M/s Bagmane Realtors Pvt. Ltd., Bangalore V. ACIT, Bangalore

ITA 445/BANG/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8681 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-08-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SWATI S PATIL CITIIDR
• Assessee Lawyers: B P SACHIN KUMAR
• Keywords: Search and seizure; Deemed dividend; Commercial expediency; Documents seized
• Section: 143(3); 153A; 2(22)(e); 234B; 195; 250; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NOS. 445/BANG/2010 ASSESSMENT YEARS : 2006-07 M/S. BAGMANE REALTORS PVT. LTD., LAKE VIEW BUILDING, NO.66/1-4, A BLOCK, 8 TH FLOOR, BAGMANE TECH PARK, C.V. RAMAN NAGAR, BANGALORE. : APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(3), BANGALORE. : RESPONDENT APPELLANT BY : SHRI B.P. SACHIN KUMAR, C.A. RESPONDENT BY : SMT. SWATI S. PATIL, CIT-II(DR) O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE COMPANY IS DIRECTED AG AINST THE ORDER OF THE LD. CIT (A)-VI, BANGALORE, IN ITA NO: 268/ A CIT CC 2(3)/ CIT(A)- VI/2008-09 DATED: 2.2.2010 FOR THE ASSESSMENT YEAR 2006-07 . 2. THE ASSESSEE COMPANY [THE ASSESSEE IN SHORT] H AS RAISED FIVE LENGTHY GROUNDS IN AN ILLUSTRATIVE AND NARRATIVE MA NNER. FOR THE SAKE OF ITA NO.445/BANG/10 PAGE 2 OF 25 CLARITY AND PROPER UNDERSTANDING OF FACTS, THE GROU NDS ARE REFORMULATED, IN A CONCISE MANNER, AS UNDER: (I) THE CIT(A) ERRED IN UPHOLDING THE STAND OF THE AO I N INITIATING THE PROCEEDING U/S 153C OF THE ACT; (II) THE CIT(A) ERRED IN SUSTAINING THE APPLICABILITY OF THE PROVISIONS OF S.2(22)(E) OF THE ACT; - THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE TRANS ACTIONS BETWEEN THE ASSESSEE AND BAGMANE DEVELOPERS (P) LTD [BDPL] WERE IN THE COURSE OF BUSINESS ACTIVITIES AN D THAT THE AMOUNTS RECEIVED WERE NOT IN THE NATURE OF LOANS A ND ADVANCES; (III) THE CIT(A) ERRED IN DIRECTING THE AO TO COMPUTE THE CURRENT YEARS PROFIT; & (IV) THE CIT(A) ERRED IN UPHOLDING THE LEVY OF INTEREST U/S 234B OF THE ACT. 3. WITH REGARD TO THE CONCLUSION OF ASSESSMENT U/S 143(3) R.W.S. 153C OF THE ACT WHICH WAS SUSTAINED BY THE LD. CIT(A), I T WAS CONTENDED BY THE LD. A R THAT THE PROVISIONS OF S.153C OF THE ACT WE RE NOT ATTRACTED TO THE ASSESSEE SINCE NOTHING INCRIMINATING RELATING TO TH E ASSESSEE HAVE BEEN FOUND AT THE TIME OF SEARCH, THAT ONLY THE REGULAR BOOKS OF ACCOUNTS WERE FOUND AND SEIZED DURING THE COURSE OF SEARCH AND, T HEREFORE, THE AO OUGHT NOT TO HAVE PROCEEDED TO INVOKE THE PROVISIONS OF S .153C OF THE ACT AND THAT THE LD. CIT (A) HAD GROSSLY ERRED IN OUT-RIGHT LY REJECTING THE CASE LAWS ON WHICH THE ASSESSEE HAD PLACED STRONG RELIANCE. I T WAS, THEREFORE, PLEADED THAT THE ORDER OF AO WAS OPPOSED TO LAW WHI CH REQUIRES TO BE SUMMARILY ANNULLED. 3.1. THE LD. D R WAS VEHEMENT IN HER RESOLVE THAT THE AO WAS WITHIN HIS SPHERE TO INVOKE THE PROVISIONS OF S.153 C OF THE ACT WHICH HAS ITA NO.445/BANG/10 PAGE 3 OF 25 BEEN JUDICIOUSLY RATIFIED BY THE LD. CIT (A) AND, T HUS, IT WAS SUBMITTED, THE ASSESSEE SHOULD HAVE NO GRIEVANCE ON THIS POINT. 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND ALSO CRITICALLY PERUSED THE RELEVANT RECORDS. WITH DUE RESPECTS, WE HAVE PERUSED THE RULING OF THE HONBLE APEX COURT IN THE CASE OF MANISH MAHESHWARI V. ACIT & ANR. REPORTED IN (2007) 289 IT R 341 (SC) WHEREIN THE ISSUE BEFORE THE HONBLE COURT WAS THE BLOCK A SSESSMENT (SEARCH AND SEIZURE) PROCEEDINGS U/S 158BD OF THE ACT. IN THE INSTANT CASE, THE ISSUE, IN BRIEF, WAS THAT THERE WAS AN ACTION U/S 132 OF T HE ACT IN THE CASE OF BDPL ON 14.9.2006 WHEREIN CERTAIN DOCUMENTS BELONGING TO ITS GROUPS WERE UNEARTHED. CONSEQUENTLY, A NOTICE U/S 153A R.W.S.1 53C OF THE ACT WAS ISSUED BY INVOKING THE PROVISIONS OF S.153C OF THE ACT. THIS ACTION OF THE AO HAS BEEN HOTLY CONTESTED BY THE ASSESSEE. 4.1. WE SHALL HAVE A GLIMPSE OF WHAT SECTION 153C OF THE ACT PRECISELY SAYS: 153C (1) NOTWITHSTANDING ANYTHING CONTAINED IN SEC TION 139, SECTION 147, SECTION 148, SECTION 149, SECTION 151 AND SECTION 1 53, WHERE THE ASSESSING OFFICER IS SATISFIED THAT ANY MONEY, BULLION, JEWEL LERY OR OTHER VALUABLE ARTICLE OR THING OR BOOKS OF ACCOUNT OR DOCUMENTS S EIZED OR REQUISITIONED BELONGS OR BELONG TO A PERSON OTHER THAN THE PERSON REFERRED TO IN SECTION 153A, THEN THE BOOKS OF ACCOUNT OR DOCUMENTS OR ASS ETS SEIZED OR REQUISITIONED SHALL BE HANDED OVER TO THE ASSESSING OFFICER HAVING JURISDICTION OVER SUCH OTHER PERSON AND THAT ASSESS ING OFFICER SHALL PROCEED AGAINST EACH SUCH OTHER PERSON AND ISSUE SUCH OTHER PERSON NOTICE AND ASSESS OR REASSESS INCOME OF SUCH OTHER PERSON IN A CCORDANCE WITH THE PROVISIONS OF SECTION 153A. 4.2. AS RIGHTLY HIGHLIGHTED BY THE LD. CIT (A), TH E REQUIREMENT OF HANDING OVER THE BOOKS OF ACCOUNT TO THE AO HAVING JURISDICTION OVER THE ITA NO.445/BANG/10 PAGE 4 OF 25 OTHER PERSON DID NOT ARISE IN THE CASE ON HAND FOR A SIMPLE REASON THAT THE SAME AO WHO WAS HAVING JURISDICTION OVER THE PERSON SEARCHED U/S 132 OF THE ACT I.E., BDPL AND THE OTHER PERSON I.E., THE A SSESSEE AND, AS SUCH, THERE WAS NO NEED OF HANDING OVER THE BOOKS OF ACCO UNTS/DOCUMENTS SEIZED TO ANY OTHER AO. THE OTHER ARGUMENT OF THE ASSESSEE THAT NO INCRIMINATING DOCUMENTS WERE UNEARTHED PERTAINING T O THE ASSESSEE DURING THE SEARCH EXCEPT REGULAR BOOKS OF ACCOUNT AND, THU S, THE INITIATION OF THE PROCEEDINGS U/S 153C OF THE ACT ILLEGAL ETC., DOESN T HOLD WATER SINCE THE PROVISIONS OF S.153C (1) OF THE ACT MAKE IT EXPLICI TLY CLEAR THAT WHERE THE ASSESSING OFFICER IS SATISFIED THAT ANY MONEY, BULL ION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR BOOKS OF ACCOUNT OR DOCUMENTS SEIZED OR REQUISITIONED BELONGS OR BELONG TO A PERSON OTHER T HAN THE PERSON REFERRED TO IN SECTION 153A. 4.3. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERE D VIEW THAT THE AO WAS WELL WITHIN HIS REALM TO RESORT TO ISSUE OF NOTICE U/S 153C OF THE ACT AND, ACCORDINGLY, THE ASSESSEES OBJECTION IS NOT S USTAINABLE AND, THUS, DISMISSED. . II. APPLICABILITY OF THE PROVISIONS OF S.2(22)(E) OF TH E ACT : 5. WITH REGARD TO THE ASSESSEES GRIEVANCE IN APPLY ING THE PROVISIONS OF S.2 (22) (E) OF THE ACT BY THE AO AND TREATING T HE AMOUNTS RECEIVED UNDER CONTRACTUAL TERMS AS LOANS FOR THE AY UNDER DISPUTE, THE ISSUE, IN BRIEF, WAS THAT DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE AO NOTICED THAT SRI RAJA BAGMANE WHO WAS THE BENEFICIA L OWNER OF THE SHARES HOLDING 99% SHARES IN THE CASE OF BDPL WAS ALSO HO LDING SUBSTANTIAL ITA NO.445/BANG/10 PAGE 5 OF 25 INTEREST IN THE ASSESSEE COMPANY IN TERMS OF S.2 (3 2) OF THE ACT I.E., THE BENEFICIAL OWNER OF SHARE IN THE ASSESSEE COMPANY C ARRYING NOT LESS THAN 20% VOTING POWER HE WAS HOLDING 85% OF EQUITY SHA RES IN THE COMPANY. ACCORDING TO THE AO, BDPL WHO WAS HAVING ACCUMULATE D PROFITS IN THE AY HAD SHOWN UNSECURED LOAN IN ITS BOOKS OF ACCOUNT IN THE NAME OF THE ASSESSEE FOR THE AY UNDER DISPUTE AND, THUS, TREATE D THE UNSECURED LOANS SHOWN BY BDPL TO THE EXTENT OF ACCUMULATED PROFITS OF BDPL AFTER ADJUSTING THE DEEMED DIVIDENDS IN THE CASE OF RAJA BAGAMANE IN THE HANDS OF THE ASSESSEE AS DEEMED DIVIDENDS U/S 2(22) (E) OF THE ACT. AFTER ADJUSTING THE LOANS AND ADVANCES GIVEN BY BDPL TO R AJA BAGMANE ASSESSED AS DEEMED DIVIDEND FROM ACCUMULATED PROFIT S (COMPUTING THE ACCUMULATED PROFITS AVAILABLE TO THE ASSESSEE) OF B DPL, ADJUSTED THE LOANS AND ADVANCES GIVEN TO THE ASSESSEE, THE AO TREATED THE SAME AS DEEMED DIVIDEND U/S 2 (22)(E) OF THE ACT. 5.1. ACCORDINGLY, THE AO HAD BRUSHED ASIDE THE CON TENTIONS PUT FORTH BY THE ASSESSEE DURING THE COURSE OF ASSESSME NT PROCEEDINGS AND ASSESSED RS.10,17,621/- FOR THE ASSESSMENT YEAR UND ER DISPUTE IN THE HANDS OF THE ASSESSEE. 5.2. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE BEF ORE THE CIT (A) FOR RELIEF. EXTENSIVELY QUOTING THE REASONS ADDUC ED BY THE AO IN HIS IMPUGNED ORDER AND ALSO MENTIONING THAT THE AO HAD ELABORATELY DISCUSSED ALL THE ARGUMENTS AND JUDICIAL PRONOUNCEMENTS WHICH HAVE BEEN REITERATED DURING THE COURSE OF APPELLATE PROCEEDINGS BY THE A SSESSEE, THE CIT (A) OPINED THAT THE CONCLUSION DRAWN BY THE AO WAS LOGI CAL, CONSIDERING THE ITA NO.445/BANG/10 PAGE 6 OF 25 FACTS AND CIRCUMSTANCES OF THE CASE. HE, FURTHER, RECORDED THAT SINCE THE ARGUMENTS OF THE APPELLANT HAVE ALREADY BEEN CONSID ERED BY THE AO, THE SAME DID NOT REQUIRE FURTHER ELABORATION. HOWEVER, HE WENT ON TO UPHOLD THE STAND OF THE AO IN INVOKING THE PROVISIONS OF S .2 (22)(E) OF THE ACT ON THE GROUND THAT IT IS CLEAR THAT THE PROVISIONS UNDER SECTION 2 (22 )(E) ARE CLEARLY APPLICABLE TO THE CASE OF THE APPELLANT IN RESPECT OF THE LOAN AND ADVANCES TAKEN BY THE APPELLANT FROM BDPL AND, ACCO RDINGLY, THE ASSESSING OFFICER WAS RIGHT IN INVOKING PROVISIONS OF SECTION 2 (22)(E) OF THE INCOME- TAX ACT FOR THE ABOVE ASSESSMENT YEAR(S).. 5.3. BY DISTINGUISHING THE CASE LAWS ON WHICH THE ASSESSEE HAD PLACED ITS FAITH, THE LD. CIT (A) SIDED WITH THE AO WHO TOOK SANCTUARY IN THE RULING OF THE HONBLE HIGHEST JUDICIARY OF THE LAND IN THE CASE OF MISS. P SARADA V. CIT REPORTED IN 229 ITR 444 (SC) AND CONC LUDED THAT THE ASSESSING OFFICER WAS RIGHT IN INVOKING PROVISIONS OF SECTION 2(22) (E) OF THE INCOME-TAX ACT. 6. DISHEARTENED WITH THE FINDINGS OF THE LD. CIT ( A) CITED SUPRA, THE ASSESSEE HAS COME UP WITH THE PRESENT APPEAL. 6.1. DURING THE COURSE OF HEARING, THE STAND OF TH E AUTHORITIES BELOW WAS VEHEMENTLY CONTESTED BY THE LD. AR IN HIS SUBMISSION, THE SUBSTANCE OF WHICH IS SUMMARIZED AS UNDER: - THE AMOUNTS PAID BY BDPL WERE IN THE NORMAL COURSE OF BUSINESS AND, THEREFORE, WHAT WAS TAKEN BY THE ASSESSEE FROM BDPL WAS NOT A LOAN OR ADVANCE. AMOUNTS GIVEN TO SISTER CONCERNS WERE JUS T TO INVEST FURTHER IN THE SHARE CAPITAL OF THE COMPANY; ITA NO.445/BANG/10 PAGE 7 OF 25 - THE BDPL UNDER MUTUAL UNDERSTANDING WITH ASSESSE E AND GAVE SOME MONEY FOR THE PURPOSE OF ACQUIRING ITS SHARES. THE AO TREATED THE SAME AS NOT RELATING TO THE BUSINESS. IT WAS CLEAR THAT BD PL HAD FUNDED THE AMOUNTS AT ARMS LENGTH BASIS WITH AN INTENTION TO M AKE OR EARN PROFITS FROM THIS VENTURE AND ON COMPLETE COMMERCIAL UNDERS TANDING. THIS BEING MADE IN THE COURSE OF BUSINESS AND FOR THE PURPOSES OF BUSINESS, THE SAME WAS OUTSIDE THE AMBIT OF DEEMED DIVIDENDS; - THE MONIES TAKEN FROM BDPL WHICH WERE UTILIZED B Y THE ASSESSEE FOR THE INTENDED PURPOSE HAS NOT BEEN DISPUTED BY THE AO. BASED ON THE GROUND REALITIES, THE ASSESSEE WAS FREE TO ADOPT HIS/ITS O WN METHOD OF CARRYING ON ITS BUSINESS; RELIES ON (A) S.A. BUILDERS V. CIT 288 ITR 1 (SC) (B) CIT V. SASSOON DAVID 118 ITR 261 (SC) - THE REASONING OF THE AO THAT THE AMOUNTS GIVEN BY BDPL WERE PROFITS WHICH THE COMPANY COULD HAVE DISTRIBUTED TO ITS SHA REHOLDERS WAS UNFOUNDED AS THE SAME WAS UTILIZED ONLY TO MAKE THE MAXIMUM POSSIBLE EFFORTS FOR INVESTMENTS AND WOULD LIKE TO CONSERVE THE RESOURCES AND, THUS, DISTRIBUTION OF DIVIDENDS WOULD BE ITS LAST PRIORIT Y, PARTICULARLY WHEN THERE WERE HUGE BORROWALS; - THE AOS PRESUMPTION THAT THE FUNDS TAKEN WITH N O INTEREST OR END DATE BY THE ASSESSEE WAS ONE OF THE FACTORS WHICH LED TO PROVE THAT IT BEING AN ADVANCE OR LOAN WAS UNFOUNDED SINCE THE AMOUNT WAS HELD BY THE ASSESSEE FOR PROCUREMENT OF PROPERTIES ON BEHALF OF THE COMP ANY AND AS SUCH THERE WAS NO QUESTION OF PAYING ANY INTEREST; - ACCORDING TO THE AO, THE ONLY EXCEPTION WAS IN RE SPECT OF MONEY ADVANCED BY A COMPANY CARRYING ON MONEY LENDING B USINESS. THE QUESTION OF EXCEPTION WILL CROP UP ONLY AFTER CONSI DERING THE VITAL QUESTION AS TO WHETHER THE AMOUNT WAS AN ADVANCE OR A LOA N OR OTHERWISE. A NUMBER OF CASE LAWS RELIED ON BY THE AO WERE NOT AP PLICABLE FOR THE REASONS THAT (A) ACIT V. SMT. LAKSHMI KUTTI NARAYANAN 112 T TJ 396 (ITAT KOCHI) THE MAIN ISSUE IN THAT CASE WAS THAT BOOK ENTRIES W ERE RELATING TO EARLIER YEARS. BUT THE PRINCIPLE LAID DOWN THEREIN HAD BEE N LOST SIGHT OF BY THE AO. (B)NAGINDAS KAPADIA 177 ITR 393 (BOM) (C)AMBASSADOR TRAVELS 173 TAXMAN 407 (DEL) (D) ARDEE FINVEST (P) LTD. 79 ITD 547 (ITAT, DELH I BENCH) (E) SEASMIST PROPERTIES PVT. LTD. 1 SOT 142 (MUM) ITA NO.445/BANG/10 PAGE 8 OF 25 WERE HELD TO BE NOT APPLICABLE BECAUSE THE SCHEDUL E TO THE BALANCE SHEETS REFLECT THOSE AMOUNTS AS UNSECURED LOANS AND, TH EREFORE, IT WAS NOT IN THE NATURE OF ANY TRADE ADVANCE OR ANY PAYMENT MADE IN CONNECTION WITH BUSINESS OF THE COMPANY GIVING THE LOAN; CASE LAWS RELIED ON (BY THE ASSESSEE) CIT V. CREATIVE DYEING AND PRINTING PV T. LTD. 318 ITR 476 (DEL); NH SECURITIES LTD. V. DCIT 11 SOT 302 (MUM) - MERELY BECAUSE THE SUM WAS SHOWN AS UNSECURED LO AN IN THE BOOKS OF ACCOUNTS CANNOT BE CONCLUDED THAT IT WAS DEEMED DIVIDEND. IT WAS A SETTLED LAW THAT IN BOOK-KEEPING, THE ENTRIES IN TH E BOOKS OF ACCOUNTS CANNOT GO TO DECIDE THE AMBIT OF TAXATION RELIES ON FORT PROPERTIES PVT. LIMITED 208 ITR 232 (BOM) KEDARNATH JUTE MANUFAC TURING CO. LTD. 82 ITR 363 (SC) KASTURI ESTATES (P) LT D. 62 ITR 578 (MAD) G.VENKATASWAMI NAIDU 3 5 ITR 594 (SC) SULTAN BROTHERS 51 ITR 353 (SC) CIT V. EXPRESS NEWSPAPE RS 53 ITR 250 (SC) - THE QUESTION OF DEEMED DIVIDEND CAN ARISE ONLY I N THE HANDS OF A SHARE HOLDER HAVING SUBSTANTIAL INTEREST IN THE LEN DING COMPANY. THE ASSESSEE WAS NOT A SHAREHOLDER IN BDPL FROM WHOM TH E ALLEGED FUNDS HAD BEEN RECEIVED. RELIES ON ACIT V. BHAUMIK COLOUR (P) LTD 120 TTJ 865 (MUM) - THE AO APPEARS TO HAVE TAKEN INTO ACCOUNT THE AM OUNTS RECEIVED BY THE ASSESSEE DURING THE WHOLE FINANCIAL YEAR FROM B DPL AS DEEMED DIVIDEND. HOWEVER, IT IS EVIDENT FROM THE BOOKS OF ACCOUNT OF THE ASSESSEE THAT ALL THE CREDITS WERE THROUGH JVS ONLY FOR THE AY UNDER DISPUTE WHICH WAS NOT AN ACTUAL TRANSFER OF FUNDS, BUT WERE MERE JOURNAL ENTRIES. - IT IS COMMON KNOWLEDGE THAT IN JOURNAL ENTRIES TH ERE IS NEITHER FLOW OUT OR FLOW IN OF FUNDS. THERE WAS NO DEEMED DIVIDENDS TO BE TAXED AT ALL. THE CASES RELIED BY THE AO HAVE NO APPLICATION TO T HE FACTS OF THE PRESENT CASE. RELIES ON - G.R.GOVINDARAJULU NAIDU V. CIT 90 ITR 13 (MAD); - THE AOS ANOTHER REASONING IN REJECTING THE PLEA OF REDUCTION IN THE SHARE HOLDING OF RAJA BAGMANE IN BRPL WAS THAT THE TRANSFER WAS NOT ITA NO.445/BANG/10 PAGE 9 OF 25 GENUINE ON THE GROUND THAT THE ASSESSEE HAD NOT REC EIVED THE CONSIDERATION FOR THE TRANSFER OF SHARE, BUT, IT WA S ONLY A JOURNAL ENTRY; - IN FACT, SALE OF SHARES HAD BEEN DISCLOSED IN TH E BALANCE SHEET OF RAJA BAGMANE AND HIS WIFE AS ON 31.3.06. EVEN AN I MMOVABLE PROPERTY CAN BE TRANSFERRED FOR A CONSIDERATION PAID, PROMIS ED, PART PAID AND PART PROMISED AS VISUALIZED IN S.54 OF TRANSFER OF PROPE RTY ACT; - THERE WAS A RUNNING ACCOUNT OF MRS. VASUNDHARA RAJA IN TH E BOOKS OF RAJA BAGMANE AND, THEREFORE, THE CONSIDERATION DUE WAS D EBITED TO HER ACCOUNT. CONSEQUENTLY, IN THE ACCOUNT OF RAJA BAGM ANE IN THE BOOKS OF MRS.VASUNDHARA RAJA CREDIT ENTRIES WERE PASSED. THE TRANSFERRED SHARES HAVE BEEN DULY RECORDED IN T HE BOOKS OF THE COMPANY AND ANNUAL RETURN FILED WITH ROC CLEARLY EX HIBITS THE DATE OF TRANSFER OF SHARES ON 23.11.05; - THE QUESTION OF DEEMED DIVIDEND CAN ARISE ONLY IN THE HANDS OF A SHARE HOLDER HAVING SUBSTANTIAL INTEREST IN THE LEN DING COMPANY. THE ASSESSEE WAS NOT A SHAREHOLDER IN BDPL FROM WHOM TH E ALLEGED FUNDS HAD BEEN RECEIVED. RELIES ON ACIT V. BHAUMIK COLOUR (P) LTD 120 TTJ 865 (MUM) - RAJA BAGMANE WAS NOT HAVING 10% SHARE-HOLDING IN BCPL THROUGH THE YEAR. FOR APPLICABILITY OF S. 2 (22)(E ), IT WAS ESSENTIAL THAT THE SHARE HOLDER SHOULD HAVE 10% EQUITY SHARE CAPITAL I N BOTH THE CONCERNS, NAMELY, THE CONCERN WHICH LENT MONEY AND THE ANOTHE R CONCERN TO WHOM THE MONEY WAS LENT. THOUGH RAJA BAGMANE HELD MORE THAN 10% SHARE IN BDPL THROUGHOUT THE YEAR, HE DID NOT HOLD 10% SHARE IN THE ASSESSEE COMPANY THROUGHOUT THE YEAR. ANOTHER CONDITION WAS THAT THE RELEVANT SHARE HOLDER SHOULD NOT ONLY BE A REGISTERED SHARE- HOLDER BUT A PERSON HAVING BENEFICIAL INTEREST. THUS, THE PROVISIONS O F S. 2 (22)(E) WILL GET ATTRACTED ONLY IF THE CONCERNED PERSON IS NOT ONLY A REGISTERED SHAREHOLDER BUT ALSO A BENEFICIAL SHARE HOLDER HOLDING NOT LESS THAN 10% OF SHARE. 6.2. ON THE OTHER HAND, THE LD. D.RS TENACITY WAS THAT THE ISSUE IN DISPUTE HAS EXTENSIVELY BEEN ANALYZED BY THE AO AND ALSO DRAWING STRENGTH FROM VARIOUS JUDICIAL PRONOUNCEMENTS ARRIV ED AT A CONCLUSION THAT THE ENTIRE AMOUNTS RECEIVED FROM BDPL AS LOANS FOR THE AY UNDER ITA NO.445/BANG/10 PAGE 10 OF 25 CHALLENGE AND WAS RIGHTLY TREATED THEM AS DEEMED DI VIDEND IN THE HANDS OF THE ASSESSEE BY BRINGING THEM TO TAX NET UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LEARNED FIRST APPELLATE AUTHORI TY HAD, AFTER DUE CONSIDERATION OF RIVAL SUBMISSIONS, SUBSTANTIATED T HE AOS ACTION WHICH VINDICATED THE STAND OF THE AO ON THIS POINT. IT W AS, THEREFORE, VEHEMENTLY URGED THAT THE ACTION OF THE AUTHORITIES BELOW REQU IRES TO BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, DILIGENTLY PERUSED THE RELEVANT RECORDS, VARIOUS JUDICIAL PRON OUNCEMENTS ON WHICH EITHER PARTY HAD PLACED THEIR FAITH AND ALSO THE VO LUMINOUS PAPER BOOKS [IN VOLUMES I, II, III & IV RUNNING INTO HUNDREDS OF PA GES IN ITS GROUP OF CASES] FURNISHED BY THE LD. AR DURING THE COURSE OF HEARIN G. 7.1. ON A DECISIVE EXAMINATION OF THE RELEVANT IMP UGNED ASSESSMENT ORDER, THE REASONS FOR HAVING ARRIVED A T SUCH A CONCLUSION THAT THOSE AMOUNTS WERE TO BE TREATED AS DEEMED DIVIDEND S U/S 2 (22)(E) OF THE ACT FOR THE AY UNDER DISPUTE, CAN AT BEST BE CATEGO RIZED AS UNDER: - THE ASSESSEE IN ITS BALANCE SHEET (SCHEDULE 2) HAD REFLECTED UNSECURED LOAN OF RS.10,17,621/- FROM BDPL; - IN THE BALANCE SHEET OF BDPL FOR THE ASSESSMENT YEAR, AMOUNTS RECEIVED FROM THE ASSESSEE HAVE BEEN SHOWN UNDER TH E HEAD LOAN AND ADVANCES; - THE BALANCE SHEET OF BDPL SHOWS THE ACCUMULATED PROFITS FOR THE RELEVANT ASSESSMENT YEAR; - THE ASSESSEE HAD FAILED TO SUBSTANTIATE ITS CLAI M THAT THE FUNDS WERE RECEIVED FROM BDPL FOR BUSINESS EXPEDIENCY AND WER E IN THE NATURE OF CONTRACTUAL PAYMENTS; - BDPL WHO ADVANCED THE LOAN TO THE ASSESSEE WAS N OT ENGAGED IN THE BUSINESS OF THE MONEY LENDING AND, THEREFORE, THE L OAN GIVEN TO THE ASSESSEE COMES UNDER THE PURVIEW OF S.2 (22)(E) OF THE ACT; ITA NO.445/BANG/10 PAGE 11 OF 25 7.2. THE REASONING OF THE LD. CIT (A) WAS THAT - THE ASSESSEE FAILED TO PRODUCE EVIDENCE TO PROVE THAT THE ADVANCE GIVEN WAS FOR THE PURPOSE OF BUSINESS OF THE BDPL; & - THE CASE LAWS RELIED ON BY THE ASSESSEE HAS NOT COME TO ITS RESCUE AS THEY WERE DISTINGUISHABLE. 7.3. ON ANALYZING THE REASONS ATTRIBUTED BY THE AU THORITIES BELOW, THE FOLLOWING FUNDAMENTAL POINTS WERE EMERGED: THE SOLE REASONING OF THE AO WAS THAT DURING THE YE AR, RAJA BAGMANE TRANSFERRED 1520 SHARES OF THIS COMPANY TO HIS WIFE MRS. VASUNDHARA RAJA AND THEREBY REDUCED HIS EQUITY IN T HIS COMPANY FROM 85% TO 9%. IN RESPECT OF THE ASSESSEES PLEA THAT THERE WAS REDUCTION IN THE SHARE-HOLDING OF RAJA BAGMANE IN THE ASSESSEES COMPANY, THE AO, AFTER ANALYZING THE ASSESSEES CONTENTIONS, HAD OBS ERVED IN HIS IMPUGNED ORDER FOR THE ASSESSMENT YEAR 2006-07 THUS ON A PERUSAL OF THE LEDGER ACCOUNT IN RESPECT OF RA JA BAGMANES TRANSACTION WITH SMT.VASUNDHARA RAJA, THE SHARES WE RE TRANSFERRED BOOK ENTRIES AND NO PAYMENTS FOR THE SAME WERE MADE BY H IS WIFE. THE LEDGER ACCOUNT ALSO SHOWS THAT ON 23.11.2005, THE SHARES O F OTHER COMPANIES WERE ALSO TRANSFERRED BY BOOK ENTRIES AND NO PAYMEN T WAS MADE EITHER BY WAY OF CASH OR CHEQUE BY SMT.VASUNDHARA RAJA. 3.7 ON CAREFUL CONSIDERATION OF T HE FACTS OF THE CASE AND CONSIDERING THE CAPITAL AVAIL ABLE WITH SMT VASUNDHARA RAJA, IT DOES NOT APPEARS THAT SMT VASUNDHARA WILL INVEST SUCH A HUGE SUM IN EQUITY SHARES. AS ALREADY DISCUSSED ABOVE, THER E WAS NO TRANSFER OF FUNDS EITHER BY WAY OF CASH OR CHEQUE FOR TRANSFER OF THE SHARES AND IT WAS MADE ITA NO.445/BANG/10 PAGE 12 OF 25 BY BOOK ENTRIES ONLY. IT THEREFORE APPEARS THE TRANSFER OF SHARES BY SHRI RAJA BAGMANE TO HIS WIFE IS ONLY AN ARRANGEMENT OR A COLOURABLE DEVICE TO CIRCUMVENT THE PROVISIONS OF SECTION 2(22) (E) OF T HE INCOME-TAX ACT, 1961. A CAREFUL EXAMINATION OF THE FACTS OF THE CASE INDI CATES THAT THERE WAS NOT A REAL TRANSFER OF SHARE AND IT WAS ONLY A COLOURABLE DEVICE TO REDUCE THE NUMBER OF SHARES BY RAJA BAGMANE SO THAT HE IS NOT TREATED AS A SHAREHOLDER HAVING A SUBSTANTIAL INTEREST IN THE CO MPANY AND, THEREBY, AVOID THE TAXABILITY OF DEEMED DIVIDEND. BUT IN REALITY, HE WAS STILL HAVING SUBSTANTIAL INTEREST IN THE COMPANY AND HAD TOTAL C ONTROL OVER THE COMPANY. IN VIEW OF THE ABOVE, IT IS HELD THAT EVEN IF RAJA BAGMANE HAD TRANSFERRED HIS SHARES DURING THIS YEAR AND REDUCED IT TO 9%, HE WA S STILL HAVING SUBSTANTIAL INTEREST IN M/S. BAGMANE LEASING & FINANCE PVT. LTD .[SIC] M/S.BAGMANE REALTORS PVT. LTD. AND THE PROVISIONS OF SECTION 2( 22)(E) IS APPLICABLE IN THE CASE OF THE ASSESSEE FOR THIS ASSESSMENT YEAR (ALSO ). 7.4. TO BELIE THE AOS REASONING, IT WAS CONTENDED BY THE ASSESSEE THAT THE SALE OF SHARES HAD BEEN DISCLOSED IN THE BALANCE SHEETS OF RAJA BAGMANE AND MRS. VASUNDHARA RAJA AS ON 31.3 .06. EVEN AN IMMOVABLE PROPERTY CAN BE TRANSFERRED FOR A CONSIDE RATION PAID, PART PAID AND PART PROMISED AS PER S.54 OF THE TRANSFER OF PR OPERTY ACT. IT WAS, FURTHER, CONTENDED THAT THERE WAS A RUNNING ACCOUNT OF MRS. VASUNDHARA RAJA IN THE BOOKS OF RAJA BAGMANE AND, THEREFORE, T HE CONSIDERATION DUE WAS DEBITED TO HER ACCOUNT. SIMILARLY, IN THE ACC OUNT OF RAJA BAGMANE IN THE BOOKS OF MRS. VASUNDHARA RAJA CREDIT ENTRIES WE RE PASSED. 7.5. COPY OF ANNUAL RETURN FOR THE YEAR 2005-06 FU RNISHED BEFORE THE REGISTRAR OF COMPANIES, DETAILING THE TRANSFER OF SHARES BY RAJA BAGMANE TO MRS. VASUNDHARA RAJA WAS PRODUCED [SOURC E: P 113 118 OF PB AR]. A COPY OF SUCH ANNUAL RETURN FURNISHED WAS AUTHENTICATED BY THE ITA NO.445/BANG/10 PAGE 13 OF 25 ASST. REGISTRAR OF COMPANIES CONFIRMING THE DETAILS OF SHARES TRANSFERRED [P 118 OF PB AR]. 7.6. CLINCHING EVIDENCE WAS THAT RAJA BAG MANE WAS NOT HAVING 10% SHARE-HOLDING IN THE ASSESSEE COMPANY THROUGH O UT THE YEAR. EVEN FOR INVOKING THE APPLICABILITY OF THE PROVISIONS OF S.2 (22)(E) OF THE ACT, IT WAS ESSENTIAL THAT THE SHAREHOLDER SHOULD HAVE 10% EQUI TY SHARE CAPITAL IN BOTH THE COMPANIES THE CONCERN WHICH LENT THE MONEY AN D THE CONCERN TO WHOM MONEY HAD BEEN LENT. ACCORDING TO THE ASSESSE E, THOUGH RAJA BAGMANE WAS HOLDING MORE THAN 10% SHARE IN BDPL THR OUGHOUT THE YEAR, HE DID NOT HOLD 10% SHARE IN THE ASSESSEE COMPANY T HROUGHOUT THE YEAR. THUS, THE PROVISIONS OF S.2 (22)(E) OF THE ACT CAN BE INVOKED IF THE CONCERNED PERSON WAS NOT ONLY A REGISTERED SHAREHO LDER BUT ALSO A BENEFICIAL SHAREHOLDER HOLDING NOT LESS THAN 10% OF THE SHARE. 7.7. TO ILLUSTRATE FURTHER LET US HAVE A GLANCE AT EXPLANATION 3(B) TO S. 2(22)(E) OF THE ACT: S.2 (22)(E): EXPLANATION 3 FOR THE PURPOSES OF TH IS CLAUSE,- (A) CONCERN MEANS. (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 CENT OF THE INCOME OF SUCH CONCERN; FROM THE ABOVE WORDINGS, TWO IMPORTANT ASPECTS ARE TO BE NOTICED, NAMELY, (I) CONCERN OTHER THAN COMPANY ; AND (II) AT ANY TIME DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS TH AN TWENTY PERCENT OF ITA NO.445/BANG/10 PAGE 14 OF 25 THE INCOME OF SUCH CONCERN. THUS, IN THE PRESENT CASE, NONE OF THESE TWO ASPECTS ARE ATTRACTED. 7.8. TURNING OUR ATTENTION TO THE CASE LAWS ON WHI CH THE AO HAD PLACED STRONG RELIANCE WHICH HAS BEEN RATIFIED BY T HE LD. CIT (A) IN HIS IMPUGNED ORDER. (I) IN THE CASE OF MS. P SARADA V. CIT REPORTED IN 229 ITR 445 (SIC) 444 (SC), THE ISSUE BEFORE THE HIGHEST JUDICIARY OF THE LAND WAS THAT WHETHER, THE WITHDRAWALS MADE BY THE ASSESSEE FROM UNIVERSAL RAD IATORS PRIVATE LIMITED TOTALING RS. 93,027 CAN BE ASSESSED IN THE HANDS OF THE ASSESSEE UNDER SECTION 2(22)(E) OF THE ACT FOR THE YEAR 1973-74 ? AFTER DUE CONSIDERATION OF THE FACTS OF THE CASE, T HE HONBLE COURT WAS PLEASED TO RULE THAT - THE WITHDRAWALS MADE BY THE APPELLANT FROM THE COM PANY AMOUNTED TO GRANT OF LOAN OR ADVANCE BY THE COMPANY TO THE SHAR EHOLDER. THE LEGAL FICTION CAME INTO PLAY AS SOON AS THE MONIES WERE P AID BY THE COMPANY TO THE APPELLANT. THE ASSESSEE MUST BE DEEMED TO HAVE RECEIVED DIVIDENDS ON THE DATES ON WHICH SHE WITHDREW THE AFORESAID AMOUN TS OF MONEY FROM THE COMPANY. THE LOAN OR ADVANCE TAKEN FROM THE COMPANY MAY HAVE BEEN ULTIMATELY REPAID OR ADJUSTED, BUT THAT WILL NOT AL TER THE FACT THAT THE ASSESSEE, IN THE EYE OF LAW, HAD RECEIVED DIVIDEND FROM THE COMPANY DURING THE RELEVANT ACCOUNTING PERIOD. WITH HIGHEST REGARDS, WE WOULD LIKE TO POINT OUT TH AT THE ISSUE BEFORE THE HONBLE APEX COURT WAS ON THE DIFFERENT FOOTING WHICH HAS NO RELEVANCE TO THE ISSUE ON HAND ON THE VERY GROUND THAT THE AS SESSEE HAD NOT RECEIVED ANY LOAN OR ADVANCE FOR ITS OWN BENEFIT, BUT, THE F UNDS WERE PROVIDED FOR THE ITA NO.445/BANG/10 PAGE 15 OF 25 EXECUTION ON BEHALF OF BDPL. THUS, IN OUR CONSIDER ED VIEW, THE CASE LAW CITED BY THE AUTHORITIES BELOW IS DISTINGUISHABLE. (II) YET ANOTHER CASE LAW ON WHICH THE AUTHORITIES BELO W HAVE PLACED RELIANCE TO DRIVE HOME THEIR POINT WAS IN THE CASE OF SMT TARULATA SHYSAM AND OTHER V. CIT, WEST BENGAL REPORTED IN 108 ITR 3 57 (SIC) 345 (SC) WHEREIN THE ISSUE BEFORE THE HONBLE APEX COURT WAS - WHEN LOAN OR ADVANCE MADE TO SHAREHOLDER ARE REPAID BEFORE THE E ND OF THE ACCOUNTING YEAR, WHETHER THE LOAN OR ADVANCE COULD BE TREATED AS BEING DIVIDEND? THE PROVISIONS OF S. 2(6A)(E) OF 1922 ACT, WOULD BE ATT RACTED AT THE TIME OF ADVANCE OF LOAN BEING MADE TO THE SHAREHOLDER EXCEP T FOR THE SPECIFIC PROVISIONS IN S. 12(1B) FOR THE ASSESSMENT YEAR 195 5-56, THE LEGISLATURE HAS DELIBERATELY NOT MADE THE SUBSISTENCE OF THE LOAN O N THE DATE OF THE PREVIOUS YEAR A PREREQUISITE FOR RAISING OR APPLYING THE STA TUTORY PROVISIONS. AFTER MUCH DELIBERATION OF THE ISSUE, EXTENSIVELY Q UOTING VARIOUS JUDICIAL FINDINGS, THE HONBLE COURT RULED THAT '... THE COMBINED EFFECT OF THESE TWO PROVISIONS IS THAT THREE KINDS OF PAYMENTS MADE TO THE SHAREHOLDER OF A COMPANY TO WHICH THE SAID PROVISIONS APPLY, ARE TRE ATED AS TAXABLE DIVIDEND TO THE EXTENT OF THE ACCUMULATED PROFITS HELD BY TH E COMPANY. THERE THREE KINDS OF PAYMENTS ARE (1) PAYMENTS MADE TO THE SHAREHOLDER BY WAY OF ADVANCE OR LOAN; (2) PAYMENTS MADE ON HIS BEHALF; A ND (3) PAYMENTS MADE FOR HIS INDIVIDUAL BENEFIT. THERE ARE FIVE CONDITIONS WHICH MUST BE SATISFIED BEFORE SECTION 12(1B) CAN BE INVOKED AGAINST A SHAR EHOLDER. THE FIRST CONDITION IS THAT THE COMPANY IN QUESTION MUST BE O NE IN WHICH THE PUBLIC ITA NO.445/BANG/10 PAGE 16 OF 25 ARE NOT SUBSTANTIALLY INTERESTED WITHIN THE MEANING OF SECTION 23A AS IT STOOD IN THE YEAR IN WHICH THE LOAN WAS ADVANCED. THE SEC OND CONDITION IS THAT THE BORROWER MUST BE A SHAREHOLDER AT THE DATE WHEN THE LOAN WAS ADVANCED; IT IS IMMATERIAL WHAT THE EXTENT OF HIS SHAREHOLDING I S. THE THIRD CONDITION IS THAT THE LOAN ADVANCED TO A SHAREHOLDER BY SUCH A C OMPANY CAN BE DEEMED TO BE DIVIDEND ONLY TO THE EXTENT TO WHICH IT IS SH OWN THAT THE COMPANY POSSESSED ACCUMULATED PROFIT AT THE DATE OF THE LOA N. THIS IS AN IMPORTANT LIMIT PRESCRIBED BY THE RELEVANT SECTION. THE FOURT H CONDITION IS THAT THE LOAN MUST NOT HAVE BEEN ADVANCED BY THE COMPANY IN THE O RDINARY COURSE OF ITS BUSINESS. IN OTHER WORDS, THIS PROVISION WOULD NOT APPLY TO CASES WHERE THE COMPANY WHICH ADVANCES A LOAN TO ITS SHAREHOLDER CA RRIES ON THE BUSINESS OF MONEY-LENDING ITSELF; AND THE LAST CONDITION IS THA T THE LOAN MUST HAVE REMAINED OUTSTANDING AT THE COMMENCEMENT OF THE SHA REHOLDER'S PREVIOUS YEAR IN RELATION TO THE ASSESSMENT YEAR 1955-56. WITH DUE RESPECTS, WE WOULD LIKE TO POINT OUT THAT NONE OF THE THREE CONDITIONS PRESCRIBED BY THE HONBLE COURT AR E APPLICABLE TO THE CASE ON HAND, NAMELY, ( 1) NO PAYMENTS WERE MADE TO THE ASSESSEE BY WAY OF ADVANCE OR LOAN BY BDPL; (2) NO PAYMENTS WERE MADE ON ITS BEHALF; AND (3) PAYMENTS MADE WERE NOT FOR ANYBODYS INDIVIDUAL BEN EFIT. THE PAYMENTS IN QUESTION WERE PROVIDED DUE TO BUSINESS EXIGENCIES O F BDPL AND THE FUNDS SO PROVIDED FOR THE SOLE BENEFIT OF BDPL AND NOT TO INDIVIDUAL BENEFITS OF A SHAREHOLDER, THE QUESTION OF APPLICABILITY OF THE P ROVISIONS OF S.2 (22)(E) OF THE ACT DOESNT ARISE. ITA NO.445/BANG/10 PAGE 17 OF 25 7.9. WE ARE, THEREFORE, OF THE CONSIDERED VIEW THA T THE CASE LAWS RELIED ON BY THE AUTHORITIES BELOW HAS NO RELEVANCE TO THE ISSUE ON HAND. 7.10. ON THE OTHER HAND, THE HONBLE DELHI HIGH COURT IN ITS RECENT JUDGMENT IN THE CASE OF CIT V. CREATIVE DYEING AND PRINTING PVT. LIMITED REPORTED IN 318 ITR 476 (DEL) RULED THAT SECTION 2 (22) (E) OF THE ACT CAN BE APPLIED TO LOANS OR ADVANCES SIMPLICITER AND NO T TO THOSE TRANSACTIONS CARRIED OUT IN THE COURSE OF BUSINESS AS SUCH. IN THE COURSE OF CARRYING ON BUSINESS TRANSACTION BETWEEN A COMPANY AND A STOCKH OLDER, THE COMPANY MAY BE REQUIRED TO GIVE ADVANCE IN MUTUAL INTEREST. THERE IS NO LEGAL BAR IN HAVING SUCH TRANSACTION. WHAT IS TO BE ASCERTAINE D IS - WHAT IS THE PURPOSE OF SUCH ADVANCE? IF THE AMOUNT IS GIVEN AS ADVANCE SIMPLICITER OR AS SUCH PER SE WITHOUT ANY FURTHER OBLIGATION BEHIN D RECEIVING SUCH ADVANCES, MAY BE TREATED AS DEEMED DIVIDEND, BUT, IF IT IS OTHERWISE , THE AMOUNT GIVEN CANNOT BE BRANDED AS ADVANCES WITHIN THE MEANING OF DEEMED DIVIDEND UNDER SECTION 2 (22) (E). IN RENDERING THIS DECIS ION, THE HONBLE HIGH COURT HAD PLACED RELIANCE IN THE CASES OF CIT V. RAJ KUMAR (2009) 318 ITR 462 (DEL), CIT V. AMBASSADOR TRAVELS (P.) LTD. (2009) 318 ITR 376 AND CIT V. NAGIN DAS M. KAPADIA (1989) 177 ITR 393)(BOM ). WE HERE-BELOW REPRODUCE THE RELEVANT PORTION IN THE CA SE CIT V. CREATIVE DYEING AND PRINTING P. LTD. FOR REFERENCE: BEFORE US, THE LEARNED COUNSEL FOR THE AP PELLANT/REVENUE HAS CONTENDED THAT THE PRESENT CASE IS A CASE OF DEEMED DIVIDEND INASMUCH AS M/S. PEE EMPRO EXPORTS PVT. LTD. HAS GIVEN A LOAN T O THE ASSESSEE-COMPANY BUT THE LENDING COMPANY, NAMELY, M/S. PEE EMPRO EXP ORTS PVT. LTD. IS NOT INTO THE BUSINESS OF MONEY LENDING AS REQUIRED BY S ECTION 2(22)(E)(II). THE COUNSEL FOR THE RESPONDENT, ON THE OTHER HAND, HAS REFERRED TO TWO RECENT DIVISION BENCH JUDGMENTS OF THIS COURT REPORTED AS CIT V. RAJ KUMAR ITA NO.445/BANG/10 PAGE 18 OF 25 [2009] 181 TAXMAN 155 AND CIT V. AMBASSADOR TRAVELS (P.) LTD. [2008] 173 TAXMAN 407 TO CONTEND THAT MERELY BECAUSE A LOAN IS GIVEN BY M /S. PEE EMPRO EXPORTS PVT. LTD. TO THE ASSESSEE-COMPANY WOU LD NOT MEAN THAT THE SAME WOULD BECOME A DEEMED DIVIDEND INASMUCH AS MON EYS ARE PAID FOR TRANSACTIONS WHICH ARE BUSINESS TRANSACTIONS/COMMER CIAL TRANSACTIONS AND, THEREFORE SUCH TRANSACTIONS CANNOT FALL UNDER THE E XPRESSION DEEMED DIVIDEND WITHIN THE PROVISION OF SECTION 2(22)(E). BEFORE WE REFER TO THE RIVAL CONTENTIONS OF THE PAR TIES, WE WOULD LIKE TO REPRODUCE THE FOLLOWING FINDING OF FACTS ARRIVED AT BY THE TRIBUNAL : 7.5 IN THE PRESENT CASE THE AMOUNT PAID BY M/S. P EE EMPRO EXPORTS TO THE APPELLANT-COMPANY DOES NOT BEAR THE CHARACTERISTIC OF LOANS AND ADVANCES. THE AMOUNT HAS BEEN PAID BY M/S . PEE EMPRO EXPORTS IN ITS OWN INTEREST AND THAT TOO FOR THE PU RPOSE OF BUSINESS BECAUSE THE ULTIMATE BENEFICIARY OF THE PROPOSED EX PANSION OF PLANT AND MACHINERY IS M/S. PEE EMPRO EXPORTS ITSELF. M/S . PEE EMPRO EXPORTS HAS NOT MADE THE PAYMENT TO THE APPELLANT-C OMPANY FOR THE INDIVIDUAL BENEFIT OF MR. R.S. UPPAL AND MR. P.M.S. UPPAL AND ON THE CONTRARY THESE TWO DIRECTORS HAVE ALSO PROVIDED FUNDS TO THE APPELLANT-COMPANY AS OWNERS OF THE COMPANY AS ALSO MADE BY M/S. PEE EMPRO EXPORTS. THE ASSESSEE UNDERTOOK EXPANSION OF ITS CAPACITY, W HICH WAS IN MUTUAL INTEREST OF ASSESSEE AS WELL PEE EMPRO EX PORTS. IF THE ASSESSEE HAS NOT UNDERTAKEN SUCH EXPANSION, NO ADVA NCE COULD HAVE BEEN MADE TO IT OR THAT PEE EMPRO EXPORTS WOULD NOT HAVE DISTRIBUTED AS DIVIDEND TO ITS SHAREHOLDERS. THUS, BUT FOR THE ADVANCES, THE AMOUNT OF ADVANCES COULD NOT HAVE REA CHED ASSESSEE AT ALL. WE THEREFORE, DELETE THE ADDITIONS AS MADE BY THE ASSESSING OFFICER AS THE AMOUNT RECEIVED BY ASSESSEE IS NOT D EEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. THE COUNSEL FOR THE REVENUE HAS ALSO FURTHER STAT ED THAT IT IS NOT IN DISPUTE THAT THE MONIES WHICH HAVE BEEN ADVANCED TO THE ASSESSEE- COMPANY BY M/S. PEE EMPRO EXPORTS PVT. LTD. HAVE NO T TO BE REPAID BUT HAVE TO BE ADJUSTED AGAINST THE DUES PAYABLE BY M/S . PEE EMPRO EXPORTS PVT. LTD. TO THE ASSESSEE-COMPANY IN THE SU BSEQUENT YEARS FOR THE JOB WORK OF PRINTING AND DYEING WHICH IS DONE B Y THE ASSESSEE- COMPANY FOR M/S. PEE EMPRO EXPORTS PVT. LTD. WE FIND THAT THE TRIBUNAL IN THE PRESENT CASE HAS VERY EXTENSIVELY DEALT WITH LEGISLATIVE INTENTION OF INTRODUCING SEC TION 2(22)(E) AND HAS REFERRED TO SUCH LEGISLATIVE INTENTION BY REFERENCE TO SUPREME COURT JUDGMENT IN THE CASE OF NAVNIT LAL C. JAVERI V. K. K. SEN [1965] 56 ITR 198 WHERE A SIMILAR PROVISION OF THE INCOME-TAX ACT, 1 922 I.E., SECTION ITA NO.445/BANG/10 PAGE 19 OF 25 2(6A)(E) WAS IN ISSUE BY REPRODUCING THE RELEVANT P ARA IN NAVNIT LAL C. JAVERIS CASE (SUPRA) AS UNDER: IN DEALING WITH MR. PATHAKS ARGUMENT IN THE PRESE NT CASE, LET AS RECALL THE RELEVANT FACTS. THE COMPANIES TO WHICH THE IMPUGNED SECTION APPLIES ARE COMPANIES IN WHICH AT LEAST 75 PER CENT OF THE VOTING POWER LIES IN THE HANDS OF O THER THAN THE PUBLIC, AND THAT MEANS THAT THE COMPANIES ARE CONTR OLLED BY A GROUP OF PERSONS ALLIED TOGETHER AND HAVING THE SAM E INTEREST. IN THE CASE OF SUCH COMPANIES, THE CONTROLLING GROU P CAN DO WHAT IT LIKES WITH THE MANAGEMENT OF THE COMPANY, I TS AFFAIRS AND ITS PROFITS WITHIN THE LIMITS OF THE COMPANIES ACT. IT IS FOR THIS GROUP TO DETERMINE WHETHER THE PROFITS MADE BY THE COMPANY SHOULD BE DISTRIBUTED AS DIVIDENDS OR NOT. THE DECLARATION OF DIVIDEND IS ENTIRELY WITHIN THE DISC RETION OF THIS GROUP. WHEN THE LEGISLATURE REALIZED THAT THOUGH MO NEY WAS REASONABLY AVAILABLE WITH THE COMPANY IN THE FORM O F PROFITS, THOSE IN CHARGE OF THE COMPANY DELIBERATELY REFUSED TO DISTRIBUTE IT AS DIVIDENDS TO THE SHAREHOLDERS, BUT ADOPTED THE DEVICE OF ADVANCING THE SAID ACCUMULATED PROFITS BY WAY OF LOAN OR ADVANCE TO ONE OF ITS SHAREHOLDERS, IT WAS PLAIN THAT THE OBJECT OF SUCH A LOAN OR ADVANCE WAS TO EVADE T HE PAYMENT OF TAX ON ACCUMULATED PROFITS UNDER SECTION 23A. IT WILL BE REMEMBERED THAT AN ADVANCE OR LOAN WHICH FALLS WITH IN THE MISCHIEF OF THE IMPUGNED SECTION IS ADVANCE OR LOAN MADE BY A COMPANY WHICH DOES NOT NORMALLY DEAL IN MONEY-LENDI NG, AND IT IS MADE WITH THE FULL KNOWLEDGE OF THE PROVISION S CONTAINED IN THE IMPUGNED SECTION. THE OBJECT OF KEEPING ACCU MULATED PROFITS WITHOUT DISTRIBUTING THEM OBVIOUSLY IS TO T AKE THE BENEFIT OF THE LOWER RATE OF SUPER-TAX PRESCRIBED F OR COMPANIES. THIS OBJECT WAS DEFEATED BY SECTION 23A WHICH PROVIDES THAT IN THE CASE OF UNDISTRIBUTED PROFITS, TAX WOULD BE LEVIED ON THE SHAREHOLDERS ON THE BASIS THAT THE AC CUMULATED PROFITS WILL BE DEEMED TO HAVE BEEN DISTRIBUTED AGA INST THEM. SIMILARLY, SECTION 12(1B) PROVIDES THAT IF A CONTRO LLED COMPANY ADOPTS THE DEVICE OF MAKING A LOAN OR ADVANCE TO ON E OF ITS SHAREHOLDERS SUCH SHAREHOLDERS WILL BE DEEMED TO HA VE RECEIVED THE SAID AMOUNT OUT OF THE ACCUMULATED PRO FITS AND WOULD BE LIABLE TO PAY TAX ON THE BASIS THAT HE HAS RECEIVED THE SAID LOAN BY WAY OF DIVIDEND. IT IS CLEAR THAT WHEN SUCH A DEVICE IS ADOPTED BY A CONTROLLED COMPANY, THE CONT ROLLING GROUP CONSISTING OF SHAREHOLDERS HAVE DELIBERATELY, DECIDED TO ADOPT THE DEVICE OF MAKING A LOAN OR ADVANCE. SUCH AN ARRANGEMENT IS INTENDED TO EVADE THE APPLICATION OF SECTION 23A. THE LOAN MAY CARRY INTEREST AND THE SAID INTER EST MAY BE ITA NO.445/BANG/10 PAGE 20 OF 25 RECEIVED BY THE COMPANY; BUT THE MAIN OBJECT UNDERL YING THE LOAN IS TO AVOID PAYMENT OF TAX..... . THE TRIBUNAL HAS ALSO REFERRED TO THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. NAGINDAS M. KAPADIA [1989] 177 ITR 393 1 IN WHICH IT WAS HELD THAT BUSINESS TRANSACTIONS ARE OUTSIDE THE PURVIEW OF SECTION 2(2 2)(E) OF THE ACT. IN THE SAID CASE, THE COMPANY IN WHICH KAPADIA WAS HAVING SUBSTANTIAL INTEREST HAD PAID VARIOUS AMOUNT TO KAP ADIA. THE TRIBUNAL HAD FOUND THAT KAPADIA HAD BUSINESS TRANSA CTIONS WITH THE COMPANY AND ON VERIFICATION OF THE ACCOUNTS, TH E TRIBUNAL DELETED THE AMOUNTS WHICH WERE RELATING TO THE BUSI NESS TRANSACTIONS AND WHICH FINDING WAS UPHELD BY THE HI GH COURT. IN THE PRESENT CASE THE TRIBUNAL ON CONSIDERING DEC ISIONS IN VARIOUS CASES HELD AS UNDER: FROM THE RATIO LAID DOWN IN ABOVE CASES AND ON THE BASIS OF JUDICIAL INTERPRETATION OF WORDS, LOANS OR ADVAN CES, IT CAN BE HELD THAT SECTION 2(22)(E) CAN BE APPLIED TO LOANS OR ADVANCES SIMPLICITER AND NOT TO THOSE TRANSACTIONS CARRIED O UT IN COURSE OF BUSINESS AS SUCH. IN THE COURSE OF CARRYING ON BUSI NESS TRANSACTION BETWEEN A COMPANY AND A STOCKHOLDER, TH E COMPANY MAY BE REQUIRED TO GIVE ADVANCE IN MUTUAL INTEREST. THERE IS NO LEGAL BAR IN HAVING SUCH TRANSACTION. WHAT IS TO BE ASCERTAINED IS WHAT IS THE PURPOSE OF SUCH ADVANCE. IF THE AMOUNT IS GIVEN AS ADVANCE SIMPLICITER OR AS SUCH PER SE WITHOUT ANY F URTHER OBLIGATION BEHIND RECEIVING SUCH ADVANCES, MAY BE T REATED IS DEEMED DIVIDEND, BUT IF IT IS OTHERWISE, THE AMOU NT GIVEN CANNOT BE BRANDED AS ADVANCES WITHIN THE MEANING OF DEEM ED DIVIDEND UNDER SECTION 2(22)(E). JUST AS PER CLAUSE (II) OF SECTION 2(22)(E), DIVIDEND IS NOT TO INCLUDE ADVANCE OR LOAN MADE BY A COMPANY IN THE ORDINARY COURSE OF BUSINESS WHERE THE LENDING O F MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY, AD VANCE IN THE ORDINARY COURSE OF CARRYING ON BUSINESS CANNOT BE C ONSIDERED AS DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E). BY GRANTING ADVANCE IF THE BUSINESS PURPOSE OF THE COMPANY IS S ERVED AND WHICH IS NOT THE SUM, WHICH IT OTHERWISE WOULD HAVE DISTRIBUTED AS DIVIDEND, CANNOT BE BROUGHT WITHIN THE DEEMING P ROVISION OF TREATING SUCH ADVANCE AS DEEMED DIVIDEND. WE AGREE WITH THE AFORESAID OBSERVATIONS. THE FIN DING OF FACTS, ARRIVED AT BY THE TRIBUNAL, IN THE PRESENT C ASE, IS THAT THE TRANSACTION IN QUESTION WAS A BUSINESS TRANSACTION AND WHICH TRANSACTION WOULD HAVE BENEFITED BOTH THE ASSESSEE- COMPANY AND ITA NO.445/BANG/10 PAGE 21 OF 25 M/S. PEE EMPRO EXPORTS PVT. LTD. IN FACT, AS STATED ABOVE, THE COUNSEL FOR THE APPELLANT HAS CONCEDED THAT THE AMO UNT IS IN FACT NOT A LOAN BUT ONLY AN ADVANCE BECAUSE THE AMOUNT P AID TO THE ASSESSEE-COMPANY WOULD BE ADJUSTED AGAINST THE ENTI TLEMENT OF MONEYS OF THE ASSESSEE-COMPANY PAYABLE BY M/S. PEE EMPRO EXPORTS PVT. LTD. IN THE SUBSEQUENT YEARS. THE COUNSEL FOR THE APPELLANT HAS VERY STRENUOUSLY URGED THAT NEITHER THE TRIBUNAL NOR THE JUDGMENT OF THIS COURT IN RAJ KUMARS CASE (2009) 318 ITR 462 (DELHI); (2009) 181 TAXMAN 155 DEALS WITH THAT PART OF THE DEFINITION OF DEEME D DIVIDEND UNDER SECTION 2(22)(E) WHICH STATES THAT DEEMED DIV IDEND DOES NOT INCLUDE AN ADVANCE OR LOAN MADE TO A SHAREHOLDE R BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS WHER E THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF T HE COMPANY [SECTION 2(22)(E)(II)], I.E., THERE IS NO DEEMED D IVIDEND ONLY IF THE LENDING OF MONEYS IS BY A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MONEY-LENDING. DILATING FURTHER THE COU NSEL FOR THE APPELLANT CONTENDED THAT SINCE M/S. PEE EMPRO EXPOR TS PVT. LTD. IS NOT INTO THE BUSINESS OF LENDING OF MONEY, THE P AYMENTS MADE BY IT TO THE ASSESSEE-COMPANY WOULD, THEREFORE, BE COVERED BY SECTION 2(22)(E)(II) AND CONSEQUENTLY PAYMENTS EVEN FOR THE BUSINESS TRANSACTIONS WOULD BE A DEEMED DIVIDEND. W E DO NOT AGREE. THE TRIBUNAL HAS DEALT WITH THIS ASPECT AS R EPRODUCED IN PARA (9) ABOVE. THE PROVISION OF SECTION 2(22)(E)(I I) IS BASICALLY IN THE NATURE OF AN EXPLANATION. THAT CANNOT, HOWEV ER, HAVE BEARING ON INTERPRETATION OF THE MAIN PROVISION OF SECTION 2(22)(E) AND ONCE IT IS HELD THAT THE BUSINESS TRAN SACTIONS DOES NOT FALL WITHIN SECTION 2(22)(E), WE NEED NOT TO GO FURTHER TO SECTION 2(22)(E)(II). THE PROVISION OF SECTION 2(22 )(E)(II) GIVES AN EXAMPLE ONLY OF ONE OF THE SITUATIONS WHERE THE LOA N/ADVANCE WILL NOT BE TREATED AS A DEEMED DIVIDEND, BUT THAT IS AL L. THE SAME CANNOT BE EXPANDED FURTHER TO TAKE AWAY THE BASIC M EANING, INTENT AND PURPORT OF THE MAIN PART OF SECTION 2(22 )(E). WE FEEL THAT THIS INTERPRETATION OF OURS IS IN ACCORDANCE W ITH THE LEGISLATIVE INTENTION OF INTRODUCING SECTION 2(22)( E) AND WHICH HAS BEEN EXTENSIVELY DEALT WITH BY THIS COURT IN TH E JUDGMENT IN RAJ KUMARS CASE [2009] 318 ITR 462 (DELHI); [2009] 181 TAXMAN 155. THIS COURT IN RAJ KUMARS CASE (SUPRA) EXTENSIVELY REFERRED TO THE REPORT OF THE TAXATION ENQUIRY COMM ISSION AND THE SPEECH OF THE FINANCE MINISTER IN THE BUDGET WH ILE INTRODUCING THE FINANCE BILL. ULTIMATELY, THIS COUR T IN THE SAID JUDGMENT HELD AS UNDER (PAGE 473) : 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 ITA NO.445/BANG/10 PAGE 22 OF 25 SECTION 2(6A) IN THE 1922 ACT WAS TO BRING WITHIN T HE 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. 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 PARIMATERIA WITH CLAUSE (E) OF SECTION 2(6A) OF THE 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 ASSIST 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. IF THIS PURPOSE IS KEPT IN MIND THEN, IN OUR VIEW, 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 H AND, IN 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 INCLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES THEN IT WOU LD BE A LOAN. THUS, ARISES THE CONUNDRUM AS TO WHAT MEANING ONE WOULD ATTRIBUTE TO THE TERM ADVANCE. THE RULE OF CONSTRUCTION TO OUR MINDS WHICH ANSWERS THIS CONUND RUM IS NOSCITUR A SOCIIS. THE SALE RULE HAS BEEN EXPLAINE D 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 CONSTRUCTION TO CONSTRUE WORDS IN AN ACT OF PARLIAM ENT WITH REFERENCE TO WORDS FOUND IN IMMEDIATE CONNECTION WI TH THEM AND OUR SUPREME COURT IN THE CASE OF ROHIT PULP AND PAPER MILLS LTD. V. COLLECTOR OF CENTRAL EXCISE, AIR 1991 SC 754 AND STATE OF BOMBAY V. HOSPITAL MAZDOOR SABHA, AIR 1960 SC 610. THEREFORE, WE HOLD THAT THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE AMOUNTS ADVANCED FOR BUSINESS TRAN SACTION BETWEEN THE PARTIES, NAMELY, THE ASSESSEE-COMPANY A ND M/S. PEE EMPRO EXPORTS PVT. LTD. WAS NOT SUCH TO FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND UNDER SECTION 2(22)(E). THE PRES ENT APPEAL IS, THEREFORE, DISMISSED. ITA NO.445/BANG/10 PAGE 23 OF 25 7.11. FURTHER, S. 2(22)(E) BRINGS IN A DEEMING FIC TION. IT PROVIDES IN CERTAIN CIRCUMSTANCES AN ADVANCE OR LOAN IS TREATED AS DIVIDEND IN THE HANDS OF THE SHAREHOLDER. ADVANCES AND LOANS HAVE TO BE INTERPRETED IN ITS TRUE SENSE. ANY PAYMENT MADE OUT OF BUSINESS EXPED IENCY DOES NOT FALL WITHIN THE AMBIT OF ADVANCES AND LOANS, THOUGH THE ACCOUNTING ENTRIES ARE PASSED AS SUCH. THE TRUE NATURE OF THE TRANSACTION HAS TO BE SEEN AS TO WHETHER THE TRANSACTION IS ATTRIBUTABLE TO BE A LOA N OR AN ADVANCE. IN CONSTRUING A DEEMING FICTION, IT IS NOT TO BE EXTEN DED BEYOND THE PURPOSE FOR WHICH THE DEEMING FICTION IS CREATED OR BEYOND THE LANGUAGE OF THE SECTION. IN INTERPRETING A DEEMING FICTION, THE IN TENTION OF THE LEGISLATURE HAS TO BE GIVEN DUE IMPORTANCE. THE FICTION SHOULD NOT BE EXTRAPOLATED BEYOND THE PURPOSE FOR WHICH THE LEGISLATION IS BRO UGHT IN. ON INTERPRETATION OF A LEGAL FICTION, IT WAS HELD IN CONTROLLER OF ESTATE DUTY V. KRISHNA KUMARI DEVI (173 ITR 561) THAT THE COURT SHOULD ASCERTAIN THE PURPOSE FOR WHICH THE FICTION IS CREATED AND AFTER DOING SO, ASSUME ALL FACTS WHICH ARE INCIDENTAL TO GIVE IN EFFECT TO THE FICTI ON. IN CIT V. HINDUSTAN PETROLEUM CORPORATION LTD. (187 ITR 1) (BOM) , IT WAS HELD THAT A LEGAL FICTION HAS TO BE CARRIED TO ITS LOGICAL CONCLUSION , BUT, ONLY WITHIN THE PARAMETERS OF THE PURPOSE FOR WHICH A FICTION IS CR EATED. MOREOVER, AS FAR AS POSSIBLE, THE LEGAL FICTION SHOULD NOT BE GIVEN A MEANING SO AS TO CAUSE INJUSTICE. THUS, IT IS OBVIOUS THAT THE FICTION CRE ATED IN SECTION 2(22)(E) ONLY REFERS TO PURE ADVANCES OR LOANS. ANY AMOUNT PAID ON ACCOUNT OF GENUINE BUSINESS TRANSACTION BETWEEN THE ENTITIES FALLS OUT SIDE THE AMBIT OF SECTION 2(22)(E). AS A RESULT OF GLOBALIZATION DURING THE RECENT PAST, VARIOUS GIANT ITA NO.445/BANG/10 PAGE 24 OF 25 INFRASTRUCTURE PROJECTS HAVE SPRUNG UP AND MANY ARE IN THE PIPELINE. MULTI- VARIOUS ACTIVITIES ARE INVOLVED IN PROMOTING THESE GIANT PROJECTS. ALL THESE ACTIVITIES COLLECTIVELY STRIVE TO COMPLETE THE PROJ ECTS. EACH ACTIVITY IS DISTINCT IN CHARACTER. FOR EACH ACTIVITY, DIFFERENT KINDS OF COMMERCIAL AGREEMENTS AND TECHNICAL AGREEMENTS ARE REQUIRED. THE FINANCIAL STRUCTURE OF EVERY ACTIVITY DIFFERS. THE RISK AND REWARD INV OLVED IN EVERY ACTIVITY ALSO DIFFERS. IN ORDER TO MEET SUCH COMPLEX CONSTRAINTS , THE FLAGSHIP COMPANY/THE PROMOTER MAY CREATE VARIOUS DISTINCT EN TITIES BEING SPECIAL UTILITY VEHICLES (SUV) TO DEAL IN EACH OF THESE ACT IVITIES INDEPENDENTLY. THE PROMOTER ALONG WITH THESE SUV JOINTLY WORKS TO COMP LETE THE OVER-ALL PROJECT. IN SUCH SITUATION, FUNDS BEING THE BLOODL INE FOR ALL THESE ENTITIES FLOW FROM ONE ENTITY TO THE OTHER. SUCH TRANSFER O F FUNDS ARISING OUT OF COMMERCIAL EXPEDIENCY MAY NOT BE IN THE NATURE OF ADVANCES OR LOAN IN ALL CIRCUMSTANCES. 7.12. TAKING INTO ACCOUNT THE RIVAL SUBMISSIONS, T HE FACTS AND CIRCUMSTANCES OF THE ISSUE AS DELIBERATED UPON IN T HE FORE-GOING PARAGRAPHS AND ALSO THE VARIOUS JUDICIAL PRONOUNCEM ENTS CITED SUPRA, WE ARE OF THE UNANIMOUS VIEW THAT THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF S.2 (22)(E) OF THE ACT IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER DISPUTE. THE LD. CIT (A)S STAND IN UPHOLDING THE FINDINGS OF THE AO IS ALSO NOT JUSTIFIABLE FOR THE REASONS RECORDED SUPRA . IT IS ORDERED ACCORDINGLY. 8. THE ISSUE OF APPLICABILITY OF S.2 (22)(E) OF TH E ACT IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE FOR THE REA SONS RECORDED IN THE FORE- ITA NO.445/BANG/10 PAGE 25 OF 25 GOING PARAGRAPHS, THE ASSESSEES OTHER GRIEVANCE THAT THE CIT(A) ERRED IN NOT REDUCING THE ACTUAL TAX LIABILITY OF THE RELEVA NT CURRENT YEAR FROM THE PROFITS OF THAT YEAR FOR THE PURPOSES OF COMPUTATIO N OF ACCUMULATED PROFITS HAS NOT BEEN ADDRESSED TO. 9. THE LAST GROUND OF THE ASSESSEE THAT THE CIT (A ) ERRED IN UPHOLDING THE LEVY OF INTEREST U/S 234B OF THE ACT IS NOT MAINTAINABLE AS CHARGING OF INTEREST U/S 234B OF THE ACT IS MANDATO RY AND CONSEQUENTIAL IN NATURE. THIS GROUND IS, THEREFORE, DISMISSED. 10. IN THE RESULT: THE ASSESSEES APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF NOVEMBER, 2010. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 12 TH NOVEMBER, 2010. DS/- COPY TO: BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE. 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE