHOULD NOT BE PENA LIZED FOR THE FAILURE OF THE CHARTERED ACCOUNTANT TO APPEAR ON TH E SAID DATE WHICH RESULTED IN ADVERSE INFERENCE IN THE EX PARTE ORDER PASSED BY THE AO. 5.2. AS REGARDS, THE ADDITIONAL EVIDENCE FILED BY T HE ID. AR, I FIND THAT THE AO HAS NOT RAISED ANY OBJECTION AGAINST THE SAM E IN HIS REMAND REPORT. CONSIDERING THE SAME, SINCE THE ASSESSEE WA S PREVENTED FROM PRODUCING THE SAID EVIDENCE BEFORE THE AO ON ACCOUN T OF NON- ATTENDANCE BY THE CHARTERED ACCOUNTANT ON THE SPECI FIED DATE, THE EVIDENCE IS ADMITTED IN THE INTEREST OF JUSTICE UND ER RULE 46A OF THE INCOME-TAX RULES, 1962. 5.3. I FIND THAT THE PROVISIONS OF SECTION 2(22)(E) ARE DEEMING PROVISIONS AND AS HELD BY THE HON'BLE SUPREME COURT IN CWT V. ELISS BRIDGE GYMKHANA 229 ITR 1 IT IS SETTLED LAW THAT SU CH PROVISIONS IN TAXATION STATUTES ARE TO BE CONSTRUED STRICTLY AND TO BE CONFINED TO THE PURPOSE FOR WHICH THE SAID PROVISIONS HAVE BEEN ENA CTED. IT WOULD BE APPROPRIATE TO MENTION HERE THAT THE LEGISLATIVE IN TENT BEHIND THE SECTION 2(22)(E) WHICH IS AKIN TO SECTION 2(6A)(E) OF THE INCOME-TAX ACT, 1922 IS TO PLUG THE LOOPHOLE OF CLOSELY HELD P RIVATE LIMITED COMPANIES PASSING OFF THEIR ACCUMULATED PROFITS TO THEIR SHAREHOLDERS IN THE GUISE OF LOANS INSTEAD OF DECLARING DIVIDEND , AS SUCH DIVIDEND WOULD BE TAXABLE IN THE HANDS OF THE RECIPIENT SHAR EHOLDERS. THIS VIEW IS ALSO JUDICIALLY UPHELD BY THE HON'BLE DELHI HIGH COURT IN THE RECENT 8 CASE OF CIT V. RAJ KUMAR (2009) 181 TAXMANN 155, WH ERE THE HON'BLE COURT HELD AS UNDER: 'IF THE HISTORY AND PURPOSE WITH WHICH THE SAID PRO VISION WAS BROUGHT ON TO THE STATUTE BOOK IS KEPT IN MIND, IT IS CLEAR THAT SUB-CLAUSE (E) OF SECTION 2(22) WHICH IS PARI MATERIAL WITH CLAUSE (E ) OF SECTION 2(6A) OF THE INDIAN INCOME-TAX ACT, 1922, PLAINLY SEEKS TO B RING WITHIN THE TAX NET ACCUMULATED PROFIT WHICH ARE DISTRIBUTED BY CLO SELY HELD COMPANIES TO ITS SHAREHOLDERS IN THE FORM OF LOANS. THE PURPOSE BEING THAT PERSONS, WHO MANAGE SUCH CLOSELY HELD COMPANIE S, SHOULD NOT ARRANGE THEIR AFFAIRS IN A MANNER THAT THEY ASSIST THE SHAREHOLDERS IN AVOIDING THE PAYMENT OF TAXES BY HAVING THESE COMPA NIES PAY OR DISTRIBUTE, WHAT WOULD LEGITIMATELY BE DIVIDEND IN THE HANDS OF THE SHAREHOLDER, MONEY IN THE FORM OF AN ADVANCE OR LOA N.' 5.4. IN THIS REGARD, IT IS SETTLED LAW THAT WHILE O RDINARY LOAN OR ADVANCE IN THE NATURE OF LOAN CAN BE BROUGHT UNDER THE AMBI T OF SECTION 2(22)(E), TRADE ADVANCES OR ADVANCES IN PURSUANCE O F SOME BUSINESS TRANSACTION CANNOT BE CAUGHT BY THE MISCHIEF OF SEC TION 2(22)(E). IN THIS REGARD, THE HON'BLE JURISDICTIONAL HIGH COURT SEEKING TO DISTINGUISH AN ORDINARY 'ADVANCE' FROM A 'TRADE ADV ANCE' (THE FORMER HELD AS TAXABLE U/S 2(22)(E) AND THE LATER NOT), IN THE CASE OF CIT V RAJ KUMAR (2009) 181 TAXMAN 155 (DEL.) HELD AS UNDER: ' IF THE HISTORY AND PURPOSE WITH WHICH THE SAID PROV ISIONS WAS BROUGHT ON TO THE STATUTE BOOK IS KEPT IN MIND, IT IS CLEAR THAT SUB- CLAUSE (E) OF SECTION 2(22) WHICH IS PARI MATERIA W ITH CLAUSE (E) OF 9 SECTION 2(6A) OF THE INDIAN INCOME-TAX ACT, 1922, P LAINLY SEEKS TO BRING WITHIN THE TAX NET ACCUMULATED PROFITS WHI CH ARE DISTRIBUTED BY CLOSELY HELD COMPANIES TO ITS SHAREH OLDERS IN THE FORM OF LOANS. THE PURPOSE BEING THAT PERSONS, WHO MANAGE SUCH CLOSELY HELD COMPANIES, SHOULD NOT ARRANGE THEIR AF FAIRS IN A MANNER THAT THEY ASSIST THE SHAREHOLDERS IN AVOIDIN G THE PAYMENT OF TAXES BY HAVING THESE COMPANIES PAY OR DISTRIBUT E, WHAT WOULD LEGITIMATELY BE DIVIDEND IN THE HANDS OF THE SHAREH OLDERS, MONEY IN THE FORM OF AN ADVANCE OR LOAN. IF THIS PURPOSE IS KEPT IN MIND, THEN THE WORD 'ADV ANCE' HAS TO BE READ IN CONJUNCTION WITH WORD 'LOAN'. USUALLY ATTRI BUTES OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDING COUPLE D WITH ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN: IT GENERALLY CARRIES AN INTEREST AND THERE IS AN OBLIGATION OF R EPAYMENT. ON THE OTHER HAND, IN ITS WIDEST MEANING, THE TERM 'ADVANC E' MAYOR MAY NOT INCLUDE LENDING. THE WORD 'ADVANCE' IF NOT FOUN D IN THE COMPANY OF OR IN CONJUNCTION WITH A WORD 'LOAN', MA YOR MAY NOT INCLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES, TH EN IT WOULD BE A LOAN. THUS, THERE ARISES THE CONUNDRUM AS TO WHAT M EANING ONE WOULD ATTRIBUTE TO THE TERM 'ADVANCE'. THE RULE OF CONSTRUCTION WHICH ANSWERS THIS CONUNDRUM IS NOSCITUR A SOCIIS. THE BROAD PRINCIPLES, WHICH EMERGE FROM THE JUDGMEN TS OF THE SUPREME COURT WITH REGARD TO THE APPLICABILITY OF T HE SAID RULE OF CONSTRUCTION, ARE AS FOLLOWS:- 10 (I) DOES THE TERM IN ISSUE HAVE MORE THAN ONE MEAN ING ATTRIBUTED TO IT, I.E., BASED ON THE SETTING OR THE CONTEXT, ONE COULD APPLY THE NARROWER OR WIDER MEANING; (II) ARE WORDS OR TERMS USED FOUND IN A GROUP TOTAL LY 'DISSIMILAR' OR IS THERE A 'COMMON THREAD RUNNING THROUGH THEM A ND (III) THE PURPOSE BEHIND INSERTION OF THE TERM. THEN, ONE SHOULD EXAMINE AS TO WHETHER BASED ON THE AFORESAID TESTS THE SAID RULE OF CONSTRUCTION NOSCITUR A SOC ISS; OUGHT TO BE APPLIED IN THE INSTANCE CASE. (I) THE TERM 'ADVANCE' HAS UNDOUBTEDLY MORE THAN O NE MEANING, DEPENDING ON THE CONTEXT IN WHICH IT IS USED; (II) BOTH THE TERMS, THAT IS, 'ADVANCE' OR 'LOAN' ARE RELATED TO THE 'ACCUMULATED PROFITS' OF THE COMPANY; (III) AND LAST BUT NOT THE LEAST, THE PURPOSE BEHI ND INSERTION OF THE TERM 'ADVANCE' WAS TO BRING WITHIN THE TAX NET PAYMENTS MADE IN GUISE OF LOAN TO SHAREHOLDERS BY COMPANIES IN