Sunil Chopra, New Delhi V. ACIT, New Delhi

ITA 3664/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5534 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 05-01-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 27-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: KISHORE B
• Keywords: Business income; Depreciation; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMEBR AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A NO. 3812/DEL/09 ASSESSMENT YEAR 2005-06 ACIT CIRCLE-33 (1) NEW DELHI. VS. SHRI SUNIL CHOPRA, 14A/57, WEA, KAROL BAGH, NEW DELHI. (APPELLANT) (RESPONDENT) AND I.T.A. NO. 3664/DEL/09 ASSESSMENT YEAR 2005-06 SHRI SUNIL CHOPRA, VS. ACIT, CIRCLE-33(1) C/O R.B. ARORA & CO., CA, NEW DELHI. 14A/57, 1 ST FLOOR, W.E.A., KAROL BAGH, NEW DELHI. NEW DELHI 110 016. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KISHORE B SR. DR RESPONDENT BY : SHRI SALIL AGGARWAL, ADVOCATE ORDER PER RAJPAL YADAV, JM: THE ASSESSEE AND REVENUE ARE IN CROSS APPEALS AGAIN ST THE ORDER OF LD. CIT(A) DATED 18 TH JUNE, 2009 PASSED FOR ASSTT. YEAR 2005-06. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE NOT IN CONSONANCE WITH THE RULE 8 OF ITAT RULES. THEY ARE DESCRIPTIVE AND ARGU MENTATIVE IN NATURE. ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 2 IN BRIEF HIS GRIEVANCE IS OF TWO FOLD. HIS FIRST GR IEVANCE IS THAT LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF AO TO THE EXT ENT THAT SUM OF RS. 10,20,000/-, RS. 15,40,000/- AND RS. 20,70,000/- AL LEGED TO HAVE BEEN TAKEN BY THE ASSESSEE AS LOAN FROM M/S. SISBRO PROM OTERS PVT. LTD., M/S. FITWELL FASHION FABRICS PVT. LTD. AND M/S. NAT IONAL .CAPITAL REGION PVT. LTD. ARE TO BE TREATED AS DEEMED DIVIDEND U/S 2 (22)(E) OF THE ACT IN THE HANDS OF ASSESSEE. IN THE SECOND FOLD OF GRIEVA NCE HE PLEADED THAT LD. CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 14,165/- AND RS. 21,133/- OUT OF REPAIR, MAINTENANCE AND DEPREC IATION OF VEHICLES. 2. THE REVENUE IN ITS APPEAL HAS PLEADED THAT LD. C IT(A) HAS ERRED IN EXCLUDING THE SUM OF RS. 13,00,000/- TAKEN BY THE A SSESSEE FROM M/S. NATIONAL CAPITAL REGION ELECTRONICS PVT. LTD. FROM THE AMBIT OF DEEMED DIVIDEND CONSIDERED BY THE AO U/S 2(22)(E) OF THE A CT. THUS THE FIRST FOLD OF GRIEVANCE RAISED BY THE ASSESSEE IS INTERCONNECT ED WITH THE SOLITARY GROUND OF REVENUE. FIRST WE TAKE THIS ISSUE INVOLVE D IN BOTH THE APPEALS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E DERIVES INCOME FROM THE BUSINESS OF THE PROPERTY BROKER AS COMMISS ION FROM TWO PROPRIETARY CONCERNS NAMELY M/S. CHOPRA REALTORS AN D M/S. ESTATE AGENTS. HE HAS ALSO INCOME FROM OTHER SOURCES, INTE REST ETC. HE FILED HIS ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 3 RETURN OF INCOME ON 31.10.2005 DECLARING A TOTAL IN COME OF RS. 15,33,270/-. ON SCRUTINY OF THE ACCOUNTS LD. AO FOU ND THAT ASSESSEE HAS TAKEN ADVANCES / LOANS FROM VARIOUS COMPANIES W HERE HE IS HOLDING MORE THAN 10% SHARES. ACCORDING TO THE AO THESE TRA NSACTIONS ARE COVERED U/S 2(22)(E) OF THE ACT. ON FURTHER ANALYSI S OF THE FACTS AND CIRCUMSTANCES LD. AO CULLED OUT TWO SETS OF LOANS A ND ADVANCES TAKEN BY THE ASSESSEE. FIRSTLY