DEEPAK VEGPRO PRIVATE LTD., Alwar V. TRO-2, Alwar

ITA 361/JPR/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54223 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 24-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Period of limitation; Deemed dividend; Commercial expediency; Time period of passing order
• Section: 14A

Judgement Text

1 ITA 361(2)-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 361/JP/2011 ASSTT. YEAR : 2006-07. DEEPAK VEGPRO PVT. LTD., VS. THE INCOME-TAX OFFIC ER, OLD INDUSTRIAL AREA, ITARANA ROAD, (TRO)-II, ALWAR. ALWAR. ITA NO. 387/JP/2011 ASSTT. YEAR : 2006-07. THE ACIT, CIRCLE-1, VS. M/S. DEEPAK VEGPRO PVT. LTD., ALWAR. 1, OLD IND. AREA, ALWAR. (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI PC PARWAL DEPARTMENT BY : SHRI SUNIL MATHUR DATE OF HEARING : 04.10.2011 DATE OF PRONOUNCEMENT : 21.10.2011. ORDER DATE OF ORDER : 21/10/2011. PER R.K. GUPTA, J.M. THESE ARE TWO APPEALS BY ASSESSEE AND DEPARTMENT A GAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2006-07. 2. GROUND NOS. 1 TO 4 IN APPEAL OF THE ASSESSEE WER E NOT PRESSED, THEY ARE DISMISSED AS NOT PRESSED. 3. GROUND NO. 5 IN APPEAL OF ASSESSEE IS AGAINST CO NFIRMING ADDITION OF RS. 1 LAC OUT OF PACKING MATERIAL EXPENSES AND GROUND NO. 2 IN AP PEAL OF DEPARTMENT IS AGAINST 2 RESTRICTING THE PACKING MATERIAL EXPENSES OF RS. 5 LACS TO RS. 1 LAC. SINCE THESE GROUNDS ARE CROSS GROUNDS, THEREFORE, THEY ARE DISPOSED OFF TOGETHER. 4. THE LD. D/R HAS RELIED UPON THE ORDER OF AO. HO WEVER, HE HAS FAIRLY STATED THAT THIS CASE IS COVERED BY THE ORDER OF TRIBUNAL FOR A SSESSMENT YEAR 2004-05 AND 05-06, COPIES OF WHICH ARE PLACED AT PAPER BOOK PAGES 61 T O 65. 5. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE ALSO STATED THAT THIS ISSUE IS COVERED BY THE ORDER OF TRIBUNAL FOR EARLIER YEAR. 6. AFTER CONSIDERING THE ORDER OF TRIBUNAL FOR EARL IER YEAR DECIDED IN ITA NO. 910/JP/2009 VIDE ORDER DATED 07.05.2010, WE NOTED T HAT IN EARLIER YEAR ALSO AN ADDITION OF RS. 4 LACS WAS MADE ON ACCOUNT OF PACKING MATERIAL. THE LD. CIT (A) CONFIRMED THE ADDITION OF RS. 1 LAC AND THE TRIBUNAL FOLLOWING TH E ORDER OF EARLIER YEAR I.E. FOR ASSESSMENT YEAR 2004-05 DELETED THE ADDITION OF RS. 1 LAC ALSO WHICH WAS SUSTAINED BY LD. CIT (A). THE FINDINGS OF TRIBUNAL HAVE BEEN RECORD ED IN PARA 9 OF ITS ORDER FOR ASSESSMENT YEAR 2005-06. SINCE FACTS ARE SIMILAR, T HEREFORE, WE DELETE THE ADDITION OF RS.1,00,000/- SUSTAINED BY LD. CIT (A). 7. GROUND NO. 6 IN APPEAL OF THE ASSESSEE IS AGAINS T CONFIRMING THE INVOCATION OF PROVISIONS OF SECTION 41(1) OF THE IT ACT AND THERE BY CONFIRMING AN ADDITION OF RS. 64,215/-. 8. AFTER CONSIDERING THE WRITTEN SUBMISSIONS AND PE RUSING THE MATERIAL ON RECORD AND TAKING INTO CONSIDERATION THE SMALLNESS OF THE AMOU NT, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDING OF LD. CIT (A) WHO CONFIRMED THIS ADDITION BY OBSERVING THAT LD. A/R HAS NOT SUBMITTED CONFIRMED OF CREDITORS, DID NOT GIVE THE YEAR FROM WHICH THESE PAYMENTS 3 ARE OUTSTANDING AND THE NATURE OF LIABILITY BEFORE THE AO AS WELL AS BEFORE ME. THEREFORE, THIS GROUND OF THE ASSESSEE IS REJECTED. 9. GROUND NO. 7 IN THE APPEAL OF THE ASSESSEE IS AG AINST CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 92,94,092/- IN VIEW OF PROVISION S OF SECTION 14A OF THE IT ACT. 10. IN APPEAL OF THE DEPARTMENT THERE IS GROUND NO. 5 WHICH IS AGAINST DIRECTING THE AO TO WORK OUT THE DISALLOWANCE ON THE ISSUE OF INT EREST UNDER SECTION 14A OF RS. 92,94,092/-. 11. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE COMPANY CLAIMED INTEREST EXPENSES OF RS. 87,29,446/ - ON LOANS & ADVANCES TAKEN FROM BANKS & OTHER PARTIES. THE AO MADE THE OBSERVATIONS THAT THE SOURCE OF INVESTMENT IN SHARES AMOUNTING TO RS. 6,88,45,129/- IS NOT PROVID ED IN THE ABSENCE OF WHICH IT IS NOT POSSIBLE TO ASCERTAIN WHETHER THE INVESTMENT IN SHA RES IS FROM BORROWED FUNDS OR FROM OWNED FUNDS. THE AO FURTHER OBSERVED THAT UNLESS TH ERE IS NO DIRECT NEXUS OF USE OF ACCUMULATED FUNDS FOR INVESTMENT IN SHARES, THE SAM E CAN NOT BE ACCEPTED. ACCORDINGLY, AO DISALLOWED INTEREST @13.5% I.E. RS. 92,94,092/- (RS. 6,88,45,129* 13.5%) U/S 14A OF THE I.T. ACT,1961. 11.1. THE LD. CIT (A) HELD THAT THE PROCEDURE FOR M AKING DISALLOWANCE OUT OF EXPENSES RELATABLE TO EXEMPT INCOME IS LAID DOWN IN SECTION 14A AS WELL AS BY SEVERAL RULINGS OF THE COURTS. FURTHER, RULE 8D IS ALSO INDICATIVE OF THE PROCEDURE FOR DETERMINING THE DISALLOWANCE. ACCORDINGLY, HE DIRECTED THE AO TO WO RK OUT THE DISALLOWANCE IN ACCORDANCE WITH THE SECTION 14A/RULE 8D/COURT RULIN GS. 4 11.2. DURING THE APPELLATE PROCEEDINGS HERE BEFORE THE TRIBUNAL, THE FOLLOWING SUBMISSIONS AT PAGES 14 TO 15 HAVE BEEN MADE BY LD. A/R IN WRITING :- THE FINDING OF CIT(A) HAS AMOUNTED TO SETTING AS IDE THE ISSUE TO THE ASSESSING OFFICER WHICH IS NOT PERMITTED UNDER SECTION 251 OF THE ACT WHEREBY THE POWER TO SET ASIDE HAS BEEN TAKEN AWAY FROM CIT(A) BY FINANCE ACT 2001 W.E.F. 01.06.2001. HENCE, THE ORDE R PASSED BY CIT(A) DIRECTING THE AO TO WORK OUT THE DISALLOWANCE IN AC CORDANCE WITH SECTION 14A/RULE 8D/ COURT RULINGS IS BAD IN LAW. IT MAY BE NOTED THAT HONBLE SUPREME COURT IN CASE OF CIT VS. WALFORT SHARE & STOCK BROKERS PVT. LTD. 326 ITR 001 IN PARA 17 HAS OBSERVED THAT FOR ATTRACTION SECTION 14A, THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE, WHICH IS ITS RELATIONSHIP WITH TH E TAX EXEMPT INCOME. HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MANUFAC TURING CO. LTD VS. DCIT 328 ITR 81 ORDER DT. 12.08.2010 HAS HELD THAT RULE 8D IS APPLICABLE FROM A.Y. 08-09 & THE SAME CAN NOT BE AP PLIED FOR EARLIER A.Y.S BUT AT THE SAME TIME OBSERVED THAT AO IS DUT Y BOUND TO COMPUTE THE DISALLOWANCE BY APPLYING A REASONABLE METHOD HA VING REGARD TO THE FACTS & CIRCUMSTANCES OF THE CASE. AFTER THIS ORDER OF BOMBAY HIGH COURT DT. 12.08.2010 VARIOUS HIGH COURTS & THE TRIBUNALS HAVE TAKEN THE FOLLOWING VIEW IN THE MATTER OF DISALLOWANCE U/S 14 A. (I) MINDA INVSETMENT LTD. VS. DCIT 52 DTR 001 ORDER DT. 13.10.2010 DISALLOWANCE UNDER SECTION 14A REQUIRED FINDING OF INCURRING OF EXPENDITURE IN RELATION TO EXEMPT INCOME & WHERE IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAD BEEN INC URRED, DISALLOWANCE U/S 14A COULD NOT STAND. (II) DCIT VS. MAHARASHTRA SEAMLESS LTD. 52 DTR 005 ORDER DT. 16.12.2010 IN THIS CASE CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT ASSESSEE HAD MAINTAINED THAT INTEREST EXPENDITURE WAS INCURR ED IN RESPECT OF 5 BORROWING ON CASH CREDIT LIMITS UTILIZED FOR NORMAL BUSINESS PURPOSE OF THE ASSESSEE & NO PART OF BORROWED FUNDS HAS BEEN UTILI ZED FOR MAKING INVESTMENT IN TAX FREE BONDS & THAT THE AO HAD NOT ESTABLISHED ANY NEXUS BETWEEN THE BORROWED FUNDS & THE INVESTMENT IN TAX FREE BONDS. THESE FINDINGS OF CIT(A) WAS HELD JUSTIFIED & IT WAS HELD THAT WHERE FUNDS ARE MIXED & IT IS NOT POSSIBLE TO ASCERTAIN AS TO WHETH ER INVESTMENT IN TAX FREE BONDS WAS OUT OF ASSESSEES OWN FUND, THE AO DID NO T ESTABLISH NEXUS BETWEEN BORROWED FUNDS & THE INVESTMENT IN TAX FREE BONDS, IN SUCH CASES APPORTIONMENT ON PRO RATA BASIS WAS IMPROPER IN THE ABSENCE OF ANY THING BROUGHT BY THE AO TO REBUT THE ASSESSEES STAND THA T THE INVESTMENT IN TAX FREE BONDS HAD BEEN MADE OUT OF THE FUNDS OF THE SH AREHOLDERS. (III) CIT VS. GUJARAT POWER CORPORATION LTD. ORDER DT. 28 .03.2011 IN THIS CASE IT WAS HELD THAT ASSESSEE HAD DEMONSTR ATED THAT IT HAD OTHER SOURCES OF INVESTMENT & ACCORDING TO ASSESSEE NO PA RT OF BORROWED FUNDS COULD BE STATED TO HAVE BEEN DIVERTED TO EARN TAX F REE INCOME. WHEN CIT(A) & TRIBUNALS BOTH ON FACTS IN THE PRESENT CAS E FOUND THAT ASSESSEE DID NOT INVEST BORROWED FUNDS FOR EARNING INTEREST FREE INCOME, NOT APPLYING PROVISIONS OF SECTION 14A FOR TAXING SUCH INTEREST WAS JUSTIFIED. IN LIGHT OF THE ABOVE DECISIONS, IT CAN BE NOTED THAT INTEREST EXPENSES OF RS. 87,29,446/- IS INCURRED ON WORKING CAPITAL LIMITS & TERM LOAN TAKEN FROM SBBJ AGAINST HYPOTHECATION OF STOCK, DEBTORS & PLANT & M ACHINERY. THE TOTAL WORKING CAPITAL LOAN OUTSTANDING AS ON 31.03.2006 IS RS. 90 0.21 LACS AGAINST WHICH INVESTMENT IN STOCK & DEBTORS IS RS. 2057.38 LACS. SIMILARLY, THE OUTSTANDING TERM LOAN IS RS. 90.58 LACS WHEREAS THE INVESTMENT IN PL ANT & MACHINERY IS OF 529.38 LACS. THUS, THE ENTIRE LOAN FROM SBBJ IS UTILIZED F OR THE PURPOSE OF THE BUSINESS. THIS IS NOT DISPUTED BY THE LOWER AUTHORITIES. HENC E THE DISALLOWANCE OF INTEREST SO PAID IS AGAINST THE PRINCIPALS LAID DOWN BY SUPREME COURT IN CASE OF SA BUILDERS 289 ITR 1. OTHERWISE ALSO INVESTMENT IN SHARES IS MADE IN E ARLIER YEARS OUT OF THE INTEREST FREE FUNDS. IN EARLIER YEAR, NO SUCH DISAL LOWANCE WAS MADE. FURTHER FROM THE BALANCE SHEET IT CAN BE NOTED THAT THE ASSESSEE COMPANY IS HAVING SHARE CAPITAL AND RESERVE AND SURPLUS OF RS. 1190.08 LACS WHEREAS INVESTMENT IN SHARES IS ONLY RS. 688.45 LACS. THUS, INTEREST FREE FUND I S MUCH MORE THAN THE INVESTMENT IN SHARES. HENCE, IN THE ABSENCE OF ANY PROXIMATE R ELATION OF BORROWED FUNDS WITH 6 INVESTMENT IN SHARES, NO EXPENDITURE CAN BE DISALLO WED U/S 14A AS PER THE DECISIONS RELIED SUPRA. WITHOUT PREJUDICE TO ABOVE, IT IS TO BE NOTED THAT HONBLE ITAT CHENNAI BENCH IN SIVA INDUSTRIES & HOLDINGS LTD. VS. ACIT 5 9 DTR 182 HELD THAT SECTION 14A IS APPLICABLE WHEN THERE IS INCOME WHIC H IS TAXABLE UNDER THE ACT FOR THE RELEVANT A.Y. AND THERE SHOULD ALSO BE INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT DURING THE RELEVANT A.Y. IF EITHER ONE IS ABSENT, SECTION 14A HAS NO APPLICABILITY. AN INVESTMENT WHICH DOES NOT GIVE RISE TO ANY INCOME DEEMED TO ACCRUE OR ARISE CAN NOT FORM PART OF TOTA L INCOME. THUS, ONCE THERE IS NO CLAIM OF INCOME WHICH DOES NOT FORM PART OF TOTAL I NCOME UNDER THE ACT, THERE CAN NOT BE ANY DISALLOWANCE U/S 14A IN RELATION TO AN I NVESTMENT WHICH MAY OR MAY NOT GIVE RISE TO ANY INCOME WHICH DOES NOT FORM PAR T OF TOTAL INCOME. IN VIEW OF ABOVE, DISALLOWANCE OF RS. 92,94,092/- M ADE BY THE AO U/S 14A IS UNWARRANTED & BE DELETED. 12. ON THE OTHER HAND, THE LD. D/R HAS PLACED RELIA NCE ON THE ORDER OF AO AND IT WAS SUBMITTED THAT THOUGH RULE 8D IS NOT APPLICABLE AS HELD BY HONBLE BOMBAY HIGH COURT IN CASE OF GODREJ & BOYCE MFG. CO. LTD., 328 ITR 81 (BOMBAY), HOWEVER, AS PROVISIONS OF SECTION 14A ARE APPLICABLE, THEREFORE, CERTAIN D ISALLOWANCE HAS TO BE MADE. ACCORDINGLY IT WAS SUBMITTED THAT THE AO CAN EXAMIN E THIS ISSUE AFRESH. 13. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER C ONSIDERATION AS RULE 8D HAS BEEN HELD APPLICABLE PROSPECTIVELY I.E. FROM ASSESSMENT YEAR 2008-09 IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., 328 ITR 81 (BOMBAY). 13.1. FIRST SUBMISSION OF THE ASSESSEE IS THAT LD. CIT (A) WAS NOT JUSTIFIED IN SETTING ASIDE THE ISSUE TO THE FILE OF THE AO AS POWER OF S ETTING ASIDE FROM THE CIT (A) HAS BEEN 7 TAKEN AWAY BY FINANCE ACT, 2001 WITH EFFECT FROM 1. 6.2001. HOWEVER, SINCE RULE 8D IS NOT APPLICABLE AND DISALLOWANCE HAS TO BE CONSIDERE D AFRESH IN VIEW OF THE NEXUS OF EXEMPTED INCOME AND INVESTMENT MADE BY ASSESSEE FOR EARNING EXEMPTED INCOME. 13.2. THE HONBLE SUPREME COURT IN CASE OF CIT VS. WALFORT SHARE & STOCK BROKERS PVT. LTD., 326 ITR 1 (SC) HAS OBSERVED THAT FOR ATT RACTING SECTION 14A, THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE, WHICH IS ITS RELA TIONSHIP WITH THE TAX EXEMPT INCOME. 13.3. THE ASSESSEE THROUGH ITS WRITTEN SUBMISSION H AS EXPLAINED THAT THE INTEREST EXPENSES OF RS. 87,29,446/- IS INCURRED ON WORKING CAPITAL LIMITS & TERM LOAN TAKEN FROM SBBJ AGAINST HYPOTHECATION OF STOCK, DEBTORS & PLAN T AND MACHINERY. THE TOTAL WORKING CAPITAL LOAN OUTSTANDING AS ON 31.3.2006 IS RS. 900 .21 LACS AGAINST WHICH INVESTMENT IN STOCK AND DEBTORS IS RS. 2057.38 LACS. SIMILARLY, THE OUTSTANDING TERM LOAN IS RS. 90.58 LACS WHEREAS THE INVESTMENT IN PLANT AND MACHINERY IS OF RS. 529.38 LACS. THUS, THE ENTIRE LOAN FROM SBBJ IS UTILIZED FOR THE PURPOSE OF THE B USINESS. THERE IS NO FINDING EITHER BY THE AO OR BY THE LD. CIT (A) THAT THIS WAS NOT UTIL IZED FOR THE PURPOSE OF BUSINESS. IT IS ALSO MENTIONED IN THE WRITTEN SUBMISSION THAT THE I NVESTMENT MADE IN SHARES IN EARLIER YEAR OUT OF INTEREST FREE FUNDS. IN EARLIER YEAR N O SUCH DISALLOWANCE WAS MADE. IT HAS BEEN STATED THAT FROM THE BALANCE SHEET IT CAN BE N OTED THAT THE ASSESSEE COMPANY IS HAVING SHARE CAPITAL AND RESERVE AND SURPLUS OF RS. 1190.08 LACS WHEREAS INVESTMENT IN SHARES IS ONLY RS. 688.45 LACS. THUS INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MUCH MORE THAN THE INVESTMENT IN SHARES. THIS FACT COULD NOT BE CONTROVERTED BY LD. D/R BY BRING ANY POSITIVE MATERIAL. THEREFORE, IN OUR CONSIDERED VIEW NO DISALLOWANCE UNDER SECTION 14A IS POSSIBLE. HOWEVER, THE AO IS FREE TO EXAMINE THIS ISSUE AFRESH, IF IN HIS MIND THE INVESTMENT MADE IN SHARES WAS NOT OUT OF I NTEREST FREE FUNDS/RESERVES AVAILABLE 8 WITH THE ASSESSEE. IN VIEW OF THESE FACTS AND CIRC UMSTANCES, WE DISPOSE OFF THE GROUNDS OF THE ASSESSEE AND DEPARTMENT AS ABOVE. 14. GROUND NO. 8 IN APPEAL OF ASSESSEE IS AGAINST C ONFIRMING DISALLOWANCE OF RS. 13,098/- OUT OF TELEPHONE EXPENSES. 15. THE AO DISALLOWED TELEPHONE EXPENSES @ 10% FOR EXTRA COMMERCIAL CONSIDERATION. THE LD. CIT (A) HAS CONFIRMED THE SA ME. 16. AFTER CONSIDERING THE WRITTEN SUBMISSIONS AND P ERUSING THE MATERIAL ON RECORD, WE FIND THAT THIS IS A CASE OF COMPANY AND NO MATERIAL HAS BEEN BROUGHT THAT HOW THE EXPENSES WERE INCURRED ON TELEPHONE OR NOT FOR COMM ERCIAL EXPEDIENCY. IN CASE OF METALLIZING EQUIPMENT CO. P. LTD., 70 TTJ 358, THE JODHPUR BENCH OF THE TRIBUNAL HAS HELD THAT IN CASE OF COMPANY THERE CANNOT BE DISALL OWANCE ON ACCOUNT OF PERSONAL USE OF TELEPHONE. SIMILAR VIEW HAS BEEN EXPRESSED IN CASE OF SURYA CREDITS LTD., 22 TAX WORLD 90 (JPR). IN VIEW OF THESE FACTS AND CIRCUMSTANCES , WE DELETE THE DISALLOWANCE OF RS. 13,098/-. THERE IS NO OTHER GROUND IN THE APPEAL O F THE ASSESSEE. 17. NOW WE WILL TAKE UP THE REMAINING GROUND IN THE APPEAL OF THE DEPARTMENT SINCE WE HAVE ALREADY DISPOSED OFF GROUND NO. 2 OF THE DE PARTMENT WHILE DISPOSING CROSS GROUND RAISED IN THE APPEAL OF THE ASSESSEE. 18. FIRST GROUND IS AGAINST DELETING THE TRADING AD DITION OF RS. 50,00,000/- MADE BY AO. 19. THE LD. D/R HAS PLACED RELIANCE ON THE ORDER OF AO. HOWEVER, IT HAS BEEN STATED THAT SIMILAR ISSUE WAS INVOLVED IN EARLIER YEAR AND THE TRIBUNAL HAS ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. COPY OF ORDER OF THE TRIBU NAL ARE PLACED ON RECORD. 9 20. ON THE OTHER HAND, THE LD. A/R PLACED RELIANCE ON THE COPY OF WRITTEN SUBMISSIONS PLACED ON RECORD AND IT WAS SUBMITTED THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN EARLIER YEAR. 21. THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURIN G AND TRADING ACTIVITY. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN TURNOVER OF RS. 99.94 CRORES OR ODD, GROSS PROFIT OF RS. 7,67,33,595/- HAS BEEN SHOWN WH ICH RESULTED IN GP RATE OF 7.68% AGAINST 7.49% SHOWN IN EARLIER YEAR. AFTER RECORDIN G CERTAIN DISCREPANCIES FOUND IN OIL PRODUCTION, THE AO HELD THAT NO RECORD OF QUALITY M USTER SEEDS MAINTAINED, INCREASE IN CONSUMER STORE, FINISHED GOODS UNDER VALUED ETC. THE AO HELD THAT BOOKS OF ACCOUNT HAVE NOT BEEN PROPERLY MAINTAINED, THEREFORE, HE RE JECTED THE BOOKS OF ACCOUNT AND MADE LUMP SUM ADDITION OF RS. 50,00,000/-. DETAILED SUB MISSIONS WERE FILED BEFORE LD. CIT (A). RELIANCE WAS ALSO PLACED ON VARIOUS CASE LAWS . IT WAS SUBMITTED THAT SIMILAR ADDITION WAS MADE FOR ASSESSMENT YEARS 2003-04 TO 0 5-06 AND THE ENTIRE ADDITION HAS BEEN DELETED BY THE TRIBUNAL. IT WAS ALSO CONTENDED THAT NO ADDITION UNDER THIS HEAD HAS BEEN MADE FOR ASSESSMENT YEAR 2008-09. EVEN THE GP RATE WAS LOWER THAN THE ASSESSMENT YEAR 2007-08. 22. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE LD. CIT (A) FOUND THAT SIMILAR ADDITIONS WERE MADE FOR ASSE SSMENT YEARS 2003-04 TO 05-06 AND THEY HAVE BEEN DELETED BY THE TRIBUNAL. THE LD. CI T (A) BY FURTHER OBSERVING THAT AO DID NOT POINT OUT ANY DEFECT IN THE BOOKS OF ACCOUN T, STOCK REGISTER, PURCHASE AND CONSUMABLE STOCK, THEREFORE, HE HELD THAT THERE IS NO JUSTIFICATION IN MAKING LUMP SUM ADDITION OF RS. 50,00,000/-. ACCORDINGLY THE SAME W AS DELETED. 10 23. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A) WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A) WHO HAS DELETED THE ADDITION FOLLOWING THE ORDER OF TRIBUNAL FOR EARLIER YEAR WHERE SIMILAR ADDITIONS WERE MADE. TH EREFORE, THERE IS NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A). ACCORDINGLY, WE C ONFIRM THE ORDER OF LD. CIT (A) IN THIS RESPECT. 24. GROUND NO. 2 HAS ALREADY BEEN DISPOSED OFF. 25. GROUND NO. 3 RELATES TO DELETING THE ADDITION O F RS. 25,000/- MADE ON ACCOUNT OF WITHDRAWAL OF DEPRECIATION ON THE WIND MILL CLAIMED . 26. THE AO DISALLOWED DEPRECIATION ON FOUNDATION AN D ROOM @ 80%. HE ESTIMATED THIS ADDITION AT RS. 25,000/-. THE LD. CIT (A) DEL ETED THE DISALLOWANCE BY OBSERVING THAT SIMILAR DISALLOWANCE WAS MADE FOR ASSESSMENT YEARS 2003-04 TO 05-06 AND THE TRIBUNAL HAS ALLOWED THIS ISSUE IN FAVOUR OF THE ASSESSEE. 27. SINCE THE LD. CIT (A) HAS ALLOWED THE ISSUE FOL LOWING THE ORDER OF TRIBUNAL FOR EARLIER, THEREFORE, THERE IS NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A). ACCORDINGLY WE CONFIRM THE ORDER OF LD. CIT (A) IN THIS RESPECT ALSO. 28. GROUND NO. 4IS AGAINST DELETING ADDITION OF RS. 1,84,15,499/- MADE ON ACCOUNT OF DEEMED DIVIDEND IN TERMS OF SECTION 2(22)(E) OF THE IT ACT. 29. THE BRIEF FACTS OF THE CASE MENTIONED IN THE WR ITTEN SUBMISSION FILED BY THE ASSESSEE ARE THAT ASSESSEE COMPANY HOLDS 24.70% SHA RES (2,43,500/9,85,670*100) OF M/S SAURABH AGROTECH (P.) LTD. ASSESSEE COMPANY HAS REG ULAR BUSINESS TRANSACTIONS WITH M/S SAURABH AGROTECH (P.) LTD. AS EVIDENT FROM THE COPY OF LEDGER ACCOUNT PLACED AT PB 33- 48 . THE AO OBSERVED THAT THOUGH THE ASSESSEE COMPANY HAD MADE PURCHASES FROM M/S SAURABH AGROTECH (P.) LTD. BUT THE CLOSING CREDIT B ALANCE OF RS. 93,43,520/- (PB 32) IN ITS 11 BOOK IS NOT ON ACCOUNT OF SUCH PURCHASES RATHER THE SAME IS ON ACCOUNT OF RECEIPT OF CHEQUES FROM M/S SAURABH AGROTECH (P.) LTD. 29.1. WHILE MAKING THE ABOVE ADDITION, THE AO HAS R ELIED ON VARIOUS CASE LAWS REPORTED IN 162 ITR 460, 188 ITR 318 (BOMBAY), 76 ITR 269 (B OMBAY), 108 ITR 345 (SC), 100 ITR 598 (BOMBAY) AND MANY OTHERS MENTIONED IN THE O RDER OF LD. CIT (A) AT PAGE 10. 30. DETAILED SUBMISSIONS WERE FILED BEFORE LD. CIT (A) WHICH HAS BEEN REPRODUCED IN THE ORDER OF LD. CIT (A) AT PAGES 10 TO 22. IT HAS BEEN EXPLAINED BEFORE LD. CIT (A) THAT NEITHER ASSESSEE COMPANY RECEIVED ANY ADVANCE OR LO AN IN TERMS OF SECTION 2(22)(E) AS ASSESSEE MAINTAINED RUNNING ACCOUNT WITH THE COMPAN IES FROM WHOM THE ADVANCE WAS TAKEN OR GIVEN. THE ASSESSEE HAS REGULAR TRADING T RANSACTION WITH THE COMPANY. ALL THESE TRANSACTIONS HAVE BEEN EXPLAINED BEFORE LD. CIT (A) THROUGH WRITTEN SUBMISSIONS WHICH ARE TABULATED AT PAGES 10 TO 12. IT WAS FURTHER SU BMITTED THAT THIS IS NOT A CASE THAT ASSESSEE HAS RECEIVED AMOUNT IN THIS YEAR BUT THERE IS A DEBIT BALANCE ALSO IN ACCOUNT OF THE ASSESSEE WHICH WAS RANGING BETWEEN RS. 80 LACS TO RS. 502 LACS. THE DETAILS OF THAT DEBIT AMOUNT HAVE BEEN SHOWN AT PAGE 12 OF LD. CIT (A)S ORDER. THEREAFTER, RELIANCE WAS PLACED ON VARIOUS CASE LAWS WHICH ARE TABULATED AT PAGE 13 ONWARDS IN THE ORDER OF LD. CIT (A). THEREAFTER, THE LD. CIT (A) AFTER CON SIDERING THE DETAILED SUBMISSIONS AND PERUSING OTHER MATERIALS ON RECORD FOUND THAT AO WA S NOT JUSTIFIED IN ATTRACTING PROVISIONS OF SECTION 2(22)(E) OF THE ACT ON THE FA CTS OF THE PRESENT CASE AND ACCORDINGLY HE DELETED THE ENTIRE ADDITION MADE BY THE AO. 31. THE LD. D/R WHILE ARGUING HIS CASE, FIRSTLY PLA CED RELIANCE ON THE ORDER OF THE AO. IT WAS FURTHER SUBMITTED THAT THE TRANSACTION BETWE EN ASSESSEE AND VARIOUS OTHER 12 COMPANIES ARE AKIN TO LOAN AND ADVANCES. FURTHER R ELIANCE WAS PLACED ON THE DECISION OF HONBLE MADRAS HIGH COURT REPORTED IN 259 ITR 507. 32. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). RELIANCE WAS ALSO PLACED ON THE WRITT EN SUBMISSIONS FILED HERE BEFORE THE TRIBUNAL. IT WAS SUBMITTED THAT THESE ARE SIMILAR S UBMISSIONS AS WERE MADE BEFORE LD. CIT (A). IT WAS FURTHER EXPLAINED THAT ONE HAS TO SEE THE VOLUME OF TRANSACTION. THE AO HAS PICKED UP CERTAIN TRANSACTIONS IN SOME CASES AND IG NORED OTHERS. IT WAS A TRADING ACCOUNT ONLY AS TRANSACTIONS RELATED TO PURCHASE AND SALES OF THE RESPECTIVE PARTY. THIS WAS A RUNNING ACCOUNT MAINTAINED BY THE ASSESSEE IN RESP ECT TO THE COMPANY WITH WHOM THE PURCHASES AND SALES TRANSACTIONS ARE ENTERED. ATTE NTION OF THE BENCH WAS DRAWN ON THE DETAILS PLACED ON RECORD. IT WAS FURTHER SUBMITTED THAT THIS IS NOT A CASE THAT ALL THE TIME THERE WAS A CREDIT BALANCE BUT THERE WAS A DEBIT BA LANCE ALSO WHICH WAS MORE THAN CRORES OF RUPEES. ATTENTION OF THE BENCH WAS DRAWN ON PAG E 12 OF ORDER OF LD. CIT (A) WHERE SUCH DEBIT ENTRIES HAVE BEEN RECORDED. 33. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING OTHER MATE RIAL ON RECORD, WE FIND THAT THERE IS NO INFIRMITY IN THE FINDING OF LD. CIT (A). DETAIL ED WRITTEN SUBMISSIONS WHICH ARE SIMILAR TO THE WRITTEN SUBMISSIONS FILED BEFORE LD. CIT (A) ARE AS UNDER :- (1) SECTION 2(22)(E) IS ATTRACTED WHEN ANY PA YMENT IS MADE BY A CLOSELY HELD COMPANY OF ANY SUM BY WAY OF LOAN S OR ADVANCES TO A BENEFICIAL SHAREHOLDER HOLDING NOT LESS THAN 10% OF THE VOTING POWERS. THIS IS A DEEMING FICTION WHEREBY PAYMENT OF ANY SU M BY WAY OF LOAN OR ADVANCE IS DEEMED AS DIVIDEND. THEREFORE, THIS PROV ISION NEEDS TO BE 13 CONSTRUED STRICTLY. FOR APPLICABILITY OF THIS SECTI ON, FOLLOWING CONDITIONS SHOULD BE SATISFIED:- (I) THERE SHOULD BE A PAYMENT (II) PAYMENT SHOULD BE OF A SUM (III) SUCH PAYMENT SHOULD BE BY WAY OF LOAN OR ADVANCE UNLESS & UNTIL ALL THE ABOVE CONDITIONS ARE SATISFI ED, DEEMING FICTION WOULD NOT BE ATTRACTED. IN THE PRESENT CASE, THE NATURE OF BUSINESS OF BOTH THE COMPANIES IS TRADING & MANUFACTURING OF MUSTARD OIL AND OIL CAKE . IN THE COURSE OF BUSINESS, BOTH THE COMPANIES HAVE ENTERED INTO A SE RIES OF TRADE TRANSACTIONS OF PURCHASE, SALE, MAKING PAYMENT & RE CEIVING PAYMENT. THE RESPECTIVE ENTRIES ARE MADE IN THEIR RESPECTIVE BOO KS OF ACCOUNTS IN SINGLE & CONSOLIDATED ACCOUNT. THE BRIEF OF THE TRANSACTIO NS OF PURCHASE, SALE, PAYMENT MADE & PAYMENT RECEIVED IN THE BOOKS OF ASS ESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION IS AS UNDER:- (PB 33-48). PURCHASES FROM M/S SAURABH AGROTECH (P.) LTD. (CR.) RS. 363.68 LACS PAYMENT RECEIVED ON SALES MADE & OTHER TRADE/DEBT TRANSACTIONS (CR.) RS. 2956.90 LACS TOTAL OF CREDIT SIDE RS. 3320.58 LACS SALES TO M/S SAURABH AGROTECH (P.) LTD. (DR.) RS. 585.25 LACS PAYMENT MADE ON PURCHASES & TRADE/DEBT TRANSACTIONS (DR.) RS. 2645.78 LACS TOTAL OF DEBIT SIDE RS. 3231.03 LACS BALANCE CREDIT RS. 89.55 LACS OPENING CREDIT RS. 3.89 LACS CLOSING CREDIT RS. 93.44 LACS THE CREDIT ENTRIES IN THE BOOKS OF ASSESSEE COMPANY IS IN RESPECT OF THE FOLLOWING TRANSACTIONS WITH M/S SAURABH AGROTEC H (P.) LTD.:- (I) PURCHASES FROM M/S SAURABH AGROTECH (P.) LTD. (II) REALIZATION OF SALES MADE TO M/S SAURABH AGROTECH ( P.) LTD. 14 (III) PAYMENT RECEIVED FROM PARTIES AGAINST SALES MADE BY M/S SAURABH AGROTECH (P.) LTD. (IV) TRADE ADVANCES RECEIVED FROM M/S SAURABH AGROTECH ( P.) LTD. (V) UTILIZATION OF CASH CREDIT LIMIT OF M/S SAURABH AGR OTECH (P.) LTD. SIMILAR IS THE POSITION IN RESPECT OF THE ENTRIES I N THE DEBIT SIDE OF THE ACCOUNT. FROM THE PERUSAL OF LEDGER ACCOUNT OF M/S SAURABH A GROTECH (P.) LTD. IN THE BOOKS OF THE ASSESSEE COMPANY (PB 33-48) IT IS TO BE NOTED THAT THE NATURE OF TRANSACTIONS BETWEEN THEM ARE BUSINES S TRANSACTIONS INTER SE. IT IS A MUTUAL, OPEN, CURRENT, RUNNING & TRADE ACCO UNT RUNNING INTO 16 PAGES CONTAINING AROUND 800 ENTRIES. THE ACCOUNT IS CONTINUOUSLY MOVING & EVEN ON ONE SINGLE DAY THERE ARE AS MANY AS 20 TR ANSACTIONS. ON SOME DAY THE BALANCE IS IN CREDIT & ON SOME OTHER DAY TH E BALANCE IS IN DEBIT AS IS EVIDENT FROM THE DAILY BALANCING STATEMENT PLACE D AT PB 29-32 . THESE TRANSACTIONS ARE IN RESPECT OF PURCHASE OR SALE OR COMPOSITE PAYMENT RECEIVED FROM THE PARTIES AGAINST SALE OR COMPOSITE PAYMENT MADE TO THE PARTIES AGAINST PURCHASE OR TRANSFER OF AMOUNT WHER E THERE IS AVAILABILITY OF LIMIT ETC. SUCH MUTUAL, OPEN, CURRENT, RUNNING & TR ADE ACCOUNT TRANSACTIONS MADE IN NORMAL COURSE OF BUSINESS CAN BY NO STRETCH OF IMAGINATION PARTAKE THE CHARACTER OF A PAYMENT BY WAY OF LOANS OR ADVANCES. THE DEEMING PROVISIONS OF LAW CONTAINED IN SECTION 2(22 )(E) BEING VERY MUCH CONFINED & LIMITED TO THE PARTICULAR PURPOSE FOR WH ICH IT HAS BEEN ENACTED CANNOT ASSUME ANY ROLE BEYOND THE SAID RESTRICTED & CONFINED LIMIT & IT CAN NEVER INTERFERE IN THE NORMAL BUSINESS OF THE C OMPANIES CARRIED OUT IN THE ORDINARY COURSE BECAUSE IF SO IT WILL CREATE AN ANARCHIC SITUATION WHEREBY NO CONCERN CAN ENTER INTO NORMAL BUSINESS T RANSACTIONS. IN ORDER TO COVER ANY AMOUNT WITHIN THE PROVISIONS OF SECTION 2(22)(E) OF THE I.T. ACT, 1961, IT IS NECESSARY THA T THE AMOUNT INVOLVED SHOULD EITHER BE LOAN OR ADVANCE. 15 (I) THE WORD ADVANCE HAS NOT BEEN DEFINED. HOWE VER, IN CASE OF CIT VS. RAJ KUMAR 318 ITR 462 (DEL.) (HC) , IT WAS HELD THAT APPLYING THE RULE OF NOSCITUR A SOCIIS WHICH MEANS THAT TH E WORDS IN AN ACT OF PARLIAMENT IS TO BE CONSTRUCTED WITH REFERENCE TO T HE WORDS FOUND IN IMMEDIATE CONNECTION WITH THEM, THE WORD ADVANCE HAS TO BE READ IN CONJUNCTION WITH THE WORD LOAN. USUALLY ATTRIBUTE S OF A LOAN ARE THAT (I) IT INVOLVES A POSITIVE ACT OF LENDING COUPLED WITH ACC EPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN (II) GENERALLY CARRIES AN INTEREST (III) OBLIGATION OF REPAYMENT. THEREFORE, THE WORD ADVANCE WHICH A PPEARS IN THE COMPANY OF THE WORD LOAN COULD ONLY BE SUCH ADVAN CE WHICH CARRIES WITH IT AN OBLIGATION OF REPAYMENT. THUS, TRADE ADV ANCES WHICH IS IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO A COMM ERCIAL TRANSACTION WOULD NOT FALL WITHIN THE AMBIT OF SECTION 2(22)(E) . (II) THE TRANSACTION OF LOAN INVOLVES LENDING DEL IVERY BY ONE PARTY & RECEIPT BY ANOTHER PARTY OF SUM OF MONEY UPON EXPRE SS OR IMPLIED AGREEMENT TO REPAY IT WITH OR WITHOUT INTEREST. IN CASE OF BOMBAY STEAM NAVIGATION CO. (P.) LTD. 56 ITR 52, 57 (SC), IT WAS HELD THAT A LOAN OF MONEY RESULTS IN DEBT BUT EVERY DEBT DOES NOT INVOL VE A LOAN. LIABILITY TO PAY A DEBT MAY ARISE FROM DIVERSE SOURCES & LOAN IS ONLY ONE OF SUCH SOURCE. EVERY CREDITOR WHO IS ENTITLED TO RECEIVE A DEBT CAN NOT BE REGARDED AS A LENDER. THEREFORE, M/S SAURABH AGROTECH (P.) L TD. CAN NOT BE CONSIDERED TO BE A LENDER IN THE PRESENT FACTS & TH US CREDIT ON CERTAIN DAYS IN ITS NAME IN THE BOOKS OF THE ASSESSEE COMPANY WO ULD NOT FALL IN THE AMBIT OF SECTION 2(22)(E). (III) IN CASE OF ARDEE FINVSET (P.) LTD. VS. DCIT 79 ITD 547 (TRIB.) (DEL.) IT WAS HELD THAT LOAN MEANS A LENDING; DELIVERY BY ON E PARTY TO AND RECEIPT BY ANOTHER PARTY OF SUM OF MONEYS UPON AGREEMENT, EXPR ESS OR IMPLIED, TO REPAY WITH OR WITHOUT INTEREST. FOR A LOAN THERE MUST BE A LENDER, A BORROWER, A THING LOANED FOR USE, AS WELL AS A CONTRACT BETWEEN THE P ARTIES FOR THE RETURN OF THE THING LOANED. A LOAN CONTRACTED NO DOUBT CREATES A DEBT, BUT THERE MAY BE A DEBT WITHOUT 16 CONTRACTING A LOAN. IN A LOAN THE MIND AND INTENTIO N OF THE TWO PARTIES, THE LENDER AND THE BORROWER MUST BE AD IDEM. THE EXPRESSION ADVANCE MEANS SOMETHING WHICH IS DUE TO A PERSON, BUT WHICH IS PAID TO HIM AHEAD OF TIME WHEN IT IS DUE TO BE PAID. IN THE DICTIONARY OF ACCOUNTS BY ERIC L. K OHLER (5 TH EDN.), THE EXPRESSION ADVANCE WAS DEFINED AS PAYMENT OF CASH OR THE TRA NSFER OF GOODS FOR WHICH ACCOUNTING MUST BE RENDERED BY THE RECIPIENT AT SOM E LATER DATE. LOAN AND ADVANCES COULD ONLY BE CONSIDERED DEEMED DIVIDEND FOR THE PURPOSE OF SECTION 2(22)(E). IT IS, THEREFORE, SINE QUA NON, TO ASCERT AIN THE CORRECT NATURE OF THE PAYMENTS. IN THE PRESENT CASE THE ASSESSEE COMPANY RECEIVED APPLICATION MONEY FOR THE ALLOTMENT OF SHARES. THERE IS NOTHING ON RE CORD TO INDICATE THAT APPLICATION MONEY WAS RECEIVED OR ALLOTMENT OF SHARES WAS MADE CONTRARY TO THE PROVISIONS OF COMPANIES ACT, 1956. THE AMOUNT WAS REFLECTED AS SU CH IN THE BALANCE SHEET. ACCOUNTS WERE PREPARED PERFECTLY IN ACCORDANCE WITH THE NORMS SET OUT UNDER THE COMPANIES ACT, 1956. THESE WERE FILED WITH THE REGI STRAR OF COMPANIES. THE CHIEF INGREDIENT OF S. 2(22)(E) IS THAT ONE SHOULD BE SHAREHOLDER ON THE DATE THE LOAN WAS ADVANCED TO HIM. WHERE SUCH INGREDIENT IS NOT ESTABLISHED, THE ADVANCE COULD NOT BE TAKEN AS DEEMED DIVIDEND UNDER S. 2(22 )(E). IT IS SETTLED RULE OF INTERPRETATION OF A FICTION THAT THE COURT SHOULD A SCERTAIN FOR WHAT PURPOSE THE FICTION IS CREATED AND AFTER ASCERTAINING THE PURPO SE, THE COURT HAS TO ASSUME ALL FACTS WHICH ARE INCIDENTAL TO GIVE EFFECT TO THAT F ICTION. IT WILL NOT BE GIVEN A WIDER MEANING THAN WHAT IT PURPORTS TO DO. LAW DEALING WI TH FICTION RELATES TO THAT BREACH OF JURISPRUDENCE WHICH SHOULD BE NARROWLY WA TCHED, ZEALOUSLY REGARDED AND NEVER TO BE PRESSED BEYOND ITS TRUE LIMITS. TAK ING INTO CONSIDERATION THE ENTIRE CONSPECTUS OF THE CASE, THE RECEIPT FROM H LTD. WAS IN THE NATURE OF SHARE APPLICATION MONEY. IT CANNOT BE CONSTRUED LOAN OR A DVANCE. AS SUCH, THE CASE OF THE ASSESSEE FALLS BEYOND THE KEN OF S. 2(22)(E). AO HAS INVOKED SECTION 2(22)(E) ONLY BECAUSE THE AC COUNT CONTAIN TRANSACTIONS OF PAYMENT RECEIVED FROM M/S SAURABH A GROTECH (P.) LTD. OF RS. 2956.90 LACS & PAYMENT MADE TO M/S SAURABH AGROTECH (P.) LTD. OF RS. 2645.78 LACS & THEREFORE HE TOOK A VIEW THAT AMOUNT OUTSTAN DING IS DUE TO RECEIPT OF 17 CHEQUE & NOT TOWARDS THE PURCHASE OF GOODS. HE IGNO RED THE FACT THAT THE OUTSTANDING BALANCE OF RS. 93.44 LACS REPRESENTS TH E PURCHASES MADE IN LAST TWO MONTHS I.E. FEBRUARY 2006 RS. 36.22 LACS & MARCH 20 06 RS. 57.21 LACS. FURTHER, HE HAS NOWHERE ASCERTAINED THAT THE PAYMENT RECEIVE D & THE PAYMENTS MADE ARE TOWARDS PAYMENT BY WAY OF LOANS OR ADVANCES. HENCE, SIMPLY BECAUSE THERE ARE TRANSACTIONS OF CHEQUES RECEIVED & CHEQUES PAID IN THE MUTUAL, OPEN, CURRENT, RUNNING & TRADE ACCOUNT WITH THE SISTER CONCERN, THE SAME CAN NOT BE CONSID ERED AS PAYMENT BY WAY OF LOANS OR ADVANCES SO AS TO ATT RACT PROVISIONS OF SECTION 2(22)(E). IT MAY ALSO BE NOTED THAT SIMILAR TRANSAC TIONS HAVE BEEN MADE IN EARLIER YEAR ALSO BUT NEVER IN PAST THE SAME HAS BEEN CONSI DERED TO BE TRANSACTION ATTRACTING SECTION 2(22)(E). IN VARIOUS CASES, THE NATURE OF SUCH MUTUAL, OPEN, CURRENT, RUNNING & TRADE ACCOUNT HAS BEEN ANALYZED & IT IS HELD THAT CREDIT BALANCE IN SUCH ACCOUNT ARE NOT PAYMENT BY WAY OF LOANS OR ADVANCES & THEREFORE SEC TION 2(22)(E) IS NOT ATTRACTED. THE GIST OF THESE DECISIONS IS AS UNDER:- NH SECURITIES LTD. VS. DCIT 11 SOT 302 (TRIB.) (MUM .) (2007) AS PER THE SCHEDULE TO THE LIMITATION ACT, 1963 AND AS PER ARTICLES 1 & 19 THERETO, THE LIMITATION PERIOD PRESCRIBED IN THE CA SE OF MUTUAL, OPEN AND CURRENT ACCOUNT IS THREE YEARS FROM THE CLOSE OF THE YEAR I N WHICH THE LAST ITEM IS ADMITTED OR PROVED AS ENTERED IN THE ACCOUNT. ON THE OTHER H AND, IN CASE OF A LOAN, THE LIMITATION PERIOD IS THREE YEARS FROM THE DATE ON W HICH THE LOAN IS MADE. THIS THROWS LIGHT ON THE CHARACTERISTIC FEATURE OF A RUN NING ACCOUNT AND A LOAN ACCOUNT IN A SUBTLE MANNER. THE LIMITATION ACT, 1963 RECOGN IZES THE RUNNING CHARACTER OF A MUTUAL, OPEN AND CURRENT ACCOUNT BY TAKING THE LA ST ACKNOWLEDGED TRANSACTION AS THE STARTING POINT OF LIMITATION. BUT IN CASE OF TH E LOAN, ONCE FOR ALL AND SINGLE TRANSACTION, THAT SINGLE TRANSACTION ITSELF IS THE STARTING POINT OF THE LIMITATION. THIS STATUTORY DISTRACTION REFLECTED IN THE LIMITATION A CT, 1963 IS A POINTER TOWARDS THE BASIC DIFFERENCE BETWEEN A RUNNING ACCOUNT AND A LO AN ACCOUNT. WHENEVER PAYMENTS MADE BY A LTD. CO. TO ITS SHAREHO LDER IS PROVED BY THE CHARACTERISTIC AS OTHER THAN LOAN/ADVANCE; IN OTHER WORDS, THE PAYMENT IS FOR THE PURPOSE OF REPAYMENT OF LOAN OR SUCH OTHER EXISTING LIABILITY, THE QUESTION OF S. 2(22)(E) APPLYING, DOES NOT ARISE. THE NATURE AND C HARACTER OF THE PAYMENTS MADE BY A COMPANY IS VERY IMPORTANT IN EXAMINING WHETHER A PA YMENT MADE BY THE COMPANY FALLS U/S 2(22)(E) OR NOT. WHERE A COMPANY PAYS TO ITS SHAREHOLDER ANY AMOUNT AGAINST REPAYMENT OF AN EXISTING LOAN OR ADVANCE OR AGAINST PURCHASE OR AVAILING OF SERVICE OR 18 PAYING ON ACCOUNT ON ANY OTHER GROUNDS, SUCH PAYMEN TS MADE IN THE ORDINARY COURSE OF CARRYING ON OF THE BUSINESS OF THAT COMPANY CANN OT BE BROUGHT UNDER THE PURVIEW OF S. 2(22)(E). THAT IS WHY S. 2(22)(E) PROVIDES TH AT ANY PAYMENT BY A COMPANY BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER ALONE IS TO BE CONSIDERED FOR THE PURPOSE IF DEEMED DIVIDEND. PAYMENTS MADE BY A COMPANY THROUGH A RUNNING ACCOUNT IN DISCHARGE OF ITS EXISTING DEBTS OR AGAINST PURCHASE S OR FOR AVAILING SERVICES, SUCH PAYMENTS MADE IN THE ORDINARY COURSE OF BUSINESS CA RRIED ON BY BOTH THE PARTIES COULD NOT BE TREATED AS DEEMED DIVIDEND FOR THE PURPOSE O F SECTION 2(22)(E). THE DEEMING PROVISIONS OF LAW CONTAINED IN SECTION 2(22)(E) APP LY IN SUCH CASES WHERE THE COMPANY PAYS TO A RELATED PERSON AN AMOUNT AS ADVAN CE OR LOAN AS SUCH & NOT IN ANY OTHER CONTEXT. THE LAW DOES NOT PROHIBIT BUSINESS T RANSACTIONS BETWEEN RELATED CONCERNS & THEREFORE PAYMENT MADE IN THE ORDINARY C OURSE OF BUSINESS CAN NOT BE TREATED AS LOANS OR ADVANCES. THEREFORE, PAYMENTS M ADE BY A COMPANY IN THE COURSE OF CARRYING ON OF ITS REGULAR BUSINESS THROUGH A MU TUAL, OPEN & CURRENT ACCOUNT TO A RELATED PARTY DOES NOT COME UNDER THE PURVIEW OF SE CTION 2(22)(E). MTAR TECHNOLOGIES (P.) LTD. VS. ACIT 39 SOT 465 (TR IB.) (HYD.) (2010) UNDER SECTION 2(22)(E), ONLY THE PAYMENTS MADE BY W AY OF LOAN OR ADVANCE TO A SHAREHOLDER ALONE IS TO BE CONSIDERED FOR THE PURPO SE OF DEEMED DIVIDEND. PAYMENTS MADE BY A COMPANY THROUGH A RUNNING ACCOUNT IN DISC HARGE OF ITS EXISTING DEBTS OR AGAINST PURCHASES OR FOR AVAILING SERVICES, SUCH PA YMENTS MADE IN THE ORDINARY COURSE OF BUSINESS CARRIED ON BY BOTH THE PARTIES COULD NO T BE TREATED AS DEEMED DIVIDEND FOR THE PURPOSE OF SECTION 2(22)(E). THE LAW DOES NOT P ROHIBIT BUSINESS TRANSACTIONS BETWEEN RELATED CONCERNS & THEREFORE PAYMENT MADE I N THE ORDINARY COURSE OF BUSINESS CAN NOT BE TREATED AS LOANS OR ADVANCES. T HEREFORE, PAYMENTS MADE BY A COMPANY IN THE COURSE OF CARRYING ON OF ITS REGULAR BUSINESS THROUGH A MUTUAL, OPEN & CURRENT ACCOUNT TO A RELATED PARTY DOES NOT COME UN DER THE PURVIEW OF SECTION 2(22)(E). CIT VS. AMBASSADOR TRAVELS (P.) LTD. 318 ITR 376 (D EL.) (HC) ASSESSEE ENGAGED IN THE BUSINESS OF TRAVEL AGENCY E NTERED INTO CERTAIN BUSINESS TRANSACTIONS WITH M/S HOLIDAY RESORT (P) LTD. & M/S AMBASSADOR TOURS (INDIA) (P.) LTD. AS A RESULT OF THESE BUSINESS TRANSACTIONS, TH ERE WERE SOME FINANCIAL TRANSACTIONS BUT THE AO CAME TO THE CONCLUSION THAT BECAUSE OF T HE SHAREHOLDING PATTERN, THESE FINANCIAL TRANSACTIONS WOULD FALL IN THE CATEGORY O F DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT. THIS VIEW WAS UPHELD BY CIT(A). TRIBU NAL WAS OF THE VIEW THAT THERE IS NOTHING ON RECORD TO SHOW THAT THE AMOUNT CONSIDERE D BY THE AO WERE IN ANY MANNER ADVANCES OR LOANS IN THE ACCOUNT OF THE ASSESSEE. B EING A TRAVEL AGENCY, IT HAD REGULAR BUSINESS DEALINGS WITH THE ABOVE TWO CONCERNS DEALI NG WITH HOLIDAY RESORTS & TOURISM INDUSTRY. THEREFORE, SINCE THE TRANSACTIONS WERE NO RMAL BUSINESS TRANSACTIONS, THEY CAN NOT BE DESCRIBED AS LOANS OR ADVANCES WHICH FOR M A DISTINCT CATEGORY OF FINANCIAL TRANSACTIONS. THEREFORE, PROVISIONS OF SECTION 2(22 )(E) ARE NOT AT ALL APPLICABLE. HIGH COURT HELD THAT IT IS CLEAR, THAT THE ASSESSEE WAS A TRAVEL AGENCY & THE ABOVE TWO 19 CONCERNS THAT IT HAD DEALINGS WITH I.E. M/S HOLIDAY RESORT (P) LTD. & M/S AMBASSADOR TOURS (INDIA) (P.) LTD. WERE ALSO IN TOURISM BUSINE SS. THE ASSESSEE WAS INVOLVED IN BOOKING OF RESORTS FOR THE CUSTOMERS OF THESE COMPA NIES & ENTERED INTO NORMAL BUSINESS TRANSACTIONS AS A PART OF ITS DAY-TO-DAY B USINESS ACTIVITIES. THE FINANCIAL TRANSACTIONS CAN NOT IN ANY CIRCUMSTANCES BE TREATE D AS LOANS OR ADVANCES RECEIVED BY THE ASSESSEE FROM THESE TWO CONCERNS. CIT VS. IDHAYAM PUBLICATION LTD. 285 ITR 221 (MAD.) (HC) THIS CASE THOUGH RELATED TO SECTION 269SS BUT THE F ACTS OF THIS CASE WAS THAT ASSESSEE COMPANY WAS HAVING RUNNING CURRENT ACCOUNT WITH ITS DIRECTOR, THE DIRECTOR USE TO PAY THE MONEY AS WELL AS WITHDRAW FROM THAT ACCOUNT , NO INTEREST IS CHARGED & IN THESE FACTS IT WAS HELD THAT THE DEPOSITS & WITHDRA WAL OF MONEY FROM THE CURRENT ACCOUNT COULD NOT BE CONSIDERED AS LOAN OR ADVANCE. MUTHOOT M. GEORGE BROTHERS VS. ACIT 47 TTJ 434 (COC HIN) (TRIB.) IN THIS CASE IT WAS HELD THAT BONAFIDE TRANSACTIONS BETWEEN SISTER CONCERNS WITH CENTRALIZED ACCOUNTS & MANAGEMENT DO NOT ATTRACT PR OVISIONS OF SECTION 269SS & SECTION 269T. THE TRANSACTIONS BETWEEN THE SISTER C ONCERN & THE ASSESSEE ARE TO BE EXAMINED. THERE ARE TRANSFER OF FUNDS FROM AND TO T HE SISTER CONCERNS. THERE IS NO EVIDENCE TO SHOW THAT THE MONEY WAS LOANED OR KEPT DEPOSITED FOR A FIXED PERIOD OR REPAYABLE ON DEMAND. FURTHER, THE SISTER CONCERNS A ND THE ASSESSEE ARE OWNED BY THE SAME FAMILY GROUP WITH A COMMON MANAGING PARTNER WI TH CENTRALIZED ACCOUNTS UNDER THE SAME ROOF. TRANSFER OF FUNDS HAS TAKEN PLACE IN A WHIMSICAL MANNER. THEREFORE, IT IS RATHER DIFFICULT TO SAY THAT THE TRANSACTIONS AR E IN THE NATURE OF THE DEPOSITS OR LOANS WITH CERTAIN CONDITIONS ATTACHED TO THEM, EITHER AS REGARDS THE PERIOD OF SUCH DEPOSITS OR LOANS OR WITH REGARD TO THEIR REPAYMENTS. FROM T HE COPIES OF THE ACCOUNTS FURNISHED ALL THAT CAN BE GATHERED IS THAT FUNDS HAVE BEEN TR ANSFERRED FROM AND TO THE SISTER CONCERNS AS AND WHEN REQUIRED AND SINCE THE MANAGIN G PARTNER IS COMMON TO ALL THE SISTER CONCERNS, THE DECISION TO TRANSFER THE FUNDS FROM ONE CONCERN TO ANOTHER CONCERN OR TO REPAY THE FUNDS COULD BE SAID TO HAVE BEEN LA RGELY INFLUENCED BY THE SAME INDIVIDUAL. IN OTHER WORDS, THE DECISION TO GIVE AN D THE DECISION TO TAKE RESTED WITH EITHER THE SAME GROUP OF PEOPLE OR WITH THE SAME IN DIVIDUAL. IN SUCH CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE TRANSACTIONS INTER SE BETWEEN THE SISTER CONCERNS AND THE ASSESSEE CANNOT PARTAKE OF THE NATURE EITHER DEPOS IT OR LOAN, THOUGH INTEREST MIGHT HAVE BEEN PAID ON THE SAME. EXPECTING FOR THE TRANS FER OF FUNDS BEING WITNESSES IN THE BOOKS OF ACCOUNT OF THE CONCERNED FIRMS, NO MATERIA L IS ON RECORD TO SHOW ISSUE OF RECEIPT OR PRONOTE IN EVIDENCE OF ACCEPTING A DEPOS IT OR ACCEPTING A LOAN. THEREFORE, THE TRANSACTIONS AS ARE FOUND IN THE BOOKS OF ACCOU NTS OF THE ASSESSEE CANNOT BE TERMED AS DEPOSITS OR LOANS AS UNDERSTOOD IN COMMON PARLANCE. IT ONLY REPRESENTS DIVERSION OF FUNDS FROM ONE CONCERN TO ANOTHER DEPE NDING UPON THE EXIGENCIES OF THE BUSINESS. THESE FINDINGS HAS BEEN APPROVED BY RAJASTHAN HIGH COURT IN CASE OF CIT VS. MAHESHWARI NIRMAN UDHOYG 302 ITR 201. 20 DCIT VS. LAKRA BROTHERS 106 TTJ 250 (CHAND.) (TRIB. ) THE IMPORTANT WORDS IN SECTION ARE LOAN OR ADVANCE & FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDERS. LOAN IS SOMETHING DIFFERENT FROM DEBT. FOR A LOAN THERE MUST BE A LENDER, BORROWER AS WELL AS A CONTRACT/AGREEMENT BE TWEEN THE PARTIES FOR THE RETURN OF THE LOAN AMOUNT. EVERY SALE OF GOODS ON CREDIT DOES NOT AMOUNT TO A TRANSACTION OF LOAN. IN THE CASE OF ASSESSEE, THERE WAS A DEBIT BA LANCE ON ACCOUNT OF THE ADVANCE PAID BY AEPL AND THIS WAS PURELY ADVANCE DURING THE ORDI NARY COURSE OF BUSINESS FOR BUSINESS EXPEDIENCIES. IT CANNOT BE SAID THAT THERE WAS INTENTION OF THE COMPANY TO GIVE A LOAN. AO HAS NEVER DOUBTED THE SEQUENCE OF M ARKET SERVICE, EXHIBITION AT HOTEL AND EXECUTION OF ORDERS IN PURSUANCE OF THE ADVANCE . IT WOULD HAVE BEEN A DIFFERENT STORY IF AEPL WOULD HAVE MADE THE PAYMENT BY WAY OF LOAN OR ADVANCE TO THE PARTNERS OF THE ASSESSEE NOT FOR THE PURPOSE OF THE BUSINESS, BUT FOR THEIR INDIVIDUAL BENEFIT. NO SPECIFIC DEFECT HAS BEEN POINTED OUT IN THE CONCLUSION OF THE CIT(A) THE SAME IS UPHELD. SRI SATCHINDANANAD S. PANDIT VS. ITO 19 SOT 213 (TR IB.) (MUM.) IT WAS HELD THAT WHERE THE AMOUNT OUTSTANDING FROM ASSESSEE DIRECTOR TO THE COMPANY IS ON ACCOUNT OF TRANSACTION ENTERED INTO DURING TH E REGULAR COURSE OF BUSINESS BETWEEN THEM, IT CAN NO BE TREATED AS DEEMED DIVIDE ND U/S 2(22)(E). THERE IS NO PROHIBITION AGAINST ANY BUSINESS TRANSACTION BETWEE N A SHAREHOLDER & HIS COMPANY. SECTION 2(22)(E) IS A DEEMING PROVISION ON THE BASI S OF A LEGAL FICTION. IN CONSTRUCTING A LEGAL FICTION, IT WILL BE PROPER & NECESSARY TO A SSUME ALL THOSE FACTS ON WHICH ALONE THE FICTION CAN OPERATE & AS HELD BY APEX COURT IN CASE OF MANCHERI PUTHUSSERI AHMED VS. KUTHIRAVATTAM ESTATE RECEIVER AIR 1997 SC 208, IN SO CONSTRUCTING THE FICTION, IT IS NOT TO BE EXTENDED BEYOND THE PURPOS E FOR WHICH IT IS CREATED OR BEYOND THE LANGUAGE OF THE SECTION BY WHICH IT IS CREATED. BY ENACTING SECTION 2(22)(E), THE LEGISLATURE HAS CREATED A FICTION & HAS MADE THE PA YMENTS REFERRED TO THEREIN DIVIDEND FOR THE PURPOSE OF INCOME TAX, BUT THE F ICTION CANNOT BE EXTENDED FURTHER OR SO INTERPRETED AS TO GO BEYOND THE LEGISLATURES INTENTION IN CREATING THE FICTION. CIT VS. CREATIVE DYEING & PRINTING P. LTD. 318 ITR 476 (DEL.) (HC) THE ASSESSEE-COMPANY WAS ENGAGED IN THE BUSINESS OF DYEING AND PRINTING OF CLOTH AND WAS AN ANCILLARY UNIT OF P. BOTH THE ASSESSEE C OMPANY AND P HAD COMMON SHAREHOLDERS AND DIRECTORS, TWO OF WHOM HELD MORE T HAN 20% OF THE SHARES IN BOTH COMPANIES AND P HELD 50% OF THE SHARES IN THE ASSES SEE-COMPANY. P, IN ORDER TO INCREASE ITS EXPORT BUSINESS AND TO COMPETE WITH TH E INTERNATIONAL STANDARDS IN GARMENTS EXPORTS PROPOSED MODERNIZATION AND EXPANSI ON OF THE PLANT AND MACHINERY OF THE ASSESSEE-COMPANY. THE ASSESSEE-COMPANY BEING UNABLE TO INVEST SUCH A LARGE AMOUNT, P AGREED TO INVEST 50% OF THE PROJECT COST, THE REST OF THE 50% TO BE ARRANGED BY THE SHAREHOLDERS/DIRECTORS OF THE COMPANY. THE F UNDS ADVANCED WERE TO BE ADJUSTED AGAINST THE DUES PAYABLE BY P TO THE ASSES SEE-COMPANY IN SUBSEQUENT YEARS FOR THE JOB WORK OF PRINTING AND DYEING TO BE DONE BY THE ASSESSEE FOR P. THE 21 ASSESSING OFFICER HELD THAT THE AMOUNT PAID TO THE ASSESSEE-COMPANY WAS A DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME-TAX A CT, 1961. THE TRIBUNAL HELD THAT IT WAS AN ADVANCE FOR A COMMERCIAL PURPOSE TO THE ASSE SSEE-COMPANY BY ITS SISTER CONCERN P AND NOT A DEEMED DIVIDEND UNDER SECTION 2 (22)(E) OF THE ACT. ON APPEAL, IT WAS HELD THAT THE AMOUNTS ADVANCED FOR BUSINESS TRA NSACTION BETWEEN THE ASSESSEE- COMPANY AND P DID NOT FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND UNDER SECTION 2(22)(E). THE TRANSACTION OF CHEQUE RECEIVED & CHEQUE PAID IN PRESENT CASE, IN THE NORMAL COURSE OF BUSINESS ARE NEITHER TRANSACTION O F LOAN NOR A TRANSACTION OF ADVANCE. THESE TRANSACTIONS ARE NOT ATTACHED WITH ANY OBLIGA TION. IN THE MUTUAL INTEREST AMOUNTS ARE TRANSFERRED BETWEEN THE TWO CONCERNS CO NSIDERING THE AVAILABILITY OF LIMIT WITH THE PARTICULAR CONCERN. THE TRANSACTIONS ARE E NTERED IN COMMERCIAL EXPEDIENCY & NOT WITH THE PURPOSE OF MAKING PAYMENT BY WAY OF LO AN OR ADVANCE. THE VARIOUS CASES RELIED BY THE AO ARE THEREFORE DISTINGUISHABL E AS TABULATED ON PAGE 15-17 OF THE CIT(A) ORDER. HENCE, IN VIEW OF THE DECISIONS RELIE D ABOVE, SECTION 2(22)(E) IS NOT ATTRACTED TO SUCH TRANSACTIONS. CIT(A) HAS THEREFOR E RIGHTLY DELETED THE ADDITION. 34. THE WRITTEN SUBMISSIONS WHICH ARE SIMILAR TO TH E WRITTEN SUBMISSIONS FILED BEFORE LD. CIT (A) WERE CONSIDERED BY LD. CIT (A) LAND THE REAFTER THE LD. CIT (A) HAS GIVEN THE FOLLOWING FINDING :- I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED C OUNSEL THOROUGHLY AND PERUSED THE ASSESSMENT ORDER AND ANN EXURE ANNEXED THERETO. THE SUBMISSIONS OF THE LEARNED COUNSEL ARE FOUND TO BE IN ORDER NOT ONLY ON ONE GROUND BUT ON SEVERAL GROUNDS. FIRS TLY AND FOREMOST AMONG THEM, IS THAT THE ASSESSEE COMPANY IS HAVING THE TRANSACTION WITH THE SAURABH AGROTECH (P) LTD ON REGULAR AND DAILY B ASIS, WHEREIN SUBSTANTIAL TRANSACTION ARE BEING TRANSACTED THROUG H. THE TRANSACTION ENTERED INTO THE ACCOUNT ARE TRANSACTION OF PURCHAS E, SALE, PAYMENT RECEIVED AND GIVEN FROM/TO THIRD PARTIES, WHICH HAV E BEEN ACCOUNTED FOR IN THE ACCOUNT OF SAURABH AGROTECH (P) LTD AND ALSO TH E PAYMENT RECEIVED AND PAYMENTS MADE TO SAURABH AGROTECH (P) LTD . BAL ANCE IN THE ACCOUNT 22 HAVE ALTERNATED BETWEEN DEBIT AND CREDIT. THIS FACT HAVE ALSO BEEN ACCEPTED BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER ON PAGE NUMBER 14 IN PARA NUMBER (V) THAT AT SOME POINT OF TIME, T HE BALANCE WAS DEBIT AND AT SOME POINT OF TIME THE BALANCE WAS CREDIT. A LIS T OF INSTANCE WHEREIN SUCH BALANCES ARE IN DEBIT HAVE ALSO BEEN GIVEN BY THE APPELLANT AND MENTIONED IN THE ORDER (SUPRA). UNDER THIS SCENARIO , IT IS IMPERATIVE TO DETERMINE THE NATURE OF SUCH ENTRIES WHETHER; THESE ARE THE LOAN OR ADVANCES OR BUSINESS TRANSACTION. THE PROVISION OF SECTION 2 (22)(E) OF THE INCOME-TAX ACT' 1961 ARE ATTRACTED ONLY UNDER THE C IRCUMSTANCES, WHEN THE TRANSACTIONS ARE IN THE NATURE OF LOANS OR ADVA NCES AND NOT OTHERWISE. IT IS ALSO SEEN THAT THE NATURE OF THE BUSINESS OF THE ASSESSEE COMPANY AND SAURABH AGROTECH (P) LTD ARE THE SAME. BOTH THE COM PANIES ARE ENGAGED IN THE CRUSHING OF MUSTARD SEED, PURCHASE AND SALE OIL AND OIL CAKE. BOTH THE COMPANIES ARE HAVING THE BUSINESS TRANSACTION I NTER-SE, WHICH FACT HAS REMAINED UNDISPUTED. IT IS FOUND ON VERIFICATION OF THE ACCOUNT AND ON FACT THAT THE ACCOUNT OF THE ASSESSEE WITH THE SAURABH A GROTECH (P) LTD IS A RUNNING, CURRENT, OPEN AND TRADE ACCOUNT. THE BUSIN ESS TRANSACTIONS ENTERED INTO BETWEEN THE ASSESSEE COMPANY AND SAURA BH AGROTECH (P) LTD HAS BEEN ROUTED THROUGH THE SAID ACCOUNT. THE ASSES SEE COMPANY DOES NOT HAVE ANY OTHER ACCOUNT EXCEPT THE ACCOUNT CONSIDERE D BY THE ASSESSING OFFICER. THIS IS SINGLE AND CONSOLIDATED ACCOUNT, W HEREIN THE TRADE TRANSACTION HAS BEEN PASSED THROUGH, THEREFORE IT I S A BUSINESS AND TRADE ACCOUNT. NOW THE QUESTION ARISES, WHETHER, THE PROV ISION SECTION 2(22)(E) OF THE INCOME-TAX. ACT' 1961 ARE ATTRACTED UPON THE BUSINESS OF TRADE TRANSACTION. IN THIS REGARD LEARNED COUNSEL HAS RIG HTLY PLACED THE RELIANCE UPON THE DECISION OF HONBLE DELHI HIGH COURT IN TH E CASE OF CIT V/S RAJ KUMAR (2009) TIOL 247 (DEL.) 'TRADE ADVANCE WHICH A RE IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRA NSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT - REVENUE'S APPEAL DISMISSED. WHILE DELIVERING THE JU DGMENT, HONBLE DELHI HIGH COURT HAS DISTINGUISHED THE DECISION OF APEX COURT IN THE CASE 23 OF P.SHARDA AND TARTI LATA SHAYAM. IT HAS ALSO RECE NTLY BEEN HELD BY HONBLE DELHI HIGH COURT IN CASE OF CIT VS. AMBASSA DOR TRAVELS (P) LIMITED (2008) 173 TAXMAN 407 (DEL.) THAT 'THE ASSESSEE WAS INVOLVED IN THE BOOKING OF RESORTS FOR THE CUSTOMERS OF THESE C OMPANY AND ENTERED INTO NORMAL BUSINESS TRANSACTION AS A PART OF ITS DAY-TO DAY BUSINESS ACTIVITIES. THE FINANCIAL TRANSACTION CANNOT IN ANY CIRCUMSTANC ES BE TREATED AS LOANS OR ADVANCES RECEIVED BY THE ASSESSEE FROM THESE TWO CONCERNS. DECISION OF HONBLE DELHI HIGH COURT WAS AGAIN RECENTLY FOLL OWED BY THE SAME HIGH COURT IN THE CASE OF CIT V/S CREATIVE DYEING & PRINTING (P) LIMITED (2009) TIOL 532 (DEL.) WHEREIN IT HAS BEEN HELD THA T 'ADVANCES GIVEN FOR COMMERCIAL PURPOSES OF EXPANSION OF BUSINESS CAN NO T BE TREATED AS LOAN OR DIVIDEND INCOME IN THE HANDS OF THE SHAREHOLDERS OF THE ASSESSEE COMPANY.' INCOME-TAX APPELLATE TRIBUNAL, BENCH- MUM BAI IN NH SECURITIES LIMITED V/S DEPUTY COMMISSIONER OF INCOM E-TAX, (2007) 11 SOT 302 (MUMBAI), AFTER CONSIDERING THE DECISION OF P.K.BADIANI, M.B.STOCK HOLDING AND WAL CHAND & COMPANY, (SUPRA), HAVE HELD THAT 'PAYMENTS MADE BY A COMPANY IN THE COURSE OF CARRYI NG ON OF ITS REGULAR BUSINESS THROUGH A MUTUAL, OPEN AND CURRENT ACCOUNT TO A RELATED PARTY DO NOT COME UNDER PURVIEW OF SECTION 2(22)(E) OF THE A CT.' THEREFORE BY FOLLOWING THE ABOVE DECISION, I HAVE NO HESITATION TO COME TO THE CONCLUSION THAT THE TRANSACTION ENTERED INTO BETWEE N THE ASSESSEE COMPANY AND THE SAURABH AGROTECH (P) LTD , WHICH HAVE BEEN CONSIDERED BY THE ASSESSING OFFICER ARE IN THE NATURE OF BUSINESS AND TRADE TRANSACTION ENTERED INTO THE REGULAR AND NORMAL COURSE OF BUSIN ESS AND ARE NOT IN THE NATURE OF LOANS OR ADVANCES, THEREFORE THE PROVISIO N OF SECTION 2(22)(E) OF THE INCOME-TAX ACT' 1961 ARE NOT APPLICABLE UPON SU CH TRANSACTION AND THE ASSESSING OFFICER HAS ERRONEOUSLY CONSIDERED THE SA ME TO BE COVERED U/S 2(22)(E) OF THE INCOME-TAX ACT' 1961. WHILE ARRIVIN G AT THIS CONCLUSION, REFERENCE IS ALSO MADE TO THE DECISION OF JURISDICT IONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V/S MAHESWARI NI RMAN UDYOG 302 ITR 201 (RAJASTHAN) WHEREIN IT HAS BEEN HELD THAT T HE TRANSACTION INTER SE 24 BETWEEN THE, SISTER CONCERNS AND THE ASSESSEE COULD NOT PARTAKE THE NATURE OF EITHER DEPOSIT OR LOAN EVEN THOUGH THE INTER EST MIGHT HAVE BEEN PAID ON THE SAME AND THE SAME VIEW HAVE BEEN UPHELD BY I NCOME TAX APPELLATE TRIBUNAL, BENCH-JAIPUR, JAIPUR IN THE CAS E OF INCOME TAX OFFICER V/S MAHAVIR STORES, ALWAR ITA NO. 1834 & 18 35/JP/981 DATED 23.11.1993. THEREFORE CONSIDERING ALL THE ABOVE FACT AND LATEST CASE LAWS ON THE SUBJECT IT IS CATEGORICALLY HELD THAT THE TR ANSACTION OF ASSESSEE COMPANY WITH THE SAURABH AGROTECH (P) LTD, IS THE B USINESS AND TRADE TRANSACTION ENTERED INTO THE NORMAL COURSE OF BUSIN ESS AND THE PROVISION OF SECTION 2(22)(E) ARE NOT APPLICABLE THEREUPON AND T HE ADDITION OF RS. 1,84,15,499/- U/S 2(22)(E) OF THE INCOME-TAX ACT' 1 961 IS DELETED. SINCE I HAVE DELETED THE ADDITION OF RS. 1,84,15,499/-, THE REFORE MY FINDING UPON THE ISSUE OF DEDUCTION OF TAX LIABILITY, THE DEPREC IATION AS PER THE INCOME TAX AND POSSESS ACCUMULATED PROFIT HAVE REMAINED ME RELY OF ACADEMIC INTEREST THEREFORE, NO FINDING THEREUPON HAVE BEEN GIVEN. 35. AFTER CONSIDERING THE ABOVE FINDINGS OF LD. CIT (A) AND THE WRITTEN SUBMISSIONS OF THE ASSESSEE WHICH ARE ALSO REPRODUCED SOMEWHERE AB OVE IN THIS ORDER, WE FIND THAT LD. CIT (A) HAS EXAMINED THE ISSUE EXTENSIVELY AND THEN FOUND THAT THE TRANSACTION DOES NOT RELATE TO EITHER LOAN OR ADVANCES. THEREFORE, PROVI SIONS OF SECTION 2(22)(E) ARE NOT ATTRACTED. WHILE HOLDING SO, THE LD. CIT (A) HAS T AKEN INTO CONSIDERATION VARIOUS CASE LAWS RELIED UPON BEFORE HIM WHICH ARE ALSO RELIED O N HERE BEFORE THE TRIBUNAL AND THEN ONLY CONCLUDED THAT THE ADDITION MADE BY AO WAS NOT JUSTIFIED. THE LD. CIT D/R EXCEPT PLACING RELIANCE ON THE ORDER OF AO AND PLACING REL IANCE ON THE DECISION OF HONBLE MADRAS HIGH COURT, COULD NOT CONTROVERT THE FINDING OF LD. CIT (A). THE LD. CIT D/R COULD NOT BRING ANY MATERIAL THAT HOW THE TRANSACTI ON ENTERED INTO BETWEEN THE ASSESSEE AND THE OTHER COMPANIES ARE AKIN TO LOAN AND ADVANC ES. THE NATURE OF TRANSACTION CLEARLY 25 ESTABLISHED THAT THEY RELATED TO PURCHASE AND SALE ENTERED INTO BETWEEN THE PARTIES OR ON ACCOUNT OF RUNNING ACCOUNT. AFTER GOING THROUGH TH E CHART OF TRANSACTION, WE FIND THAT THIS TRANSACTION CANNOT BE TREATED AS PAYMENT OR AN Y SUM PAID OR PAYABLE AND THIS PAYMENT ARE NOT BY WAY OF LOAN OR ADVANCES AND UNTI L THESE CONDITIONS ARE SATISFIED, PROVISIONS OF SECTION 2(22)(E) CANNOT BE ATTRACTED. THE NATURE OF TRANSACTION OF BOTH THE COMPANIES IS TRADING AND MANUFACTURING OF MUSTARD O IL AND OIL CAKE. IN THE COURSE OF BUSINESS, BOTH THESE COMPANIES HAD ENTERED INTO A S ERIES OF TRADE TRANSACTIONS OF PURCHASE, SALE, MAKING PAYMENT AND RECEIVING PAYMENT. THE RE SPECTIVE ENTRIES ARE MADE IN THEIR RESPECTIVE BOOKS OF ACCOUNTS IN SINGLE & CONSOLIDAT ED ACCOUNT. THE BRIEF OF THE TRANSACTIONS HAVE BEEN EXPLAINED AT PAGE 8 OF THE W RITTEN SUBMISSION WHICH ARE REPRODUCED SOMEWHERE ABOVE IN THIS ORDER ALSO. ON PERUSAL OF LEDGER ACCOUNT OF M/S. SAAURABH AGROTECH PVT. LTD. IN THE BOOKS OF THE ASS ESSEE COMPANY, IT IS NOTICED THAT THE NATURE OF TRANSACTION BETWEEN THEM ARE BUSINESS TRA NSACTION. IN CASE OF CIT VS. RAJ KUMAR, 318 ITR 462 (DEL.), THE HONBLE DELHI HIGH C OURT HAS HELD THAT APPLYING THE RULE OF NOSCITUR A SOCIIS LWHICH MEANS THAT THE WORD I N AN ACT OPF PARLIAMENT IS TO BE CONSTRUCTED WITH REFERENCE TO THE WORDS FOUND IN IM MEDIATE CONNECTION WITH THEM, THE WORD ADVANCE HAS TO BE READ IN CONJUNCTION WITH THE WORD LOAN. USUALLY ATTRIBUTES OF A LOAN ARE THAT (I) IT INVOLVES A POSITIVE ACT O F LENDING COUPLED WITH ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN (II) GENERALLY CARR IES AN INTEREST (III) OBLIGATION OF REPAYMENT. THEREFORE, THE WORD ADVANCE WHICH APP EARS IN THE COMPANY OF THE WORD LOAN COULD ONLY BE SUCH ADVANCE WHICH CARRIES WIT H IT AN OBLIGATION OF REPAYMENT. THUS, TRADE ADVANCES WHICH IS IN THE NATURE OF MONE Y TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTION WOULD NOT FALL WITHIN THE AM BIT OF SECTION 2(22)(E). 26 35.1. SIMILAR FACTS ARE INVOLVED IN THIS CASE ALSO AS THE TRANSACTIONS ARE OF BUSINESS NATURE. THEREFORE, THEY DO NOT FALL WITHIN THE AMB IT OF SECTION 2(22)(E) OF THE ACT. WE HAVE ALSO GONE THROUGH THE VARIOUS CASE LAWS, SOME OF THEM HAVE ALREADY BEEN CONSIDERED BY LD. CIT (A) AND FOUND THAT THEY ARE I N SUPPORT OF THE CASE OF THE ASSESSEE. 35.2. THE DECISIONS RELIED UPON BY LD. CIT D/R ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE AS THESE TRANSACTIONS OF THE ASSESSEE ARE OF BUSINESS IN NATURE AND, THEREFORE, THEY DO NOT FALL WITHIN THE AMBIT OF SECTION 2(22)( E). IN VIEW OF THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE DETAILED REASONING GIVEN BY LD. CIT (A) WHICH IS REPRODUCED SOMEWHERE ABOVE IN THIS ORDER, WE HOLD T HAT LD. CIT (A) WAS JUSTIFIED IN DELETING THIS ADDITION. ACCORDINGLY WE CONFIRM THE ORDER OF LD. CIT (A) IN THIS RESPECT. 36. THE REMAINING GROUND I.E. GROUND NO. 5 IN THE A PPEAL OF THE DEPARTMENT IS AGAINST DIRECTING THE AO TO WORK OUT THE DISALLOWANCES ON T HE ISSUE OF INTEREST UNDER SECTION 14A, HAS ALREADY BEEN DISPOSED OFF WHILE DISPOSING GROUN D RAISED IN THE APPEAL OF THE ASSESSEE. 37. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. 38. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21 .10.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- 27 COPY FORWARDED TO :- M/S. DEEPAK VEGPRO PVT. LTD., ALWAR. THE ITO (TRO)-II/THE ACIT, CIRCLE-1, ALWAR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 361(2)/JP/2011). BY ORDER, AR ITAT JAIPUR.