WHICH THEY HAVE A SUBSTANTIAL INTEREST SO AS TO AVO ID PAYMENT OF TAX BY THE SHAREHOLDERS. KEEPING THE AFORESAID RULE IN MIND, THE WORD ADVAN CE', WHICH APPEARS IN THE COMPANY OF THE WORD LOAN' CAN ONLY M EAN SUCH ADVANCE WHICH CARRIES WITH IT AN OBLIGATION OF REPA YMENT. TRADE ADVANCE, WHICH IS IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT 11 TO A COMMERCIAL TRANSACTION, WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISION OF SECTION 2(22)(E).' (EMPHASIS SUPPL IED) THE ABOVE PRINCIPLE LAID DOWN BY THE HON'BLE JURISD ICTIONAL HIGH COURT, WHICH IS BASED ON VARIOUS DECISIONS OF THE A PEX COURT, THAT BUSINESS TRANSACTION OR INVESTMENT WHICH DOES NOT HAVE THE CHARACTERISTIC OF LOANS/ADVANCES IS OUTSIDE THE AMB IT OF THE PROVISION OF SECTION 2(22)(E) OF THE ACT IS ALSO EC HOED IN THE JUDGEMENTS OF VARIOUS OTHER COURTS AND TRIBUNALS, S UCH AS CIT VS. NAGINDAS M. KAPADIA 177 ITR 393 (BOM), AMBASSAD OR TRAVELS 173 TAXMAN 407 (DEL), SEAMIST PROPERTIES LT D. VS. ITO (2005) 1 SOT 142 (MUM), M.S. SECURITIES LTD. VS. DC IT (2007) 11 SOT 302 (MUM) AND ITAT DELHI BENCH ORDER DATED 9 TH MAY 2008 IN THE CASE OF CREATIVE DYEING & PRINTING PVT. LTD. VS. ITO IN ITA NO. 3036/DEL/2005. IN THIS REGARD, IT IS POI NTED OUT BY THE ID. AR THAT THE TERM 'LOANS AND ADVANCES' HAS NOT B EEN DEFINED IN THE INCOME-TAX ACT AND HENCE THE TERM HAS TO BE UND ERSTOOD IN THE NORMAL COMMERCIAL SENSE AS INTERPRETED BY THE C OURTS FROM TIME TO TIME. IT WAS POINTED OUT THAT IN THE CASE O F BAIDYA NATH PLASTIC INDUSTRIES PVT. LTD. & OTHERS VS. K.L. ANAN D IN 230 ITR 522, THE HON'BLE DELHI HIGH COURT HELD THAT IN THE CASE OF LOAN, IT IS ORDINARILY THE DUTY OF THE DEBTOR TO SEEK OUT TH E CREDITOR AND TO REPAY THE MONEY ACCORDING TO THE AGREEMENT. SIMILAR LY IN THE CASE OF CIT VS. BAJPUR CO RERATIVE SUGAR FACTORY LT D. IN 177 ITR 469, THE HON'BLE SUPREME COURT STATED THAT FOR THE PURPOSE 12 OF LOAN, THERE MUST BE A RELATIONSHIP OF BORROWER A ND LENDER IN THE GIVEN TRANSACTION AND IF THERE IS NO RELATIONSHIP O F BORROWER OR LENDER, THEN THE AMOUNT RECEIVED CANNOT BE CONSIDER ED AS LOAN. THE APPELLANT FURTHER STATED THAT THE EXPRESSION 'L OANS AND ADVANCES' HAS ALSO BEEN USED IN SECTION 2(7) OF THE INTEREST TAX ACT AND WHILE INTERPRETING THE SAID EXPRESSION, THE COURTS HAVE HELD THAT THE INVESTMENTS MADE IN THE DEBENTURES AN D GOVERNMENT SECURITIES ARE NOT LOANS AND ADVANCES IN SPITE OF THE FACT THAT THE INTEREST IS BEING RECEIVED BY THE ASS ESSEE ON SUCH AMOUNT. THEY ARE IN FACT THE INVESTMENTS MADE BY TH E ASSESSEE IN YIELDING ASSETS. 5.5. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE, THE APP ELLANT'S ARGUMENT THAT THE IMPUGNED AMOUNT REPRESENTS ADVANC E FOR PURCHASE OF SHARES OF MIS ANOOP KOTHARI PVT. LTD. U NDER THE AGREEMENT CANNOT BE DENIED. I ALSO FIND THAT THE AO IN HIS REMAND REPORT HAS NOT GIVEN ANY VALID OBJECTION OR ADVERSE COMMENTS ON THE MERIT OF THE ABOVE CLAIM OF THE APPELLANT. IN T HE SAID REMAND V JA8PORT, THE AO HAS SIMPLY MENTIONED THAT THE ASS ESSEE HAS INDIRECTLY AGREED FOR THE ADDITION ON THE SAME ISSU E VIDE LETTER DATED 04.08.2009 WITH REGARD TO BRIEF NOTE ON INCRE ASE IN RESERVES AND SURPLUS OF MIS EXCELS CARS PVT. LTD. HOWEVER, A S ARGUED BY THE ID. AR VIDE HIS REPLY DATED 03.12.2009, THE ABO VE NOTE DOES NOT AMOUNT TO ANY ADMISSION BEFORE THE AO AND ONLY SHOWS THE 13 POSITION OF RESERVE IN THE BOOKS OF MIS EXCEL' CARS PVT. LTD. AS PER THE ORDER OF THE AO AND AS DESIRED BY THE AO, A LTHOUGH THE ABOVE ADDITION HAS BEEN DISPUTED BY THE ASSESSEE. I N VIEW OF ABOVE, THE IMPUGNED ADDITION OF RS. 85,81,3481- CAN NOT BE SUSTAINED AND HENCE THE SAME IS DELETED. 4. LEARNED DR WHILE IMPUGNING THE ORDER OF THE LEAR NED CIT(APPEALS) SUBMITTED THAT ASSESSEE HAS NOT RAISED ANY SUCH PLE A BEFORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. IT APPEA RS THAT ASSESSEE HAS DEVELOPED THIS DEFENCE AFTER THE ASSESSMENT PROCEED INGS. NO AGREEMENT WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND SUBMITTED THAT ASSESSING OFFICER HAS CONFRONTE D THE ASSESSEE VIDE NOTICE DATED 31 ST OCTOBER 2008 WHICH WAS TO BE REPLIED BY 11.11.2008 . SHRI GAGAN GOEL, CA FAILED TO GIVE A PLAUSIBLE EXPLANAT ION ON 11.11.2008 AND THEREAFTER ASSESSING OFFICER HAD GIVEN ONE MORE OPP ORTUNITY VIDE SHOW- CAUSE NOTICE DATED 12.11.2008 FIXING THE DATE OF HE ARING ON 17.11.2008. LEARNED CA DID NOT APPEAR ON THIS DATE. ASSESSMENT ORDER HAS BEEN PASSED ON 26.11.2008, MEANING THEREBY, THAT THE WHOLE EXER CISE HAS BEEN COMPLETED WITHIN 26 DAYS. LEARNED CA APPEARS TO HAVE NOT BROU GHT IT TO THE NOTICE OF THE MANAGEMENT AND FAILED TO MAKE REFERENCE ABOUT T HE AGREEMENT ETC. 14 DURING THE COURSE OF HEARING, WE CONFRONTED THE LEA RNED COUNSEL FOR THE ASSESSEE AS TO WHY IN THE STATEMENT OF FACT FILED B EFORE THE LEARNED CIT(APPEALS), IT WAS NOT BROUGHT ON RECORD. THE LEA RNED COUNSEL FOR THE ASSESSEE WAS UNABLE TO EXPLAIN THIS SITUATION BUT H E POINTED OUT THAT IN THE GROUND OF APPEAL, IT WAS SPECIFICALLY PLEADED THAT THE AMOUNT WAS NOT RECEIVED AS A LOAN OR ADVANCE SIMPLICITOR. HE SUBM ITTED THAT ASSESSEE HAS FILED APPLICATION FOR PERMISSION TO LEAD ADDITIONAL EVIDENCE. IT WAS FILED DURING THE PENDENCY OF APPEAL AND ALL THE DOCUMENTS WERE BROUGHT ON RECORD. LEARNED FIRST APPELLATE AUTHORITY CALLED FO R A REMAND REPORT AND THEREAFTER DELETED THE ADDITIONS. HE RELIED UPON TH E DECISIONS OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. CREATIVE DY ING & PRINTING AS WELL AS IN THE CASE OF CIT VS. RAJ KUMAR (SUPRA). 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. AS FAR AS THE ASSESSEE AND THE SI STER CONCERN FALLS WITHIN THE AMBIT OF SECTION 2(22)(E) IS CONCERNED, THERE IS NO DISPUTE. THE CONDITIONS ENUMERATED IN THIS SECTION ARE FULLY APPLICABLE. TH E ONLY THING WHICH REQUIRED TO BE ADJUDICATED IS WHETHER THE ALLEGED A DVANCE RECEIVED BY THE ASSESSEE IS AN ADVANCE FOR SALE OF SHARES, IF THAT BE SO, THEN WHETHER IT IS TO BE EXCLUDED FROM THE OPERATION OF SECTION 2(22)(E) OF THE ACT ON THE 15 TRANSACTIONS. THE COPY OF THE AGREEMENT HAS BEEN PL ACED ON RECORD. M/S. ANOOP KOTHARI WAS HOLDING THE LAND ON WHICH THE SHO WROOM IS EXISTING. ALL THE PARTIES HAVE CONFIRMED THE TRANSACTION. THE ONL Y SUSPICION WHICH SURFACED DURING THE COURSE OF HEARING IS WHETHER IT IS A STORY CONCOCTED BY THE ASSESSEE SUBSEQUENT TO THE ASSESSMENT ORDER. IN OUR OPINION, THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING ON THIS ASPECT, DURING THE REMAND PROCEEDINGS, HE DID NOT BOTHER TO LOOK INTO WITH THIS ANGLE. LEARNED FIRST APPELLATE AUTHORITY HAS EXAMINED THESE ASPECT S AND DELETED THE ADDITION. WHILE SITTING AS A SECOND APPELLATE AUTHO RITY, IT IS NOT ADVISEABLE AT OUR END TO MERELY SWAYED AWAY WITH THE SUSPICION RAISED BY THE LEARNED DR. IT IS THE ASSESSING OFFICER WHO OUGHT TO HAVE INVESTIGATED THE ISSUE FROM THAT ANGLE. IN THE GROUNDS OF APPEAL, THE REVE NUE HAS NOT OBJECTED THE PERMISSION TO LEAD ADDITIONAL EVIDENCE. IT HAS ONLY PLEADED THAT THIS PLEA WAS NOT TAKEN BEFORE THE ASSESSING OFFICER, THEREFORE, IT OUGHT TO HAVE NOT BEEN PERMITTED TO TAKE BY THE LEARNED CIT(APPEALS). IT I S A SETTLED POSITION OF LAW THAT IF ANY PLEA PERMISSIBLE LEGALLY EVEN IF NOT TA KEN BEFORE THE ASSESSING OFFICER THEN IT CAN BE TAKEN BEFORE THE LEARNED FIR ST APPELLATE AUTHORITY. HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT IF MONEY WAS TAKEN IN THE ORDINARY COURSE OF BUSINESS THEN IT WOULD NOT BE CO NSTRUED AS LOAN AND ADVANCE FALLING WITHIN THE AMBIT OF DEEMED DIVIDEND . IT ALSO EMERGES OUT 16 THAT ASSESSING OFFICER HAS COMPLETED THE INQUIRY ON THIS ISSUE WITHIN 26 DAYS. THERE MAY BE PAUCITY OF TIME FOR PLEADING THE ISSUE WITH THIS ANGLE. LEARNED CIT(APPEALS) HAS CONSIDERED THE ISSUE ELABO RATELY IN THE FINDINGS EXTRACTED SUPRA. LEARNED DR EXCEPT RAISING A SUSPIC ION FAILED TO BRING ANY CONCRETE MATERIAL TO OUR NOTICE WHICH CAN PURSUED U S TO TAKE A DIFFERENT VIEW THEN THE ONE TAKEN BY THE LEARNED CIT(APPEALS). 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 10.06.2011 SD/- SD/- ( K.D. RANJAN ) ( R AJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:10/06/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR