REYNOLD SHIRTING P. LTD, MUMBAI V. ASST CIT CEN CIR 38, MUMBAI

ITA 4333/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1068 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 31-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 25-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R RAVIKIRAN
• Keywords: Peak credit; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO.4333/M/2012 ASSESSMENT YEAR: 2010-11 M/S. REYNOLD SHIRTING PVT. LTD., 1 ST FLOOR, D-WING, OBEROI GARDEN ESTATE CHANDIVALI FARMS ROAD, CHANDIVALI, ANDHERI (E), MUMBAI 400 072 PAN: AACCR 7055H VS. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 38, AAYAKAR BHAVAN, GROUND FLOOR, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ITA NO.5390/M/2012 ASSESSMENT YEAR: 2010-11 ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 38, R.NO.32(1), GROUND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. REYNOLD SHIRTING PVT. LTD., 143, SHIV SHAKTI INDL. ESTATE, 3 RD PHASE, OPP. MITTAL ESTATE, ANDHERI KURLA ROAD, ANDHERI (EAST), MUMBAI 400 059 PAN: AACCR 7055H (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI VIJAY MEHTA, A.R. REVENUE BY : SHRI R. RAVIKIRAN, D.R. DATE OF HEARING : 05.04.2017 DATE OF PRONOUNCEMENT : 28.04.2017 O R D E R PER D.T. GARASIA, JUDICIAL MEMBER: THE ABOVE TITLED APPEALS ONE BY THE ASSESSEE AND T HE OTHER BY THE REVENUE HAVE BEEN RAISED AGAINST THE ORDER DATED 12 .06.2012 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER R EFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2010-11. ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 2 2. ALL THE GROUNDS ARE INTERCONNECTED AND THE DEPAR TMENTAL APPEAL IS INTERCONNECTED. THEREFORE BOTH THE APPEALS ARE DIS POSED OF BY THIS COMMON ORDER. 3. THE LD. A.R. HAS NOT PRESSED GROUND NO.1. HENCE , THE EFFECTIVE GROUND IN THIS APPEAL IS GROUND NO.2. THE SHORT FACTS OF THE CASE ARE AS UNDER: THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) NOTICED THAT ASSESSEE COMPANY HAS PURCHASED 99.75% SHARES IN ANO THER COMPANY NAMED M/S. B.R. MACHINE TOOLS PVT. LTD. VIDE AGREEMENT DA TED 02.04.07 AND HAS BECOME THE HOLDING COMPANY. THE COMPANY ACQUIRED B Y THE ASSESSEE COMPANY HAS NOT CARRIED OUT ANY BUSINESS DURING THE YEAR AS WELL AS NEXT TWO YEARS. THE ONLY INCOME SHOWN BY THE ASSESSEE WAS D IVIDEND INCOME. THE AO FURTHER NOTICED THAT ASSESSEE COMPANY HAS TAKEN LOA NS AND ADVANCES OF RS.2,80,00,000/- ON 31.03.10 AND RS.13,87,00,000/- ON 04.12.09 FROM M/S. B.R. MACHINE TOOLS PVT. LTD. ACCORDINGLY, ASSESSEE WAS ASKED TO EXPLAIN WHY THIS AMOUNT MAY NOT BE TREATED AS INCOME IN THE HAN DS OF COMPANY AS PER PROVISION OF SECTION 2(22)(E) OF THE INCOME TAX ACT . IN RESPONSE TO SHOW CAUSE NOTICE ASSESSEE HAS REPLIED WHICH IS REPRODUC ED AT PAGE 3 OF THE ASSESSMENT ORDER. AFTER CONSIDERING THE REPLY AO O BSERVED THAT M/S. B.R. MACHINE TOOLS PVT. LTD. IS NOT A COMPANY IN WHICH P UBLIC ARE SUBSTANTIALLY INTERESTED. THE ASSESSEE HOLDS MORE THAN 10% OF VO TING POWER IN M/S. B.R. MACHINE TOOLS PVT. LTD. AND ADVANCE OR LOAN AMOUNTI NG TO RS.16,67,00,000/- IS GIVEN BY M/S. B.R. MACHINE TOOLS PVT. LTD. TO TH E ASSESSEE COMPANY DURING THE YEAR. THE ACCUMULATED PROFIT OF M/S. B.R. MACH INE TOOLS PVT. LTD. WAS AT RS.21,78,62,798/-. MONEY LENDING WAS NOT THE BUSIN ESS OF M/S. B.R. MACHINE TOOLS PVT. LTD. AS SEEN FROM THE BALANCE SHEET OF L AST FOUR YEARS. THUS, AFTER CONSIDERING THE REPLY OF THE ASSESSEE THE AO REJECT ED THE CLAIM AND HELD THAT ASSESSEE IS NOT IN BUSINESS OF MONEY LENDING. THER EFORE, THEY ARE EXCLUDED FROM DEFINITION OF SECTION 2(22)(E). ALL THE TRANS ACTIONS INVOLVED ARE LOANS AND ADVANCES, THEREFORE SECTION 2(22)(E) IS APPLICABLE. THEREFORE, AMOUNT OF ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 3 RS.16,67,00,000/- WAS TREATED AS DEEMED DIVIDEND AN D ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. MATTER CARRIED TO LD. CIT(A) AND THE LD. CIT(A) HAS PARTLY ALLOWED THE CLAIM BY OBSERVING AS UNDER: 4.5 FROM THE PERUSAL OF THE SUBMISSIONS MADE BY TH E APPELLANT AND FACTS OF THE CASE, IT IS OBSERVED THAT THE CONDITIO NS LAID DOWN IN SECTION 2(22)(E) ARE APPLICABLE TO THE FACTS OF THE PRESENT CASE BECAUSE THE ASSESSEE HAS TAKEN LOAN/ADVANCE AND HAVING MORE 10% VOTING POWERS IN M/S. B.R. MACHINE TOOLS PRIVATE LIMITED HAS ACCU MULATED PROFIT DURING THE YEAR UNDER CONSIDERATION AND MOREOVER M/ S. B. R. MACHINE TOOLS PRIVATE LIMITED IS NOT DEALING IN THE BUSINES S OF MONEY LENDING AND ALSO NOT A COMPANY IN WHICH PUBLIC ARE SUBSTANT IALLY INTERESTED. THUS ALL THE CONDITIONS ARE FULFILLED A ND THE CASE OF THE APPELLANT DOES NOT FALL UNDER ANY EXCEPTION TO THIS SECTION. THE ARGUMENT OF THE APPELLANT THAT IT WAS PURELY A BUSINESS TRANSACTION AND THE PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE IS NOT ACCEPTABLE BECAUSE THE A.R. OF THE APPELLANT HA S FAILED TO SUBMIT ANY EVIDENCE BEFORE THE A.O. AND BEFORE ME TO PROVE THIS FACT THAT THE LOAN WAS TAKEN FOR PURCHASE/SALE OF PROPER TY. THEREFORE, THE ARGUMENT OF THE A.R. THAT IT WAS A BUSINESS TRA NSACTION CANNOT BE ACCEPTED WITHOUT ANY DOCUMENTARY EVIDENCE. THE C LAIM OF THE A.R. OF THE APPELLANT THAT AGREEMENT WAS SUBMITTED BEFOR E THE A.O. IS CONSIDERED AND OBSERVED THAT NOWHERE IN THIS AGREEM ENT IT IS MENTIONED THAT THE ASSESSEE WILL RECEIVE LOAN FROM THE SUBSIDIARY COMPANY FOR PURCHASING A PARTICULAR PLOT OF LAND. W HAT WILL BE THE AMOUNT OF LOAN AND WHAT WILL BE THE PRICE OF A PART ICULAR PROPERTY. IT IS A GENERAL AGREEMENT WHICH DO NOT PROVE THAT T HE LOAN HAS BEEN RECEIVED FOR BUSINESS PURPOSES. THEREFORE, THE ARGU MENT OF THE APPELLANT IS REJECTED. THE SECOND CONTENTION OF THE APPELLANT THAT IT HAD ADVANCED LOAN OF RS. 9.40CRORE TO M/S. B.R. MAC HINE TOOLS PRIVATE LIMITED AND NET BALANCE WAS RS. 4.47 CRORE AND FURT HER REPAID THE LOAN OF RS. 5.40 CRORE AND RECEIVED BACK RS. 2.80 CRORE AND THE NET CREDIT BALANCE WAS RS. 1.87 CRORE IS CORRECT AS SHOWN IN T HE COPY OF A/C OF M/S. B.R. MACHINE TOOLS PRIVATE LIMITED. IN VIEW OF THES E FACTS IT WAS ARGUED THAT IF ANY ADDITION IS TO BE MADE U/S. 2(22)(E) IT WILL BE ONLY RS. 6.34 CRORE AND NOT RS. 16.67 CRORE. THE A.R. HAS ALSO RE LIED ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. P. K. BADIANI (SUPRA), WHERE IT IS HELD AS UNDER: THE ASSESSEE WAS THE MAJOR SHAREHOLDER AND THE MAN AGING DIRECTOR OF A PRIVATE LIMITED COMPANY, S. THE ASSESSEE HAD A MUTU AL, OPEN AND CURRENT ACCOUNT IN THE BOOKS OF THE COMPANY AND BE HAD WITH DRAWN THROUGH THAT ACCOUNT A SUM OF RS.3,37,416 IN THE ACCOUNTING YEAR APRIL 1 , 1957, TO MARCH 31, 1958, RELEVANT TO THE ASSESSMENT YEAR 1958-59. THE ACCOUN T BEING A MUTUAL, OPEN AND CURRENT ACCOUNT, EVERY DEBIT, THAT IS, EVERY PAYMENT BY THE COMPANY TO THE ASSESSEE MAY NOT BE A LOAN. TO B E TREATED AS A LOAN, EVERY AMOUNT PAID MUST MAKE THE COMPANY A CREDITOR OF THE ASSESSEE FOR THAT AMOUNT. IF, HOWEVER, AT THE TIME WHEN THE PAYMENT I S MADE, THE COMPANY IS ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 4 ALREADY A DEBTOR OF THE ASSESSEE, THE PAYMENT WOULD BE MERELY A REPAYMENT BY THE COMPANY TOWARDS ITS ALREADY EXISTING DEBT . IT WOULD BE A LOAN BY THE COMPANY ONLY IF THE PAYMENT EXCEEDS THE AMOUNT OF I TS ALREADY EXISTING DEBT AND THAT TOO ONLY TO THE EXTENT OF THE EXCESS. THER EFORE, THE POSITION AS REGARDS EACH DEBIT WILL HAVE TO BE INDIVIDUALLY CONSIDERED, BECAUSE IT MAY OR MAY NOT BE A LOAN. THE TWO BASIC PRINCIPLES ARE THAT ONLY A LOAN WHICH WOULD INCLUDE THE OTHER PAYMENTS MENTIONED IN SECTION 2(6A)(E) CAN BE DEEME D TO BE DIVIDEND AND THAT TOO ONLY TO THE EXTENT THAT THE COMPANY HAS AT THE DATE OF THE PAYMENT 'ACCUMULATED PROFITS' AFTER DEDUCTING THEREFROM ALL ITEMS LEGITIMATELY DEDUCTIBLE THEREFROM. WHAT HAS TO BE CONSIDERED IS NOT THE BAL ANCE IN ACCOUNT BUT THE POSITION OF EVERY PAYMENT, AND, THEREFORE, THE DEBI T BALANCE OF THE ASSESSEE WITH THE COMPANY AT ANY POINT OF TIME COULD NOT BE TAKEN TO REPRESENT AN ADVANCE OR LOAN BY THE COMPANY TO THE ASSESSEE; NOR COULD THE AMOUNT OUTSTANDING AT THE END OF THE ACCOUNTING YEAR BE AL ONE TAKEN AS LOAN WITHIN THE MEANING OF SECTION 2(6A)(E).' 4.6 KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE IT IS HELD THAT THE APPELLANT COMPANY HAS FAILED TO PROVE THAT IT WAS A BUSINESS TRANSACTION THUS REJECTED. HOWEVER THE SEC OND CONTENTION OF THE APPELLANT THAT IT HAS ADVANCED LOANS TO M/S. B. R. MACHINE TOOLS PRIVATE LIMITED WHICH WAS RECEIVED BACK AND CANNOT BE TREATED AS LOAN RECEIVED FROM THE SUBSIDIARY COMPANY IS CORRECT AS PER THE COPY OF ACCOUNT SUBMITTED. MOREOVER, THE FACTS OF THE CASE ARE SQUARELY COVERED BY THE DECISION OF THE HON'BLE HIGH COURT I N THE CASE OF CIT VS. P.K. BADIANI (SUPRA). THEREFORE FOLLOWING THE DECIS ION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF P.K. BADIANI, THE A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCE MADE U/S. 2(22)(E) TO RS. 6.34 CRORES IN PLACE OF RS. 16.67 CRORES MADE IN THE ASSESSMENT ORDER. T HUS THE ADDITION OF RS. 6.34 CRORES IS CONFIRMED AND BALANCE IS DELETED . GROUND OF APPEAL IS PARTLY ALLOWED. 5. THE DEPARTMENT IS IN APPEAL AGAINST DELETION OF ADDITION OF RS.16,67,00,000/- AND THE ASSESSEE IS IN APPEAL AGA INST CONFIRMING THE ADDITION OF RS.6.34 CRORES. 6. IN RESPECT OF ASSESSEES APPEAL, THE LD. A.R. HA S MADE SUBMISSION ON THE GROUND THAT PURPOSE OF THE INSERTION OF SUB-CLAUSE (E) OF SECTION 2(22) OF THE ACT IS TO BRING WITHIN THE TAX NET ACCUMULATED PROF ITS WHICH ARE DISTRIBUTED BY CLOSELY HELD COMPANIES TO HIS SHAREHOLDERS IN THE F ORM OF LOANS TO AVOID PAYMENT OF DIVIDEND DISTRIBUTION TAX UNDER SECTION 115-O OF THE ACT. THE PURPOSE BEING THAT PERSONS WHO MANAGE SUCH CLOSELY HELD COMPANIES SHOULD NOT ARRANGE THEIR AFFAIRS IN A MANNER THAT THEY ASS IST THE SHAREHOLDERS IN AVOIDING PAYMENT OF TAX BY HAVING THESE COMPANIES P AY OR DISTRIBUTE MONEY IN THE FORM OF ADVANCE OR LOAN. THE LOAN OR ADVANCE G IVEN TO THE SHAREHOLDERS OR TO A CONCERN, UNDER NORMAL CIRCUMSTANCES WOULD NOT QUALIFY AS DIVIDEND. IF ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 5 SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER A S A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO THE CO MPANY RECEIVED FROM SUCH A SHAREHOLDER, IN SUCH CASE, SUCH ADVANCE OR LOAN CAN NOT BE SAID TO BE A DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT. THE LD. A. R. SUBMITTED THAT IN THE PRESENT CASE THE ASSESSEE COMPANY HAS GIVEN MONEY I N ADVANCE BY SUMS OF RS.5 CRORES, RS.4 CRORES AND RS.40 LAKHS TOTALING T O RS.9.40 CRORES AND AS AGAINST THE SAME, THE COMPANY RECEIVED A SUM OF RS. 13.87 CRORES. IF THE NET OF THIS IS TAKEN, THE BALANCE WOULD BE RS.4.47 CRORES AND FURTHER REPAID THE LOAN AT RS.5.40 CRORES AND RECEIVED BACK RS.2.80 CRORES, TH EREFORE NET CREDIT BALANCE IS RS.1.87 CRORES. IF ANY ADVANCE OR LOAN MADE TO A S HAREHOLDER OR THE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF T HE COMPANY, THEN SECTION 2(22)(E)(II) IS NOT APPLICABLE. BUT IN THIS INSTAN T CASE THE ASSESSEE COMPANY IS NOT IN A BUSINESS OF MONEY LENDING. THE JUDGMENT O F HONBLE PUNJAB & HARYANA HIGH COURT, DECISION OF JURISDICTIONAL HIGH COURT AND THE DECISION OF HONBLE GUJARAT HIGH COURT WHEREIN A CONSISTENT VIE W HAS BEEN TAKEN THAT IF ANY COMPANY WHICH IS NOT FINANCIAL COMPANY BUT IF T HE ADVANCE OR LOAN IS GIVEN TO SUBSIDIARY COMPANY AND IF IT IS AN ORDINAR Y COURSE OF BUSINESS TRANSACTION THEN WHETHER THE SECTION 2(22)(E) APPLI CABLE IS TO BE SEEN FROM THE FACTS OF EACH AND EVERY CASE. THE LD. A.R. HAS DRA WN OUR ATTENTION TO THE PAPER BOOK WHEREIN THE ASSESSEE HAS FILED THE CHART SHOWING THE LEDGER OF M/S. B.R. MACHINE TOOLS PVT. LTD. WHEREIN IT SHOWS THAT THE ASSESSEE COMPANY HAS GIVEN LOAN TO M/S. B.R. MACHINE TOOLS PVT. LTD. WHI CH IS A SUBSIDIARY COMPANY. THE LD. A.R. SUBMITTED THAT FROM 01.04.09 TO 31.03.10 THE AMOUNT WAS GIVEN TO M/S. B.R. MACHINE TOOLS PVT. LTD. AND HE SUBMITTED THAT IN SOME OF THE DATES THERE WERE AMOUNTS OF CREDIT BALANCE A ND DEBIT BALANCE ALSO. IN RESPECT OF BALANCE BETWEEN 01.04.10 TO 31.03.11, ON VARIOUS DATES VIZ. 01.05.10, 2.09.10 AND 20.05.10 THERE WAS A CREDIT B ALANCE. THEREAFTER, THERE WAS A DEBIT BALANCE. THE ASSESSMENT YEAR IS 2010-1 1, THEREFORE IF YOU VERIFY THE TRANSACTIONS BETWEEN THESE TWO COMPANIES THE AS SESSEE COMPANY HAS GIVEN ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 6 LOAN BUT THE M/S. B.R. MACHINE TOOLS PVT. LTD. HAD ALSO GIVEN ADVANCE TO THE ASSESSEE COMPANY, THEREFORE IT HAS TO BE PRESUMED T HAT THIS TRANSACTION SHOWS THAT THERE WAS A BUSINESS TRANSACTION BETWEEN THOSE TWO COMPANIES AND IF THERE IS A BUSINESS TRANSACTION BETWEEN THE TWO COMPANIES THE SECTION 2(22)(E) IS NOT APPLICABLE. IF THE ASSESSEE COMPANY IS NOT A FINAN CIAL COMPANY, THEN COMPANY WILL BE EXEMPT FROM APPLICABILITY OF SECTION 2(22)( E) OF THE ACT. THE LD. A.R. HAS ALSO DRAWN OUR ATTENTION TO THE JUDGMENT OF HON BLE GUJARAT HIGH COURT WHEREIN IT HAS BEEN HELD THAT IF THERE IS A MOVEMEN T OF FUNDS OF BOTH THE COMPANIES ON NEED BASIS AND THE TRANSACTIONS ARE IN THE FORM OF CURRENT ACCOMMODATION ADJUSTMENT ENTRIES, THEN THE TRANSACT ION CANNOT BE TERMED AS LOANS AND ADVANCES AND SECTION 2(22)(E) IS NOT APPL ICABLE TO THE FACTS OF THE CASE. IN SUPPORT OF THE CLAIM, THE LD. A.R. ALSO R ELIED UPON THE DECISION OF MUMBAI BENCH, ITAT 183 TTJ 459. 7. ON THE OTHER HAND, THE LD. D.R. RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF STAR CHEMICALS (P. ) LTD. VS. CIT 72 TAXMAN 279 AND SUBMITTED THAT SECTION 2(22)(E) WOULD APPLY TO A COMPANY WHICH HAD TAKEN LOAN FROM ITS SUBSIDIARY AND FOR THE PURPOSES OF SECTION 2(22)(E) THE LOAN RECEIVED DURING THE ACCOUNTING YEAR HAS TO BE TAKEN INTO ACCOUNT. THE LD. D.R. SUBMITTED THAT THE HONBLE PUNJAB & HARYANA HIGH CO URTS JUDGMENT WHICH WAS GIVEN INTO DIFFERENT CONTEXT AND HONBLE PUNJAB & HARYANA HIGH COURTS JUDGMENT IS NOT A JURISDICTIONAL ONE AND IT IS DIST INGUISHABLE ON THE FACT. SIMILARLY, HE HAS ALSO SUBMITTED THE SAME ARGUMENT IN RESPECT OF HONBLE GUJARAT HIGH COURT. IN RESPECT OF DEPARTMENTAL APP EAL, THE LD. D.R. SUBMITTED THAT HE RELIES UPON THE DECISION OF AO. FOR THE DEPARTMENTAL APPEAL, THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) IS JUSTIFIED IN ALLOWING THE CLAIM BY RELYING UPON THE DECISION OF HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CIT VS. P.K. BADIANI. ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 7 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, FOR UNDERSTAND ING THE ISSUE, WE REPRODUCE SECTION 2(22)(E) AS UNDER: 2(22)( E ) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WH ETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MAD E AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLD ER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICI PATE IN PROFITS) HOLDING NOT 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 H E HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS T HE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE I NDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPAN Y IN EITHER CASE POSSESSES ACCUMULATED PROFITS; BUT 'DIVIDEND' DOES NOT INCLUDE (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLA USE (C) OR SUB-CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSIDERA TION, WHERE THE HOLDER OF THE SHARE IS NOT ENTITLED IN THE EVENT OF LIQUIDATI ON TO PARTICIPATE IN THE SURPLUS ASSETS ; (IA) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLA USE (C) OR SUB-CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS ATTRIBUTABLE TO THE CAP ITALISED PROFITS OF THE COMPANY REPRESENTING BONUS SHARES ALLOTTED TO ITS E QUITY SHAREHOLDERS AFTER THE 31ST DAY OF MARCH, 1964, AND BEFORE THE 1ST DAY OF APRIL, 1965 ; (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR T HE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE L ENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY ; (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET O FF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PREVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEANING OF SUB-CLAUSE (E), TO THE EXTENT TO WHICH IT IS SO SET OFF; (IV) ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF I TS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PROVISIONS OF SE CTION 77A13 OF THE COMPANIES ACT, 1956 (1 OF 1956); (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERG ER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERGED COMPANY (WHETHE R OR NOT THERE IS A REDUCTION OF CAPITAL IN THE DEMERGED COMPANY). EXPLANATION 1.THE EXPRESSION 'ACCUMULATED PROFITS' , WHEREVER IT OCCURS IN THIS CLAUSE, SHALL NOT INCLUDE CAPITAL GAINS ARISIN G BEFORE THE 1ST DAY OF APRIL, 1946, OR AFTER THE 31ST DAY OF MARCH, 1948, AND BEF ORE THE 1ST DAY OF APRIL, 1956. EXPLANATION 2.THE EXPRESSION 'ACCUMULATED PROFITS' IN SUB-CLAUSES (A), (B), (D) AND (E), SHALL INCLUDE ALL PROFITS OF THE COMPA NY UP TO THE DATE OF DISTRIBUTION OR PAYMENT REFERRED TO IN THOSE SUB-CL AUSES, AND IN SUB-CLAUSE (C) SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF LIQUIDATION, BUT SHALL NOT, WHERE THE LIQUIDATION IS CONSEQUENT ON T HE COMPULSORY ACQUISITION ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 8 OF ITS UNDERTAKING BY THE GOVERNMENT OR A CORPORATI ON OWNED OR CONTROLLED BY THE GOVERNMENT UNDER ANY LAW FOR THE TIME BEING IN FORCE, INCLUDE ANY PROFITS OF THE COMPANY PRIOR TO THREE SUCCESSIVE PR EVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN WHICH SUCH ACQUISITI ON TOOK PLACE. EXPLANATION 3.FOR THE PURPOSES OF THIS CLAUSE, (A) 'CONCERN' MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY ; (B) A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIME DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER C ENT OF THE INCOME OF SUCH CONCERN ; 9. IN THE ABOVE SECTION IT IS STATED THAT IF THE AS SESSEE COMPANY IS A FINANCIAL COMPANY AND IF THERE IS A LOAN AND ADVANC E BY THE FINANCIAL COMPANY THEY ARE EXEMPTED FROM RIGORS OF APPLICABILITY OF S ECTION 2(22)(E) OF THE ACT. THE ASSESSEE HAS SUBMITTED THE CHART BEFORE US WHIC H IS REPRODUCED BY THE LD. CIT(A) AND WE REPRODUCE THE SAME FOR UNDERSTANDING THE CASE WHICH READS AS UNDER: COPY OF A/C BR MACHINE TOOLS A/C DATE PARTICULARS DEBIT CREDIT BALANCE IN RS. PEAK CREDIT BALANCE 01- 04- 2009 OPENING BALANCE - - 2,45,65,009 CR - - 30- 10- 2009 PAID 5,00,00,000 - 5,00,00,000 DR - - 25 - 11- 2009 PAID 4,00,00,000 - 9,00,00,000 DR - - 02- 12- 2009 PAID TOWARDS BILL 40,00,000 - 9,40,00,000 DR - - 04- 12- 2009 RECD - 13,87,00,000 4,47,00,000 CR 4,47,00,000 CR 17 - 02- 2010 PAID 5,40,00,000 - 93,00,000 DR - - 31- 03- RECD - 2,80,00,000 1,87,00,000 CR - - ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 9 2010 31- 03- 2010 CLOSING BALANCE - - 1,87,00,000 CR - - 14,80,00,000 16,67,00,000 10. THE ASSESSEE HAS PRODUCED THE COPY OF THE ACCOU NT OF M/S. B.R. MACHINE TOOLS PVT. LTD. ON 01.04.09 THE OPENING BALANCE WA S RS.2,45,65,009/-. THEREAFTER, THE ASSESSEE HAS PAID RS.5 CRORES, RS.4 CRORES & RS.40 LAKHS ON 30.10.09, 25.11.09 & 02.12.09 RESPECTIVELY AND ON 0 2.12.09 THERE WAS A DEBIT BALANCE OF RS.9,40,00,000/- AND ON 04.12.09 THERE W AS CREDIT BALANCE OF RS.4,47,00,000/- AND AGAIN ON 17.02.10 THERE WAS DE BIT BALANCE OF RS.93,00,000/- AND ON 31.03.10 THERE WAS CREDIT BAL ANCE OF RS.1,87,00,000/- ONLY IN THE ACCOUNT OF M/S. B.R. MACHINE TOOLS PVT. LTD. IT IS NOT IN DISPUTE THAT ASSESSEE HAS TAKEN LOAN/ADVANCE AND HAVING MOR E THAN 10% VOTING POWERS IN M/S. B.R. MACHINE TOOLS PVT. LTD. ASSESSEE HAS A CCUMULATED PROFIT DURING THE YEAR UNDER CONSIDERATION AND MOREOVER M/S. B.R. MACHINE TOOLS PVT. LTD. IS NOT A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED. 11. WE FIND THAT THE LD. CIT(A) HAS HELD THAT THE A SSESSEE HAD ADVANCED LOANS TO M/S. B.R. MACHINE TOOLS PVT. LTD. WHICH WE RE RECEIVED BACK AND CANNOT BE TREATED AS LOAN RECEIVED FROM SUBSIDIARY COMPANY IS CORRECT AS PER THE COPY OF THE ACCOUNT SUBMITTED. THE LD. CIT(A) HAS HELD THAT CONDITIONS LAID DOWN IN SECTION 2(22)(E) ARE APPLICABLE TO THE PRESENT CASE BECAUSE ASSESSEE HAS TAKEN LOAN/ADVANCE AND HAVING MORE THA N 10% VOTING POWERS IN M/S. B.R. MACHINE TOOLS PVT. LTD. ASSESSEE HAS ACCU MULATED PROFIT DURING THE YEAR UNDER CONSIDERATION AND MOREOVER M/S. B.R. MAC HINE TOOLS PVT. LTD. IS NOT DEALING IN THE BUSINESS OF MONEY LENDING AND AL SO IS NOT A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED. THUS AL L THE CONDITIONS ARE FULFILLED. WE FIND THAT THE LD. CIT(A) HAS ACCEPTED THE CONTEN TION OF THE ASSESSEE THAT IT HAD ADVANCED THE LOAN OF RS.9.40 CRORES TO M/S. B.R . MACHINE TOOLS PVT. LTD. AND NET BALANCE WAS RS.4.47 CRORES AND REPAID LOAN OF RS.5.40 CRORES AND ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 10 RECEIVED BACK RS.2.80 CRORES, HENCE, SECTION 2(22)( E) WILL APPLY ONLY FOR RS.6.34 CRORES. THE LD. CIT(A) HAS CONFIRMED THE A DDITION OF RS.6.34 CRORES UNDER SECTION 2(22)(E) BY FOLLOWING THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. P.K. BADIANI. THEREFO RE, OUR INTERFERENCE IS NOT REQUIRED. 12. IN RESPECT OF ASSESSEES APPEAL, THE LD. A.R. HAS SUBMITTED THE CHART BEFORE US FOR CLARIFYING THE TRANSACTION BETWEEN AS SESSEE AND M/S. B.R. MACHINE TOOLS PVT. LTD. THE ASSESSEE HAS SUBMITTED THE LEDGER OF M/S. B.R. MACHINE TOOLS PVT. LTD. WHICH READS AS UNDER: DATE PARTICULARS AMOUNT DEBIT (RS.) AMOUNT CREDIT (RS.) CLOSING BALANCE DEBIT/CREDIT 01/04/2009 BALANCE B/F: 245,65,009 (245,65,009) CREDIT 30/10/2009 BR MACHINE TOOLS PVT. LTD. 500,00,000 254,34,991 DEBIT 25/11/2009 BR MACHINE TOOLS PVT. LTD. 400,00,000 654,34,991 DEBIT 02/12/2009 BR MACHINE TOOLS PVT. LTD. 40,00,000 694,34,991 DEBIT 04/12/2009 BR MACHINE TOOLS PVT. LTD. 1387,00,000 (692,65,009) CREDIT 17/02/2010 BR MACHINE TOOLS PVT. LTD. 540,00,000 (152,65,009) CREDIT 31/03/2010 BR MACHINE TOOLS PVT. LTD. 280,00,000 (432,65,009) CREDIT 31/03/2010 BALANCE C/F: 432,65,009 TOTAL: 1912,65,009 1912,65,009 01/04/2010 BALANCE B/F: 432,65,009 (432,65,009) CREDIT 15/05/2010 BR MACHINE TOOLS PVT. LTD. 1,00,000 (431,65,009) CREDIT 02/09/2010 BR MACHINE TOOLS PVT. LTD. 1,00,000 (430,65,009) CREDIT ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 11 25/09/2010 BR MACHINE TOOLS PVT. LTD. 5600,00,000 5169,34,991 DEBIT 25/09/2 010 BR MACHINE TOOLS PVT. LTD. 975,00,000 6144,34,991 DEBIT 15/02/2011 BR MACHINE TOOLS PVT. LTD. 53,00,000 6197,34,991 DEBIT 29/03/2011 BR MACHINE TOOLS PVT. LTD. 17,00,000 6214,34,991 DEBIT 31/03/2011 BR MACHINE TOOLS PVT. LTD. 1058,00,000 7272,34,991 DEBIT 31/03/2011 BALANCE C/F: TOTAL 7705,00,000 7705,00,000 01/04/11 BALANCE B/F: 7272,34,991 7272,34,991 DEBIT 07-05-11 B R MACHINE TOOLS PVT. LTD. 300,00,000 7572,34,991 DEBIT 18/05/2011 BR MACHINE TOOLS PVT. LTD. 225,00,000 7347,34,991 DEBIT 21/05/2011 BR MACHINE TOOLS PVT. LTD. 30,00,000 7317,34,991 DEBIT 23/05/2011 BR MACHINE TOOLS PVT. LTD. 34,00,000 7283,34,991 DEBIT 24/05/2011 BR MACHINE TOOLS PVT. LTD. 11,00,000 7272,34,991 DEBIT 24/06/2011 BR MACHINE TOOLS PVT. LTD. 100,00,000 7172,34,991 DEBIT 29/06/2011 BR MACHINE TOOLS PVT. LTD. 256,00,000 7428,34,991 DEBIT 29/06/2011 BR MACHINE TOOLS PVT. LTD. 1350,00,000 8778,34,991 DEBIT 26/08/2011 BR MACHINE TOOLS PVT. LTD. 1972,50,000 10750,84,991 DEBIT 28/09/2011 BR MACHINE TOOLS PVT. 2958,75,000 13709,59,991 DEBIT ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 12 LTD. 29/09/2011 BR MACHINE TOOLS PVT. LTD. 4,37,500 13713,97,491 DEBIT 31/03/2012 BALANCE C/F 13713,97,491 TOTAL 14113,97,491 14113,97,491 01/04/2012 BALANCE B/F 13713,97,491 13713,97,491 DEBIT 31/05/2012 BR MACHINE TOOLS PVT. LTD. 200,00,000 13913,97,491 DEBIT 18/06/2012 BR MACHINE TOOLS PVT. LTD. 50,00,000 13863,97,491 DEBIT 30/06/2012 BR MACHINE TOOLS PVT. LTD. 100,00,000 13963,97,491 DEBIT 31/07/2012 BR MACHINE TOOLS PVT. LTD. 58,00,000 14021,97,491 DEBIT 05/09/2012 BR MACHINE TOOLS PVT. LTD. 68,00,000 13953,97,491 DEBIT 05/09/2012 BR MACHINE TOOLS PVT. LTD. 10,00,000 13963,97,491 DEBIT 05/09/2012 BR MACHINE TOOLS PVT. LTD. 10,00,000 13973,97,491 DEBIT 05/09/2012 BR MACHINE TOOLS PVT. LTD. 10,00,000 13983,97,491 DEBIT 05/09/2012 BR MACHINE TOOLS PVT. LTD. 25,00,000 14008,97,491 DEBIT 06/09/2012 BR MACHINE TOOLS PVT. LTD. 135,00,000 13873,97,491 DEBIT 06/09/2012 BR MACHINE TOOLS PVT. LTD. 300 13873,97,791 DEBIT 28/09/2012 BR MACHINE TOOLS PVT. LTD. 6,00,100 13879,97,891 DEBIT 28/09/2012 BR MACHINE TOOLS PVT. LTD. 52,00,100 13931,97,891 DEBIT 30/09/2012 BR MACHINE TOOLS PVT. 175,00,000 14106,97,891 DEBIT ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 13 LTD. 30/09/2012 BR MACHINE TOOLS PVT. LTD. 175,00,000 14281,97,891 DEBIT 04/12/2012 BR MACHINE TOOLS PVT. LTD. 12,00,000 14269,97,891 DEBIT 02/02/2013 BR MACHINE TOOLS PVT. LTD. 45,00,000 14224,97,891 DEBIT 31/03/2013 BALANCE C/F: 14224,97,891 TOTAL 14534,97,891 14534,97,891 FROM THE ABOVE CHART IT IS CLEAR THAT FROM 01.04.2 009 TO 31.03.2010 THERE WAS A CREDIT BALANCE OF RS.432,65,009/-. SIMILARLY FROM 01.04.2010 TO 31.03.2011 THERE WAS DEBIT BALANCE. SIMILARLY FROM 01.04.2011 TO 31.03.2012 THERE WAS ALSO A DEBIT BALANCE. FROM THE ABOVE CHA RT AND FROM THE ENTRIES OF THE LEDGER ACCOUNT OF M/S. B.R. MACHINE TOOLS PVT. LTD., WE FIND THAT ASSESSEE HAD RUNNING ACCOUNT WITH THE COMPANY AND IT HAD BEE N ADVANCING MONEY TO THE COMPANY AS AND WHEN REQUIRED FOR THE PURPOSE OF BUS INESS OF THE COMPANY. MOREOVER, WE FIND THAT THERE WAS MOVEMENT OF FUNDS ON BOTH WAYS ON NEED BASIS. THE TRANSACTIONS IN NATURE OF LOANS AND ADV ANCES ARE USUALLY VERY FEW IN NUMBER WHEREAS IN THE PRESENT CASE SUCH TRANSACTION S ARE IN FORM OF CURRENT ACCOMMODATION ADJUSTMENT ENTRIES. THEREFORE, WE HO LD THAT THE TRANSACTIONS WERE NOT IN NATURE OF LOANS AND ADVANCES. WE ALSO FIND FROM THE CHART PLACED ON THE RECORD THAT FOR THE TWO YEARS THERE ARE LARG ER NUMBER OF DEBIT AND CREDIT TRANSACTIONS MEANING THEREBY ASSESSEE HAS GIVEN AND RECEIVED FUNDS AS AND WHEN REQUIRED TO AND FROM HIS SISTER CONCERN. IT I S NOT AN ACCOUNT WHEREBY LOANS AND ADVANCES HAVE BEEN GIVEN TO ASSOCIATE CON CERN, BUT THIS ACCOUNT IS IN NATURE OF CURRENT ACCOMMODATION ACCOUNT WHEREIN THERE IS A MOVEMENT OF FUNDS BOTH WAYS ON NEED BASIS. WE HAVE GONE THROUG H THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SURAJ DEV DADA 367 ITR 78 (P & H) WHEREIN IT IS HELD THAT SECTION 2(22)(E) IS A DEEMING PROVISION WHICH ASSUMES EXISTENCE OF CERTAIN FACTS IF THE CON DITIONS SPECIFIED IN A ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 14 PARTICULAR SECTION ARE FULFILLED. THESE PROVISIONS ARE TO BE STRICTLY CONSTRUED. THE COPY OF THE ACCOUNT OF THE ASSESSEE IN THE BOOK S OF THE COMPANY CLEARLY SHOWS THAT THE ASSESSEE HAS RUNNING CURRENT ACCOUNT WITH THE COMPANY AND IN FACT THE ASSESSEE HAS BEEN ADVANCING MONEY TO COMPA NY AS AND WHEN REQUIRED FOR THE PURPOSE OF BUSINESS OF THE COMPANY. THEREF ORE, THE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IS SQUARELY APP LICABLE TO THE FACTS OF THE ASSESSEES CASE. MOREOVER, HONBLE GUJARAT HIG H COURT IN TAX APPEAL NOS.958 & 959 OF 2015 HAS HELD AS UNDER: IT CAN THUS BE SEEN THAT THE COMMISSIONER AS A MAT TER OF FACT FOUND THAT THE PAYMENTS WERE NOT IN THE NATURE OF CURRENT ADJUSTME NT. THERE WAS MOVEMENT OF FUND BOTH WAYS ON NEED BASIS. THE TRANSACTIONS IN THE NATURE OF LOANS AND ADVANCES ARE USUALLY VERY FEW IN NUMBER WHEREAS IN THE PRESENT CASE, SUCH TRANSACTIONS ARE IN THE FORM OF CURRENT ACCOMMODATI ON ADJUSTMENT ENTRIES. THE COMMISSIONER THEREFORE, HELD THAT THE TRANSACTIONS WERE NOT IN THE NATURE OF LOANS AND ADVANCES. THE REVENUE CARRIED THE MATTER IN AP PEAL. THE TRIBUNAL CONCURRED WITH THE VIEW OF THE CIT(APPEALS) AND HELD THAT THE AMOUNTS WERE NOT IN THE NATURE OF INTER CORPORATE DEPOSITS AND WERE THEREFORE, NOT TO BE TREATED AS LOANS OR ADVANCES AS CONTEMPLATED IN SECTION 2(22)(E) OF THE ACT. 12. RESPECTFULLY FOLLOWING THE DECISIONS OF TWO HIG H COURTS, WE ARE OF THE VIEW THAT ASSESSEE IS ABLE TO PROVE THAT THE TRANSA CTIONS BETWEEN ASSESSEE AND HIS SUBSIDIARY COMPANY M/S. B.R. MACHINE TOOLS PVT. LTD. ARE NOT A LOAN OR ADVANCE BUT ARE CURRENT ACCOMMODATION ADJUSTMENT EN TRIES. DURING THE COURSE OF HEARING, LD. D.R. DID NOT BRING ANY CONTRARY DEC ISION. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF HONBLE PUN JAB & HARYANA HIGH COURT AND HONBLE GUJARAT HIGH COURT WE DELETE THE ADDITI ON OF RS.6.34 CRORES. 13. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED AND DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.04.2017. SD/- SD/- (MANOJ KUMAR AGGARWAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 28.04.2017. * KISHORE, SR. P.S. ITA NO.4333/M/2012 & ITA NO.5390/M/2012 M/S. REYNOLD SHIRTING PVT. LTD. 15 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.