HE TOOK THE LOANS IN HIS N AMES FROM THE COMPANIES IN WHICH HE IS SUBSTANTIALLY INTERESTED A ND SECONDLY THE LOANS HAVE BEEN ADVANCED BY THE COMPANIES TO THE COMPANIE S WHERE ASSESSEE HAS SUBSTANTIAL INTEREST. THE AO IN PARAGR APH NO. 22 OF THE ASSTT. ORDER TABULATED THE TOTAL AMOUNT OF BENEFIT TAKEN BY THE ASSESSEE FROM VARIOUS COMPANIES WHERE SECTION 2(22)(E) IS A PPLICABLE. THIS TABLE READ AS UNDER :- S. NO. NAME OF COMPANY FROM WHICH BENEFIT ACCRUES AMOUSNT OF BENEFIT TO A ACCUMULATED PROFIT AS ON 31.03.2004 1. SISBRO PROMOTERS PVT. LTD. A B B RS. 10,20,000/- + RS. 19,00,000/- + RS. 3,78,125/- RS. 44,00,000/- RS. 32,98,125/- 2. FITWELL FASHION FABRICS PVT. LTD.. A B RS. 15,40,000/- + RS. 16,00,000/- RS. 71,76,953,45 RS. 31,40,000/- 3. M/S. TSM POLYMERS (P) LTD. A RS. 27,90,125/- RS. 54,00,000/- RS. 27,90,125/- 4. NATIONAL CAPITAL REGION PVT. LTD. A B RS. 34,75,780/- + RS. 1300000/- RS. 51,00,000/- RS. 47,75,780/- ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 4 4. THE AMOUNTS MENTIONED AGAINST LETTER A IN THIS T ABLE ARE THE AMOUNTS TAKEN BY THE ASSESSEE DIRECTLY IN HIS NAME WHEREAS THE AMOUNTS AGAINST LETTER B WERE TAKEN BY THE COMPANIE S WHERE ASSESSEE HAS SUBSTANTIAL INTEREST. THE AO HAS WORKED OUT THE DEEMED DIVIDEND ON THE BASIS OF THE ABOVE TABLE AT RS. 1,40,04,030/ -. HE MADE THE ADDITION OF THIS AMOUNT IN THE TAXABLE INCOME OF TH E ASSESSEE. 5. DISSATISFIED WITH THE ADDITION ASSESSEE CARRIED THE MATTER IN APPEAL. IT WAS CONTENDED THAT AS FAR AS THE AMOUNT OF RS. 19,00,000/- AND RS. 3,78,125/- ALLEGED TO HAVE BEEN ADVANCED BY M/S. SISBRO PROMOTERS PVT. LTD. TO M/S. SISBRO INDIA PVT. LTD. IS CONCERNED, THESE TRANSACTIONS HAD NOT HAPPENED DURING THE YEAR UNDER APPEAL. LD. CIT(A) HAS VERIFIED THE FACTS IN THIS CONNECTION AND ARRIV ED AT A CONCLUSION THAT THESE TRANSACTIONS HAD TAKEN PLACE IN F.Y. 2003-04 AND F.Y. 2000-01. THE AMOUNTS CANNOT BE CONSIDERED AS DEEMED DIVIDEND IN THE PRESENT ASSTT. YEAR. HE ACCORDINGLY DELETED BOTH THESE ADDI TIONS. THE REVENUE HAS ACCEPTED THIS DELETION MADE BY THE LD. CIT(A) A ND DID NOT CHALLENGE IT IN ITS APPEAL. 6. WITH REGARD TO THE AMOUNT OF RS. 16,00,000/- TAK EN BY M/S. M.S. SOFTPRO PVT. LTD. FROM M/S. FITWELL FASHION FABRICS PVT. LTD. IS CONCERNED ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 5 IT WAS CONTENDED BY THE ASSESSEE THIS TRANSACTION H AD HAPPENED IN F.Y. 2001-02 AND THE AMOUNT OF SHARE APPLICATION RECEIVE D BY M/S. M.S. SOFTPRO PVT. LTD. OF ONLY RS. 1,60,000/- AND NOT RS .16,00,000/- CONSIDERED BY THE AO. LD. CIT(A) HAS ACCEPTED THE C ONTENTION OF ASSESSEE AND DELETED THE ADDITION. IT IS NOTICED BY THE LD. CIT(A) THAT AMOUNT OF RS. 1,60,000/- WAS RECEIVED VIDE CHEUQE N O. 0628352 IN THE BANK AMOUNT ON 15.6.2001. REVENUE DID NOT CHALLENGE THIS ISSUE ALSO IN ITS APPEAL. 7. WITH REGARD TO THE AMOUNT OF RS. 27,90,125/- ALL EGED TO HAVE BEEN TAKEN BY THE ASSESSEE FROM M/S. TSM POLYMERS (P) LT D. IT WAS CONTENDED BY HIM THAT ASSESSEE IS NOT HOLDING SHARE S TO THE EXTENT OF 10%. LD. CIT(A) HAS VERIFIED THIS ASPECT AND RECORD ED A FINDING THAT SHARE TO THE EXTENT OF 5.69% WAS HELD BY THE ASSESS EE AND THEREFORE SECTION 2 (22)(E) IS NOT ATTRACTED. LD. FIRST APPEL LATE AUTHORITY DELETED THIS ADDITION ALSO AND IT HAS NOT BEEN CHALLENGED B Y THE REVENUE IN ITS APPEAL. 8. THE NEXT ITEM IS OF RS. 13 LACS ALLEGED TO HAVE BEEN GIVEN BY M/S. NATIONAL CAPITAL REGION PVT. LTD. TO NOIDA PROMOTE RS AND DEVELOPERS PVT. LTD. AS A SHARE APPLICATION MONEY. THE AO HAS CONSTRUED IT AS A ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 6 DEEMED DIVIDEND. LD. CIT(A) HAS DELETED THIS ADDITI ON ON THE GROUND THAT M/S. NATIONAL CAPITAL REGION ELECTRONICS PVT. LTD. HAD GIVEN SHARE APPLICATION MONEY FOR THE PURCHASE OF SHARES IN M/S . NOIDA PROMOTERS & DEVELOPERS PVT. LTD. ACCORDING TO THE LD. CIT(A) SH ARE APPLICATION MONEY CANNOT BE TREATED AS LOAN / ADVANCE IN THE CO NTEXT OF SECTION 2(22)(E) OF THE ACT. IN SUPPORT OF ITS FINDING LD. FIRST APPELLATE AUTHORITY HAS RELIED UPON THE ORDER OF ITAT IN THE CASE OF AR DEE FINVEST (P) LTD. VS. DCIT 79 ITD 547. THE RELEVANT CONCLUSION OF THE ITAT IN THIS ORDER HAS BEEN REPRODUCED BY LD. CIT(A) IN THE IMPUGNED O RDER. 9. LD. DR RELIED UPON THE ORDER OF THE AO IN SUPPOR T OF THE APPEAL OF REVENUE. HE POINTED OUT THAT THE SHARES WERE ALLOTT ED ONLY IN MAY, 2009. IT IS AN AFTERTHOUGHT ACTION OF THE COMPANY M/S. NO IDA PROMOTERS & DEVELOPERS PVT. LTD. HENCE THIS ACT OF THE COMPANY CANNOT BE TAKEN ON ITS FACE VALUE. THE ASSESSEE FAILED TO GIVE ANY PLA USIBLE JUSTIFICATION DURING THE ASSTT. PROCEEDINGS. ON THE OTHER HAND LD . COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF LD. CIT(A). HE SU BMITTED THAT RIGHT FROM THE VERY BEGINNING AMOUNT WAS TAKEN BY M/S. NO IDA PROMOTERS & DEVELOPERS PVT. LTD. TOWARDS SHARE APPLICATION MONE Y IT IS NEITHER AN ADVANCE NOR A LOAN. THUS PROVISIONS OF SECTION 2(22 )(E) OF THE ACT ARE NOT APPLICABLE. HE EMPHASIZED THAT ISSUE IN DISPUTE IS SQUARELY COVERED ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 7 IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT RELIED UPON BY THE LD. CIT(A). 10. THE LD. COUNSEL FOR THE ASSESSEE WHILE IMPUGNIN G THE ACTION OF LD. CIT(A) FOR TREATING SUM OF RS. 10,20,000/-, RS. 15,40,000/-, RS.20,70,000/-, ALLEGED TO HAVE BEEN RECEIVED A LOA N / ADVANCE FROM M/S. SISBRO PROMOTERS PVT. LTD., M/S. FITWELL FASHI ON FABRICS PVT. LTD. AND M/S. NATIONAL CAPITAL REGION ELECTRONICS PVT. L TD. RESPECTIVELY, AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2 (22 ) (E) OF THE ACT SUBMITTED THAT ASSESSEE DOES NOT DISPUTE WITH REGAR D TO THE DIFFERENT CONDITIONS ENUMERATED IN SECTION 2(22)(E) FOR ITS A PPLICATION. THE ALLEGED AMOUNTS ARE TAKEN FROM THE COMPANIES WHERE PUBLIC A RE NOT SUBSTANTIALLY INTERESTED. THE ASSESSEE IS HOLDING M ORE THAN 10% OF VOTING POWER . THE PAYMENTS WERE RECEIVED OUT OF AC CUMULATED PROFIT OF THESE COMPANIES. THE ONLY AREA OF DISPUTE BETWEEN T HE ASSESSEE AND THE DEPARTMENT IS THE EXEMPTION PROVIDED IN SUB CLA USE II OF SECTION 2 (22) (E) OF THE ACT. THIS SUB CLAUSE PROVIDE THAT A NY ADVANCE OR LOAN MADE TO A SHARE HOLDER BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS WHERE THE LEDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY THEN SUCH ADVANCEMENT OF THE LOAN WO ULD NOT BE TREATED AS A DEEMED DIVIDEND. THIS SUB CLAUSE HAS FALLEN FO R CONSIDERATION ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 8 BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. CREATIVE DYEING AND PRINTING PVT. LTD.. THE HONBLE HIGH COU RT IN THIS CASE HAS OBSERVED THAT IT IS NOT NECESSARY TO ADVANCE THE LO AN IN THE MONEY LENDING BUSINESS ONLY FOR TAKING SUCH AMOUNTS AWAY FROM THE AMBIT OF DEEMED DIVIDEND WITHIN THE MEANING TO SECTION 2(22) (E) OF THE ACT. IF AN ASSESSEE HAS RECEIVED THE AMOUNT IN THE ORDINARY CO URSE OF BUSINESS FROM THE COMPANY COVERED U/S 2 (22)(E) OF THE ACT T HEN ALSO SUCH AMOUNT SHOULD NOT BE TREATED AS DEEMED DIVIDEND. ON THE STRENGTH OF THIS DECISION HE POINTED OUT THAT ASSESSEE IS IN TH E BUSINESS OF REAL ESTATE BROKERING . HE HAS RECEIVED THE ADVANCES FRO M THESE CONCERNS FOR MAKING INVESTMENT IN THE REAL ESTATE. THE ASSES SEE HAS FURNISHED A COPY OF AGREEMENT TO SELL IN RESPECT OF ADVANCES RE CEIVED FROM M/S. NATIONAL CAPITAL REGION ELECTRONICS PVT. LTD.. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THIS CONTENTION WAS REJEC TED BY THE LD. CIT(A) ON THE GROUND THAT EXCEPTION IS AVAILABLE IN THE CA SE OF LOAN AND ADVANCE GIVEN BY THE COMPANY WHERE THE COMPANY ITSE LF ENGAGED IN THE BUSINESS OF MONEY LENDING. THE COMPANIES M/S. S ISBRO PROMOTERS PVT. LTD., M/S. FITWELL FASHION FABRICS PVT. LTD. W ERE NOT ENGAGED IN THE BUSINESS OF MONEY LENDING AS THESE COMPANIES ARE ST ATED TO BE ENGAGED IN THE PROPERTY BUSINESS. ACCORDING TO THE ASSESSEE LD. CIT(A) ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 9 HAS MISERABLY FAILED TO CONSTRUE THE TRUE IMPORT OF EXCEPTION PROVIDED IN CLAUSE 2(22) (E) OF THE ACT. 11. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF LD. CIT (A) . HE POINTED OUT THAT LD. FIRST APPELLATE AUTHORITY HAS EXAMINED THE ISSUE IN DETAIL AND WITH ALL POSSIBLE ANGLES. THE ASSESSEE W AS UNABLE TO SUBSTANTIATE HIS CLAIM THAT THESE ADVANCES WERE TAK EN BY HIM IN THE ORDINARY COURSE OF BUSINESS AND NOT SIMPLICITER AS A LOAN. 12. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AN D GONE THROUGH THE RECORD CAREFULLY. SECTION 2 (22)(E) HAS DIRECT BEARING ON THE CONTROVERSY IN HAND THEREFORE IT IS SALUTARY TO TAK E NOTE OF THIS SECTION ALONGWITH CLAUSE II OF THE ACT. (22) DIVIDEND INCLUDES - (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY I N WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OR ANY SUM (WH ETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31 ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN P ROFITS) HOLDING NOT ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 10 LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO A NY 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 OR BEHALF , OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER , TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULA TED PROFITS. X X X X X X X X X II ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER (OR TH E SAID CONCERN) BY A COMPANY IN THE ORDINARY COURSE OF THI S BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. 13. A BARE READING OF THE ABOVE PROVISION WOULD IND ICATE THAT IN ORDER TO ATTRACT PROVISION OF SECTION 2(22)(E) MAINLY FOU R CONDITIONS ARE REQUIRED TO BE FULFILLED I.E. THE COMPANY SHOULD BE ONE IN W HICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED, THE PAYMENT SHOULD BE BY WAY OF ADVANCE OR LOAN, SUCH PERSON SHOULD BE A SHAREHOLDER HAVING NO T LESS THAN 10% OF VOTING POWER AND THE PAYMENT IS MADE OUT OF ACCUMUL ATED PROFITS OF THE COMPANY. ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 11 14. THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME O F ARGUMENT DID NOT DISPUTE TO THE EXTENT THAT ASSESSEE WAS HOLDING SHA RES OF MORE THAN 10% OF THE ALLEGED THREE COMPANIES AND THEY ARE COV ERED WITHIN THE AMBIT OF SECTION 2 (22)(E) AS FAR AS FULFILLMENT OF OTHER CONDITIONS ARE CONCERNED. HIS EMPHASIS WAS THAT LD. CIT(A) HAS ERR ED IN CONSTRUING THE EXEMPTION CLAUSE II. THE JUDGMENT OF HONBLE D ELHI HIGH COURT IN THE CASE OF CIT VS. CREATIVE DYEING AND PRINTING PV T. LTD. REPORTED IN 184 TAXMAN 483 HAS BEEN DELIVERED AFTER THE ORDER O F THE LD. CIT(A). THEREFORE THE LD. CIT(A) HAS NOT THE BENEFIT OF THI S DECISION. OTHERWISE LD. CIT(A) MIGHT NOT HAVE CONCLUDED THAT EXEMPTION IS AVAILABLE ONLY IN THE CASE OF LOANS AND ADVANCE GIVEN BY THE COMPANY WHERE THE COMPANY ITSELF ENGAGED IN THE BUSINESS OF MONEY LEN DING. THE FACTS IN THE CASE OF CIT VS. CREATIVE DYEING AND PRINTING PV T. LTD. BEFORE THE HONBLE DELHI HIGH COURT ARE THAT ASSESSEE WAS ENGA GED IN THE BUSINESS OF DYEING AND PRINTING OF CLOTH AND WAS AC TING AS AN ANCILLARY UNIT OF M/S. PEE EMPRO EXPORTS PVT. LTD. FOR THE L AST SEVERAL YEARS. BOTH THE ASSESSEE COMPANY AND M/S. PEE EMPRO EXPORTS PVT . LTD. HAVE COMMON SHAREHOLDERS/DIRECTORS MR. P.S. UPPAL, MR. P .M.S. UPPAL, MR. SURINDER UPPAL AND SO ON. M/S. PEE EMPRO EXPORTS PV T. LTD. ALSO HAS A 50% SHAREHOLDING IN THE ASSESSEE COMPANY. THE SAID M/S. PEE EMPRO EXPORTS PVT. LTD. IN ORDER TO INCREASE ITS EXPORT B USINESS AND TO COMPETE ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 12 WITH THE INTERNATIONAL STANDARDS IN GARMENT EXPORTS HAD SUGGESTED MODERNIZATION AND EXPANSION OF THE PLANT AND MACHIN ERY OF THE ASSESSEE COMPANY FOR WHICH M/S. PEE EMPRO EXPORTS P VT. LTD. MADE AVAILABLE A PROJECT REPORT FOR SUCH EXPANSION ON 28 .7.2000 TO THE ASSESSEE COMPANY. THE ASSESSEE COMPANY IN TURN VID E ITS LETTER DATED 30.9.2000 INFORMED M/S. PEE EMPRO EXPORTS THAT FOR INCREASING SUCH CAPACITY AS DESIRED BY M/S. PEE EMPRO EXPORTS A HUG E INVESTMENT IS REQUIRED AND SHOWED ITS INABILITY TO INVEST SUCH LA RGE AMOUNT OUT OF THE PRESENT AVAILABLE FUNDS. M/S. PEE EMPRO AGREED THEN TO MAKE AVAILABLE FUNDS TO THE EXTENT OF 50% COST BECAUSE IT WAS NOT ONLY IN THE INTEREST OF M/S. PEE EMPRO EXPORTS BUT ALSO ON ACCOUNT OF FACT THAT M/S. PEE EMPRO ITSELF OWNS 50% SHARES IN THE ASSESSEE COMPANY. THE REST OF THE 50% PROJECT COST WAS TO BE MADE AVAILABLE BY THE DIRECT ORS MR. P.S. UPPAL AND MR. P.M.S. UPPAL. THE AO HAD TREATED THE AMOUNT PASSED BY M/S. PEE EMPRO EXPORTS AS DEEMED DIVIDEND AND MADE THE A DDITION. 15. THE HONBLE HIGH COURT HAS HELD THAT THE AMOUNT S ADVANCED FOR BUSINESS TRANSACTION BETWEEN THE PARTIES WOULD NOT FALL WITHIN THE DEFINITION DEEMED DIVIDEND U/S 2 (22)(E) OF THE AC T. THE DISCUSSION MADE BY THE HONBLE HIGH COURT IN PARAGRAPH 11 AND 12 READ AS UNDER :- 11. THE COUNSEL FOR THE ASSESSEE HAS VERY STRENUO USLY URGED THAT NEITHER THE TRIBUNAL NOR THE JUDGMENT OF THIS COURT IN RAJKUMARS ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 13 CASE (SUPRA) DEALS WITH THAT PART OF THE DEFINITION OF DEEMED DIVIDEND UNDER SECTION 2 (22) (E) WHICH STATES THAT DEEMED DIVIDEND DOES NOT INCLUDE AN ADVANCE OR LOAN MADE T O A SHAREHOLDER 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 {SECTION 2(22)(E)(II) I.E. THERE IS NO DEEMED DIVIDEND ONLY IF THE LENDING OF MONEYS IS BY A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MONEY LENDING. DILATING FURTHER THE COUNSEL FOR THE ASSESSEE CONTENDED THAT SINCE M/S. PEE EMPRO EXPORT S PVT. LTD. IS NOT INTO THE BUSINESS OF LENDING OF MONEY, THE P AYMENTS MADE BY IT TO THE ASSESSEE COMPANY WOULD THEREFORE BE CO VERED BY SECTION 2(22)(E)(II) AND CONSEQUENTLY PAYMENTS EVEN FOR BUSINESS TRANSACTIONS WOULD BE A DEEMED DIVIDEND. WE DO NOT AGREE. THE TRIBUNAL HAS DEALT WITH THIS ASPECT AS REPRODUCED I N PARA (9) ABOVE. THE PROVISION OF SECTION 2(22)(E)(II) IS BAS ICALLY IN THE NATURE OF AN EXPLANATION. THAT CANNOT HOWEVER, HAVE BEARING ON INTERPRETATION OF THE MAIN PROVISION OF SECTION 2(2 2)(E) AND ONCE IT IS HELD THAT THE BUSINESS TRANSACTIONS DOES NOT FAL L WITHIN SECTION 2(22)(E), WE NEED NOT TO GO FURTHER TO SECTION 2 (2 2)(E). (II) THE PROVISION OF SECTION 2(22)(E)(II) GIVES AN EXAMPLE ONLY OF ONE OF THE SITUATIONS WHERE THE LOAN/ADVANCE WILL N OT BE TREATED AS A DEEMED DIVIDEND, BUT THATS ALL. THE SAME CANNOT BE EXPANDED FURTHER TO TAKE AWAY THE BASIC MEANING, INTENT AND PURPORT OF THE MAIN PART OF SECTION 2(22)(E). WE FEEL THAT THIS IN TERPRETATION OF OURS IS IN ACCORDANCE WITH THE LEGISLATIVE INTENTIO N OF INTRODUCING SECTION 2(22)(E) AND WHICH HAS BEEN EXTENSIVELY DEA LT WITH BY THIS COURT IN THE JUDGMENT IN RAJ KUMARS CASE (SUPRA). THIS COURT IN RAJ KUMARS CASE (SUPRA) EXTENSIVELY REFERRED TO TH E REPORT OF THE TAXATION ENQUIRY COMMISSION AND THE SPEECH OF THE FINANCE MINISTER IN THE BUDGET WHILE INTRODUCING THE FINANC E BILL. ULTIMATELY, THIS COURT IN THE SAID JUDGMENT HELD AS UNDER : 10.3 A BARE READING OF THE RECOMMENDATIONS OF THE COMMISSION AND THE SPEECH OF THE THEN FINANCE MINIS TER WOULD SHOW THAT THE PURPOSE OF INSERTION OF CLAUSE (E) TO SECTION 2 (6A) IN THE 1922 ACT WAS TO BRING WITHIN THE TAX NET MONIES PAID BY CLOSELY HELD COMPANIES TO THEIR PRIN CIPAL SHAREHOLDERS IN THE GUISE OF LOANS AND ADVANCES TO AVOID PAYMENT OF TAX. ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 14 10.4 THEREFORE, IF THE SAID BACKGROUND IS KEPT IN MIND, IT IS CLEAR THAT SUB-CLAUSE (E) OF SECTION 2(22) OF THE A CT, WHICH IS PARI MATERIAL WITH CLAUSE (E) OF SECTION 2(6A) OF T HE 1922 ACT, PLAINLY SEEKS TO BRING WITHIN THE TAX NET ACCUMULAT ED PROFITS WHICH ARE DISTRIBUTED BY CLOSELY HELD COMPANIES TO ITS SHAREHOLDERS IN THE FORM OF LOANS. THE PURPOSE BEIN G THAT PERSONS WHO MANAGE SUCH CLOSELY HELD COMPANIES SHOU LD NOT ARRANGE THEIR AFFAIRS IN A MANNER THAT THEY ASS IST THE SHAREHOLDERS IN AVOIDING THE PAYMENT OF TAXES BY HA VING THESE COMPANIES PAY OR DISTRIBUTE, WHAT WOULD LEGIT IMATELY BE DIVIDEND IN THE HANDS OF THE SHAREHOLDERS, MONEY IN THE FORM OF AN ADVANCE OR LOAN. 10.5 IF THIS PURPOSE IS KEPT IN MIND THEN, IN OUR V IEW, THE WORD ADVANCE HAS TO BE READ IN CONJUNCTION WITH T HE WORD LOAN. USUALLY ATTRIBUTES OF A LOAN ARE THAT IT IN VOLVES POSITIVE ACT OF LENDING COUPLED WITH ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN: IT GENERALLY CARRIES AN INTEREST AND THERE IS AN OBLIGATION OF REPAYMENT. ON THE OTHER HAND, I N ITS WIDEST MEANING THE TERM ADVANCE MAY OR MAY NOT IN CLUDE LENDING. THE WORD ADVANCE IF NOT FOUND IN THE COM PANY OF OR IN CONJUNCTION WITH A WORD LOAN MAY OR MAY NOT IN CLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES THEN IT WOULD B E A LOAN. THUS, ARISES THE CONUNDRUM AS TO WHAT MEANING ONE W OULD ATTRIBUTE TO THE TERM ADVANCE. THE RULE OF CONSTR UCTION TO OUR MINDS WHICH ANSWERS THIS CONUNDRUM IS NOSCITUR A SO CIIS. THE SAID RULE HAS BEEN EXPLAINED BOTH BY THE PRIVY COUNCIL IN THE CASE OF ANGUS ROBERTSON V. GEORGE DAY (1879) 5 AC 63 BY OBSERVING IT IS A LEGITIMATE RULE OF CONSTRU CTION TO CONSTRUE WORDS IN AN ACT OF PARLIAMENT WITH REFEREN CE TO WORDS FOUND IN IMMEDIATE CONNECTION WITH THEM AND OUR SUPREME COURT IN THE CASE OF ROHIT PULP AND PAPER M ILLS LTD. V. COLLECTOR OF CENTRAL EXCISE, AIR 1991 SC 754 AND STATE OF BOMBAY V. HOSPITAL MAZDOOR SABHA AIR 1960 SC 610. 12. THEREFORE, WE HOLD THAT THE TRIBUNAL WAS CORREC T IN HOLDING THAT THE AMOUNTS ADVANCED FOR BUSINESS TRANSACTION BETWEEN T HE PARTIES, NAMELY, THE ASSESSEE COMPANY AND M/S. PEE EMPRO EXP ORTS PVT. LTD. WAS NOT SUCH TO FALL WITHIN THE DEFINITION OF DEEME D DIVIDEND UNDER SECTION 2 (@2)(E). THE PRESENT APPEAL IS THEREFORE DISMISSED. ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 15 16. THUS FROM THE DECISION OF THE HONBLE JURISDICT IONAL HIGH COURT IT IS CLEAR THAT IF ALLEGED LOAN / ADVANCES TAKEN BY AN A SSESSEE WHO IS OTHERWISE COVERED UNDER THE CONDITIONS OF SECTION 2 (22) (E) FOR TREATING SUCH ADVANCES AS DEEMED DIVIDEND IS ABLE TO ESTABLI SH THAT SUCH ADVANCES / LOANS WERE NOT TAKEN AS LOANS RATHER THE Y WERE BUSINESS RECEIPTS IN THE ORDINARY COURSE OF BUSINESS THEN TH OSE AMOUNTS WOULD NOT FALL WITHIN THE AMBIT OF DEEMED DIVIDEND. IN TH E PRESENT CASE THE AO DID NOT CONSIDER ANY PERIPHERAL ASPECT. HE HAS TREA TED WHATEVER TYPE OF RECEIPTS RECEIVED BY THE ASSESSEE FROM THE COMPANIE S WHERE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED AS DEEMED DIVIDEND AND MADE AN ADDITION OF RS. 1,40,04,030/-. THE ASSESSEE HAS DEMONSTRATED BE FORE THE LD. FIRST APPELLATE AUTHORITY AS TO HOW AO HAS CONSTRUED ALL THE RECEIPTS AS DEEMED DIVIDEND WITHOUT ANALYTICALLY EXAMINING THEM . LD. CIT (A) EXCLUDED SUBSTANTIAL PORTION FROM THE SUCH DEEMED D IVIDEND AND REVENUE HAS NOT CHALLENGED THE ACTION OF THE LD. CI T(A) AS DISCUSSED IN THE FOREGOING PARAGRAPHS BY US. IT INDICATE THAT LD . AO DID NOT DEEM IT FIT TO CONSIDER THE CONTENTION OF ASSESSEE. THE ASSES SEE RIGHT FROM THE VERY BEGINNING CONTENDING THAT HE IS IN THE BUSINES S OF BROKERING OF REAL ESTATE. THE COMPANIES WHENEVER HAD ANY SURPLUS FUND THEY ADVANCE IT TO THE ASSESSEE FOR MAKING INVESTMENT IN THE REAL E STATE. NEITHER THE ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 16 ASSESSEE NOR THE COMPANIES ARE DISPUTING THIS CONDU CT. BEFORE LD. CIT(A) IT WAS POINTED OUT THAT FOR M/S. NATIONAL CA PITAL REGION EVEN AGREEMENT TO PURCHASE WAS EXECUTED. THE LD. CIT(A) HAS DISBELIEVED THIS CLAIM OF THE ASSESSEE ON THE GROUND THAT AGREE MENT WAS NOT REGISTERED. HENCE IT IS ONLY PROJECTED AS A COLOURA BLE DEVICE TO AVOID THE MISCHIEF OF SECTION 2(22)(E) OF THE ACT. THE ASSESS EE IS CLAIMING THESE ADVANCES AS ADVANCE FOR INVESTMENT IN HIS BOOKS OF ACCOUNTS. THIS ASPECT HAS NOT BEEN DISPUTED BY THE AO. THE LD. CIT (A) ALSO WAS OF THE OPINION THAT ARGUMENT OF BUSINESS ADVANCE FOR TAKIN G WAY THE AMOUNT FROM AMBIT OF DEEMED DIVIDEND CAN BE CONSIDERED ONL Y WHEN ADVANCING COMPANY IS IN THE MONEY LENDING BUSINESS. THE NATUR E OF ASSESSEES BUSINESS IS SUCH THAT HE IS EARNING INCOME FROM BRO KERAGE OF REAL ESTATE. HE ALLEGED THAT THESE COMPANIES HAVE ADVANCED MONEY FOR INVESTMENT IN THE REAL ESTATE. THIS DEMONSTRATE THAT MONEY WAS TAKEN BY THE ASSESSEE IN THE LINE OF HIS BUSINESS. THE AO HAS NO T BROUGHT ANY CONTRARY MATERIAL ON THE RECORD RATHER HE PRESUMED EVERY TYPE OF AMOUNT AS DEEMED DIVIDEND. HE HAS WORKED OUT THE TO TAL AMOUNT AS DEEMED DIVIDEND AT RS. 1,40,04,030/-. AS AGAINST TH IS LD. CIT (A) HAS WORKED OUT ROUGHLY RS. 45,00,000/-. THE DEPARTMENT HAS ACCEPTED THE FINDING OF LD. CIT (A) WITH REGARD TO THE DELETION OF ADDITIONS EXCEPT A SUM OF RS. 13 LACS DISPUTED BY IT IN ITS APPEAL. T AKING INTO CONSIDERATION ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 17 THIS APPROACH OF THE AO VIS. A VIS. THE CONTENTION OF ASSESSEE AND THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. CREATIVE DYEING AND PRINTING PVT. LTD. (SUPRA) WE ALLOW THE FIRST FOLD OF GRIEVANCE RAISED BY THE ASSESSEE AND DELETE THE ADDITIONS OF RS. 10,20,000/-, RS. 15,40,000/- RS. 20,70,000/-. SIMILARLY WE UPHELD TH E DELETION OF RS. 13 LACS WHICH WAS RECEIVED BY THE COMPANY WHERE ASSESS EE IS SUBSTANTIALLY INTERESTED FROM M/S. NATIONAL CAPITAL REGION ELECTRONICS PVT. LTD. AS SHARE APPLICATION MONEY. 17. AS FAR AS SECOND FOLD OF GRIEVANCE IS CONCERNED WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY THE ASSESSEE BECAUSE HE FAILED TO SUBMIT THE COMPLETE DETAILS IN RESPECT OF VEHICLE EXPENSES , CAR MAINTENANCE ETC. LD. AO HAS MADE A DISALLOWANCE AT 1/10 TH OF THE TOTAL EXPENSES. THE DISALLOWANCE HAS RIGHTLY BEEN ESTIMATED BECAUSE POS SIBILITY OF PERSONAL USER OF THESE FACILITIES CANNOT BE RULED OUT. MORE SO LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING DID NOT ADVANCE ANY SPECIFIC ARGUMENTS ON THESE ISSUES. HENCE THE DISALLOWANCE OF RS. 14, 165/- AND RS. 21,133/- OUT OF REPAIR MAINTENANCE AND DEPRECIATION OF VEHICLES ETC. ARE CONFIRMED. ITA NOS. 3812,3664/DEL/09 ASSTT. YEAR 20 05-06 18 18. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.2.2010. [SHAMIM YAHYA] [RAJPAL YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER VEENA DATED: 12.2.2010 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT