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

ITA 450/BANG/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8682 (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: 2007-2008
• 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; Peak credit; Deemed dividend; Commercial expediency; Documents seized
• Section: 143(3); 153A; 2(22)(e); 234B; 250; 274; 208; 54; 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. 447 TO 450/BANG/2010 ASSESSMENT YEARS : 2004-05 TO 2007-08 M/S. BAGMANE BUILDERS 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 BENCH THESE APPEALS OF THE ASSESSEE COMPANY ARE DIRECTE D AGAINST THE CONSOLIDATED ORDER OF THE LD. CIT (A)-VI, BANGALORE , IN ITA NOS: 271, 272, 273 & 274 / ACIT CC 2(3)/ CIT (A)-VI/ 2008-09 DATED: 2.2.2010 FOR THE ASSESSMENT YEARS 2004-05, 2005-06, 2006-07 & 2007-0 8 RESPECTIVELY. 2. THE ASSESSEE COMPANY [THE ASSESSEE IN SHORT] H AS RAISED IDENTICAL FIVE GROUNDS IN A NARRATIVE MANNER FOR ALL THE AYS UNDER CHALLENGE. FOR THE ITA NO.447-450/BANG/10 PAGE 2 OF 30 SAKE OF PROPER APPRECIATION OF FACTS, THE ISSUES AR E 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 ACTION BETWEEN THE ASSESSEE AND BAGMANE DEVELOPERS (P) LTD [BDPL] WERE IN THE COURSE OF BUSINESS ACTIVITIES AND THAT THE AMOUNTS RECEIVED WERE NOT IN THE NATURE OF LOANS AND 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. AS POINTED OUT EARLIER, THE ISSUES RAISED IN THE SE APPEALS WERE SIMILAR AND RATHER INTER-LINKED; THEY WERE HEARD, C ONSIDERED AND DISPOSED OFF IN THIS COMMON ORDER FOR THE SAKE OF CONVENIENC E AND CLARITY. 4. WITH REGARD TO THE CONCLUSION OF ASSESSMENTS U/S 143(3) R.W.S. 153C OF THE ACT WHICH WERE SUSTAINED BY THE LD. CIT(A), IT 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. IT WAS, THEREFORE, ITA NO.447-450/BANG/10 PAGE 3 OF 30 PLEADED THAT THE ORDERS OF THE AO WERE OPPOSED TO L AW WHICH REQUIRE TO BE SUMMARILY ANNULLED. 4.1. THE LD. D R PRESENT DURING THE COURSE OF HEAR ING WAS VEHEMENT IN HER SUBMISSION THAT THE AO WAS WITHIN H IS REALM TO INVOKE THE PROVISIONS OF S.153C OF THE ACT WHICH HAS BEEN JUDI CIOUSLY RATIFIED BY THE LD. CIT (A) AND, THUS, IT WAS SUBMITTED, THE ASSESS EE SHOULD HAVE NO GRIEVANCE ON THIS POINT. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS 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 AS SESSMENT (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, NOTICES U/S 153A R.W.S.1 53C OF THE ACT WERE ISSUED BY INVOKING THE PROVISIONS OF S.153C OF THE ACT. THIS ACTION OF THE AO HAS BEEN HOTLY CONTESTED BY THE ASSESSEE. 5.1. WE SHALL HAVE A GLANCE OF WHAT SECTION 153C O F THE ACT 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 SEIZED OR REQUISITIONED BELONGS OR BELONG TO A PERSON OTHER T HAN THE PERSON REFERRED TO IN SECTION 153A, THEN THE BOOKS OF ACCOUNT OR DO CUMENTS OR ASSETS SEIZED OR REQUISITIONED SHALL BE HANDED OVER TO THE ASSESS ING OFFICER HAVING JURISDICTION OVER SUCH OTHER PERSON AND THAT ASSESS ING OFFICER SHALL PROCEED ITA NO.447-450/BANG/10 PAGE 4 OF 30 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. 5.2. AS RIGHTLY POINTED OUT BY THE LD. CIT (A), TH E REQUIREMENT OF HANDING ORDER THE BOOKS OF ACCOUNT TO THE AO HAVING JURISDICTION OVER THE 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., BAGMANE DEVELOPERS PVT. LTD. AND THE OTHER PERSON I.E., THE ASSESSEE AND AS SUCH THERE WAS NO NEED OF HANDING O VER THE BOOKS OF ACCOUNTS/DOCUMENTS SEIZED TO ANY OTHER AO. THE OTH ER ARGUMENT OF THE ASSESSEE THAT NO INCRIMINATING DOCUMENTS WERE UNEAR THED PERTAINING TO THE ASSESSEE DURING THE SEARCH EXCEPT REGULAR BOOKS OF ACCOUNT AND, THUS, THE INITIATION OF THE PROCEEDINGS U/S 153C OF THE ACT I LLEGAL ETC DOESNT HOLD WATER SINCE THE PROVISIONS OF S.153C (1) OF THE ACT MAKE IT EXPLICITLY CLEAR THAT WHERE THE ASSESSING OFFICER IS SATISFIED THAT ANY M ONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR BOOKS OF ACCOUNT OR DOCUMENTS SEIZED OR REQUISITIONED BELONGS OR BELONG TO A PERSON OTHER THAN THE PERSON REFERRED TO IN SECTION 153A. 5.3. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERE D VIEW THAT THE AO WAS WELL WITHIN HIS DOMINION TO RESORT TO ISSUE OF NOTICES U/S 153C OF THE ACT FOR ALL THE AYS UNDER CHALLENGE AND, ACCORD INGLY, THE ASSESSEES OBJECTION IS NOT SUSTAINABLE AND THE ASSESSEES GRO UND ON THIS COUNT FOR ALL THE AYS UNDER DISPUTE IS DISMISSED. . ITA NO.447-450/BANG/10 PAGE 5 OF 30 6. WITH REGARD TO THE ASSESSEES GRIEVANCE IN APPL YING THE PROVISIONS OF S.2 (22) (E) OF THE ACT BY THE AO BY TREATING THE AMOUNTS RECEIVED UNDER CONTRACTUAL TERMS AS LOANS FOR THE A YS UNDER DISPUTE, THE ISSUE, IN BRIEF, WAS THAT DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE AO NOTICED THAT SRI RAJA BAGMANE WHO WAS THE BENEFI CIAL OWNER OF THE SHARES HOLDING 99% SHARES IN THE CASE OF BDPL WAS ALSO HOLDING BENEFICIAL INTEREST IN THE ASSESSEE COMPANY IN TERM S OF S.2 (32) OF THE ACT I.E., THE BENEFICIAL OWNER OF SHARE IN THE ASSESSE E COMPANY CARRYING NOT LESS THAN 20% VOTING POWER HE WAS HOLDING 90% OF EQUITY SHARES. ACCORDING TO THE AO, BDPL WHO WAS HAVING ACCUMULATE D PROFITS IN ALL THE ABOVE AYS HAD SHOWN UNSECURED LOANS IN ITS BOOKS OF ACCOUNT IN THE NAME OF THE ASSESSEE FOR THE AYS UNDER DISPUTE AND, THUS, TREATED THE UNSECURED LOANS SHOWN BY BDPL TO THE EXTENT OF ACCU MULATED PROFITS OF BDPL AFTER ADJUSTING THE DEEMED DIVIDENDS IN THE CASE OF RAJA BAGAMANE OF THE RESPECTIVE AYS IN THE HANDS OF TH E ASSESSEE AS DEEMED DIVIDENDS U/S 2(22)(E) OF THE ACT. AFTER AD JUSTING THE LOANS AND ADVANCES GIVEN BY BDPL TO RAJA BAGMANE ASSESSED AS DEEMED DIVIDEND FROM ACCUMULATED PROFITS (COMPUTING THE ACCUMULATED PROFITS AVAILABLE TO THE ASSESSEE) OF BDPL, ADJUSTED THE LOANS AND ADVAN CES GIVEN TO THE ASSESSEE, THE AO TREATED THE SAME AS DEEMED DIVIDEN D U/S 2 (22)(E) OF THE ACT. 6.1. ACCORDINGLY, THE AO HAD, AFTER BRUSHING ASI DE THE CONTENTIONS PUT FORTH BY THE ASSESSEE DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, ASSESSED THE UNSECURED LOANS GIVEN BY BDPL TO THE ASSESSEE OF RS.79.80 LAKHS, RS.2.76 CRORES, RS.4.52 CRORES AND RS.64.63 ITA NO.447-450/BANG/10 PAGE 6 OF 30 LAKHS FOR THE ASSESSMENT YEARS 2004.05, 05.06, 2006 .07 AND 07.08 RESPECTIVELY. 7. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE FOR A LL THE AYS UNDER CHALLENGE BEFORE THE CIT (A) FOR REDRESSAL. EXTENSIVELY QUOTING THE REASONS ADDUCED BY THE AO IN HIS IMPUGNED ORDERS AN D ALSO MENTIONING THAT THE AO HAD ELABORATELY DISCUSSED ALL THE ARGUM ENTS AND JUDICIAL PRONOUNCEMENTS WHICH HAVE BEEN REITERATED DURING TH E COURSE OF APPELLATE PROCEEDINGS, THE CIT (A) OPINED THAT THE CONCLUSION DRAWN BY THE AO WERE LOGICAL, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. HE, FURTHER, RECORDED THAT SINCE THE ARGUMENTS OF THE APPELLANT HAVE ALREADY BEEN CONSIDERED BY THE AO, THE SAME DID NOT REQUIRE FURT HER ELABORATION. HOWEVER, HE WENT ON FURTHER TO UPHOLD THE STAND OF THE AO IN INVOKING THE PROVISIONS OF S.2 (22)(E) OF THE ACT ON THE GROUNDS THAT (I) EXCEPT THE ALLEGED MOU (SIC) AGREEMENT, THE ASSESSE E FAILED TO PRODUCE ANY OTHER EVIDENCE TO PROVE THAT THE ADVANC ES GIVEN WERE FOR THE PURPOSE OF THE BUSINESS OF BDPL; (II) MOU WAS PRODUCED ONLY ON 15.12.098 AND IT WAS NEITH ER A REGISTERED DOCUMENT NOR ENTERED BY AN INDEPENDENT PERSON BECAUSE THE DOCUMENT WAS SIGNED BY HUSBAND AND WIFE AND, THEREFORE, SELF SERVING DOCUMENT; & (III) EVEN IF THE MOU WAS IN EXISTENCE, IT DID NOT ALTER THE NATURE OF TRANSACTIONS WHICH HAVE BEEN SHOWN BY THE ASSESSEE IN THE FORM OF UNSECURED LOAN 7.1. 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 RULING OF THE HONBLE HIGHEST JUDICIARY OF THE LAND IN THE CASE OF MISS. P SARADA V. CIT REPORTED IN 229 ITR 445 (SIC) 444 (SC ) AND CONCLUDED THAT ITA NO.447-450/BANG/10 PAGE 7 OF 30 THE ASSESSING OFFICER WAS RIGHT IN INVOKING PROVISI ONS OF SECTION 2(22)(E) OF THE INCOME-TAX ACT FOR THE ABOVE ASSESSMENT YEARS. 8. DISENCHANTED WITH THE FINDINGS OF THE LD. CIT ( A) CITED SUPRA, THE ASSESSEE HAS COME UP WITH THE PRESENT APPEALS. DURING THE COURSE OF HEARING, THE STAND OF THE AUTHORITIES BELOW WAS HOT LY CONTESTED BY THE LD. AR WITH HIS LENGTHY SUBMISSION, THE FOCAL POINT OF WHICH, IS SUMMARIZED AS UNDER: (I) 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 CON CERNS WERE FOR ALLOTMENT OF BUILT-UP AREA IN THE BUILDINGS WHICH T HEY DEVELOP; - THE SISTER CONCERNS WERE NOTHING BUT THE SPECIAL PU RPOSE VEHICLES [SPV] FORMED BY THE PROMOTERS TO ARRANGE FUNDS FOR DIFFERENT PROJECTS BEING EXECUTED BY THEM. EQUITY PARTNERS LOOK OR P ROJECT SPECIFIC SPV TO INVEST AS THEY WOULD NOT GENERALLY INVEST IN HOL DING COMPANY FOR OBVIOUS REASONS BECAUSE OF EXISTING LOAN COMMITMENT S, TAX DUES ARISING OUT OF PAST TRANSACTIONS, PENDING LEGAL ISS UES ETC., THE BANKS ALSO HAVE PER COMPANY EXPOSURE TO FUND THEIR PROJEC TS. BY CREATING MORE COMPANIES, PROMOTERS WILL BE IN A POSITION TO RAISE MORE FUNDS FROM BANKS. THIS COMMERCIAL FITNESS AND BUSINESS E XIGENCY HAD PROMOTED THE ASSESSEE TO CREATE MORE COMPANIES; (II) THE MOMENT BDPL DECIDED TO ALLOCATE FUNDS, IT ENTE RED INTO AN AGREEMENT WITH THE ASSESSEE WHEREIN THE PURPOSE INT ENDED AND THE TERMS AND CONDITIONS HAVE BEEN EARMARKED; - BDPL ENTERED INTO AN AGREEMENT WITH THE ASSESSEE AN D ALLOCATED FUNDS FOR THE PURPOSE OF ACQUIRING THE PROPERTY. H OWEVER, THE AO TREATED THE SAME AS NOT RELATING TO BUSINESS. BDPL HAD, IN FACT, FUNDED THE AMOUNTS AT ARMS LENGTH BASIS WITH AN INT ENTION TO MAKE OR EARN PROFITS FROM SUCH VENTURE AND ON A COMMERCIAL UNDERSTANDING. THIS COMMERCIAL UNDERSTANDING HAS BEEN ENACTED DUR ING THE COURSE OF BUSINESS AND FOR THE PURPOSES OF BUSINESS ALONE WHICH WAS WELL OUTSIDE THE AMBIT OF DEEMED DIVIDEND; - THE MONIES TAKEN FROM BDPL AND UTILIZED BY THE ASSE SSEE FOR THE INTENDED PURPOSE HAS NOT BEEN DISPUTED BY THE AO. BASED ON THE ITA NO.447-450/BANG/10 PAGE 8 OF 30 GROUND REALITIES, THE ASSESSEE WAS FREE TO ADOPT HI S/ITS OWN METHOD OF CARRYING ON THE BUSINESS; - RELIES ON (A) S.A. BUILDERS V. CIT 288 ITR 1 (SC ) (B) CIT V. SASSOON DAVID 118 ITR 261 (SC) (III) THE AOS REASON FOR REJECTING THE AGREEMENT WAS TH AT IT WAS NOT FOUND AT THE TIME OF SEARCH. IT WAS NOT AS IF THE SEARCH PARTY WAS EXPECTED TO RECORD/SEIZE EVERY PAPER ON WHICH IT LA YS ITS HANDS. THIS AGREEMENT WAS KEPT ALONG WITH THE OTHER ORIGIN AL BELONGINGS OF THE ASSESSEE AND THE SEARCHING PARTYS REASONING IN NOT SEIZING THIS AGREEMENT CANNOT NOW BE SPECULATED; AND THE WO RST, THE ASSESSEE CANNOT BE FOUND FAULT WITH EITHER; - JUST BECAUSE THE SAID DOCUMENT WAS NOT SEIZED BY TH E SEARCH PARTY, DOESNT MEAN TO CONCLUDE (AS THE AO DID) THAT THE D OCUMENT DID NOT EXIST AT ALL. THE AO HAD NOT PROVED WITH ANY DOCUM ENTARY EVIDENCE EXCEPT ALLEGING THAT THE DOCUMENT WAS NOT GENUINE; - NO AGREEMENT NEEDS TO BE REDUCED IN WRITING AND IT CAN EVEN BE ORAL. EVEN IF AN AGREEMENT WAS REDUCED IN WRITING, IT DOE SNT REQUIRE TO BE REGISTERED UNDER S.17 OF THE REGISTRATION ACT; - IN FACT, ALL THE AGREEMENTS WERE REDUCED IN WRITING ON STAMP PAPERS, JUST BECAUSE THEY WERE NOT REGISTERED, THERE CAN BE NO REASON TO REJECT THEM; - THE OTHER REASONING OF THE AO THAT AS PER SPECIFIC RELIEF ACT (SRA), THE AGREEMENTS WERE TIME-BARRED. THE LIMITATION ST ARTS FROM THE DAY OF DEFAULT AND NOT EARLIER AND EVEN IF NO REMEDY WA S AVAILABLE UNDER SRA, THE AGGRIEVED PARTY CAN HAVE RECOURSE TO NORMA L PROVISIONS OF THE CIVIL PROCEDURE CODE; (IV) THE REASONING OF THE AO THAT THE AMOUNTS GIVEN BY B DPL WERE PROFITS WHICH THE COMPANY COULD HAVE DISTRIBUTED TO ITS SHAREHOLDERS WAS UNFOUNDED AS THE SAME WAS UTILIZED ONLY TO MAKE THE MAXIMUM POSSIBLE EFFORTS FOR INVESTMENTS I N LAND AND WOULD LIKE TO CONSERVE THE RESOURCES AND, THUS, DIS TRIBUTION OF DIVIDENDS WOULD BE ITS LAST PRIORITY, PARTICULARLY WHEN THERE WERE HUGE BORROWALS; - THE AOS PRESUMPTION THAT THE FUNDS TAKEN WITH NO 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 AM OUNT WAS HELD BY THE ASSESSEE FOR PROCUREMENT OF PROPERTIES ON BE HALF OF THE COMPANY AND AS SUCH THERE WAS NO QUESTION OF PAYIN G ANY INTEREST; ITA NO.447-450/BANG/10 PAGE 9 OF 30 - ACCORDING TO THE AO, THE ONLY EXCEPTION WAS IN RESP ECT 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 LOAN OR OTHERWISE. - A NUMBER OF CASE LAWS RELIED ON BY THE AO WERE NOT APPLICABLE FOR THE REASONS THAT (A) ACIT V. SMT. LAKSHMI KUTTI NARAYANAN 112 TTJ 396 (I TAT KOCHI) THE MAIN ISSUE IN THAT CASE WAS THAT BO OK ENTRIES WERE RELATING TO EARLIER YEARS. BUT THE PRINCIPLE LAID DOWN THEREIN HAD BEEN 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 (ITA T, DELHI BENCH) & (E) SEASMIST PROPERTIES PVT. LTD. 1 SOT 14 2 (MUM) WERE HELD TO BE NOT APPLICABLE BECAUSE TH E SCHEDULE TO THE BALANCE SHEETS REFLECT THOSE AMOUNTS AS UNSECURED LOANS A ND, THEREFORE, IT WAS NOT IN THE NATURE OF ANY TRADE ADVANCE OR ANY PAYME NT MADE IN CONNECTION WITH BUSINESS OF THE COMPANY GIVING THE LOAN; - CASE LAWS RELIES ON (BY THE ASSESSEE) (A) CIT V. CREATIVE DYEING AND PRINTING PVT. LTD. 318 I TR 476 (DEL); (B) NH SECURITIES LTD. V. DCIT 11 SOT 302 (MUM) - MERELY BECAUSE THE SUM WAS SHOWN AS UNSECURED LOAN IN THE BOOKS OF ACCOUNTS CANNOT BE CONCLUDED THAT IT WAS DEEMED DIV IDEND. IT WAS A SETTLED LAW THAT IN BOOK-KEEPING, THE ENTRIES IN T HE BOOKS OF ACCOUNTS CANNOT GO TO DECIDE THE AMBIT OF TAXATION RELIES ON A. FORT PROPERTIES PVT. LIMITED 208 ITR 232 (BOM) B. KEDARNATH JUTE MANUFACTURING CO. LTD. 82 ITR 363 (SC) C. KASTURI ESTATES (P) LTD. 62 ITR 578 (MAD) D. G.VENKATASWAMI NAIDU 35 ITR 594 (SC) E. SULTAN BROTHERS 51 ITR 353 (SC) F. CIT V. EXPRESS NEWSPAPERS 53 ITR 250 (SC) ITA NO.447-450/BANG/10 PAGE 10 OF 30 - THE QUESTION OF DEEMED DIVIDEND CAN ARISE ONLY IN T HE 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 ADVANCE HAD BEEN RECEIVED. RELIES ON ACIT V. BHAUMIK COLOUR (P) LTD 120 TTJ 865 (MUM) - THE DEEMED DIVIDENDS COMPUTED FOR THE AY 2005-06 WA S INCORRECT. THE PEAK OF THE AMOUNT ALLEGED TO HAVE BEEN ADVANCE D BY BDPL WAS RS.3.59 CRORES AS ON 13.10.2005. PRIOR TO 31.3.200 5, THE PEAK CREDIT NEVER EXCEEDED THE OPENING BALANCE. ON 31.3.05 CER TAIN CREDIT ENTRIES OF 2.55 CRORES WHICH ACCORDING TO AO WAS FU NDS TRANSFERRED WAS NOT ACTUAL TRANSFER OF FUNDS. THEY WERE MERE J OURNAL ENTRIES. IT IS COMMON KNOWLEDGE THAT IN JOURNAL ENTRIES THERE IS N EITHER FLOW OUT OR FLOW IN OF FUNDS. THERE WAS NO DEEMED DIVIDENDS TO BE TAXED AT ALL IN THE AY 2005-06. THE CASES RELIED BY THE AO HAVE NO APPLICATION TO THE FACTS OF THE PRESENT CASE. RELIES ON - G.R.GOV INDARAJULU NAIDU V. CIT 90 ITR 13 (MAD); - FOR AY 2006-07: WITH REGARD TO THE REASONING OF THE AO FOR REJECTIN G THE PLEA OF REDUCTION IN THE SHARE HOLDING OF RAJA BAGMANE IN THE ASSESSEE COMPANY WAS THAT THE TRANSFER WAS NOT GENU INE AND THE REASON GIVEN FOR ARRIVING AT SUCH A CONCLUSION WAS THAT THE ASSESSEE HAD NOT RECEIVED THE CONSIDERATION FOR THE TRANSFER OF SHARE, BUT, IT WAS ONLY A JOURNAL ENTRY, THE CONTENTION WAS THAT - THE SALES OF SHARES HAVE BEEN DISCLOSED IN THE BALA NCE SHEETS OF RAJA BAGMANE AND SMT. VASUNDHARA RAJA AS ON 31.3.2006. EVEN AN IMMOVABLE PROPERTY CAN BE TRANSFERRED FOR A CONSIDE RATION PAID, PROMISED, PARTLY PAID AND PARTLY PROMISED AS PER S. 54 OF THE TRANSFER OF PROPERTY ACT. FURTHER, THERE WAS A RUNNING ACCO UNT OF SMT. VASUNDHARA RAJA IN BOOKS OF RAJA BAGMANE AND, THERE FORE, THE CONSIDERATION DUE WAS DEBITED TO HER ACCOUNT. SIMI LARLY, IN THE ACCOUNT OF RAJA BAGMANE IN THE BOOKS OF SMT. VASUND HARA RAJA, CREDIT ENTRIES WERE PASSED AND THUS, THERE WAS NOTH ING AMISS ABOUT IT; - RAJA BAGMANE WAS NOT HAVING 10% SHAREHOLDING IN THE ASSESSEE COMPANY THROUGHOUT THE YEAR. FOR THE APPLICABILITY OF S.2 (22)(E), IT WAS NECESSARY THAT THE SHARE-HOLDER SHOULD HAVE 10% EQUITY SHARE CAPITAL IN BOTH THE CONCERNS THE CONCERN WHICH LE NT THE MONEY AND THE CONCERN TO WHOM MONEY HAD BEEN LENT. THOUGH RA JA BAGMANE DID HOLD MORE THAN 10% SHARE IN BDPL THROUGHOUT THE YEAR, HE DID NOT HOLD 10% SHARE IN THE ASSESSEE COMPANY THROUGHO UT THE YEAR. IT IS SETTLED LAW THAT THE RELEVANT SHARE HOLDER SHOUL D NOT ONLY BE A ITA NO.447-450/BANG/10 PAGE 11 OF 30 REGISTERED SHARE HOLDER BUT A PERSON HAVING BENEFIC IAL INTEREST. THUS, THE PROVISIONS OF S.2 (22)(E) WILL GET ATTRAC TED ONLY IF THE CONCERNED PERSON WAS NOT ONLY A REGISTERED SHAREHOL DER BUT ALSO A BENEFICIAL SHAREHOLDER HOLDING NOT LESS THAN 10% OF THE SHARE; 8.1. ON THE OTHER HAND, THE LD. D.R. WAS VERY CATE GORICAL IN HER SUBMISSION THAT THE ISSUE IN DISPUTE HAS BEEN EXTEN SIVELY ANALYZED BY THE AO AND ALSO DRAWING STRENGTH FROM VARIOUS JUDICIAL PRONOUNCEMENTS ARRIVED AT A CONCLUSION THAT THE ENTIRE AMOUNTS RECEIVED FR OM BDPL AS LOANS FOR THE AYS UNDER CHALLENGE AND WAS RIGHTLY TREATED THE M AS DEEMED DIVIDENDS IN THE HANDS OF THE ASSESSEE BY BRINGING THEM TO TAX NET UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LEARNED FIRST APPELLATE AUTHORITY HAD, AFTER DUE CONSIDERATION OF RIVAL SUBMISSIONS, SUBSTANTIATED THE AOS ACTION WHICH VINDICATED THE STAND OF THE AO ON THIS POINT. IT WAS, THEREFORE, VEHEMENTLY URGED THAT THE ACTION OF THE AUTHORITIES BELOW REQUIRES TO BE UPHELD. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, DILIGENTLY PERUSED THE RELEVANT RECORDS, THE VARIOUS JUDICIAL PRONOUNCEMENTS ON WHICH EITHER PARTY HAD PLACED THEIR FAITH AND ALSO THE VOLUMINOUS PAPER BOOKS IN VOLUMES [I, II, III & IV RUNNING INTO HUN DREDS OF PAGES IN ITS GROUP OF CASES] FURNISHED BY THE LD. AR DURING THE COURSE OF HEARING PROCEEDINGS. 9.1. ON A CRITICAL EXAMINATION OF THE RELEVANT IMP UGNED ASSESSMENT ORDERS, THE REASONS FOR HAVING ARRIVED AT SUCH A CONCLUSION THAT THOSE AMOUNTS WERE TO BE TREATED AS DEEMED DIV IDENDS U/S 2 (22)(E) OF THE ACT FOR THE AYS UNDER DISPUTE, CAN BE CATEGORIZ ED AS UNDER: ITA NO.447-450/BANG/10 PAGE 12 OF 30 (I) THE ASSESSEE IN ITS BALANCE SHEETS IN SCHEDULE 2 HA D SHOWN THOSE AMOUNTS UNDER THE HEAD UNSECURED LOANS; - IN THE BALANCE SHEETS OF BDPL FOR THE AYS UNDER DIS PUTE, AMOUNTS RECEIVABLE FROM THE ASSESSEE HAVE BEEN SHOWN UNDER THE HEAD LOANS AND ADVANCES; - THE BALANCE SHEETS OF BDPL SHOW THE ACCUMULATED PRO FITS FOR THE RELEVANT ASSESSMENT YEARS; (II) THE ASSESSEE HAD FAILED TO SUBSTANTIATE ITS CLAIM T HAT THE FUNDS WERE RECEIVED FROM BDPL FOR BUSINESS EXPEDIENCY AN D WERE IN THE NATURE OF CONTRACTUAL PAYMENTS; - THE AGREEMENT DATED: 11.12.2002 PRODUCED TO SUBSTAN TIATE ITS CLAIM THAT THE FUNDS WERE FLOWN FROM BDPL FOR BUSINESS EX IGENCIES AND WERE IN THE NATURE OF CONTRACTUAL PAYMENTS APPEARS TO BE AN AFTER THOUGHT SINCE IT WAS NOT IN EXISTENCE AT THE TIME O F SEARCH OPERATION; - THE EVIDENCE PRODUCED IN THE FORM OF AN AGREEMENT S IGNED BY RAJA BAGMANE AND HIS WIFE SMT VASUNDHARA RAJA WAS TO BE AN AFTER THOUGHT TO GO SCOT-FREE; (III) THE JOURNAL ENTRIES PASSED IN VARIOUS ASSESSMENT YE ARS IN THE CASE OF BDPL RESULTED INTO THE PERSONAL BENEFIT TO THE A SSESSEE; - BDPL WHO ADVANCED THE LOAN TO THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING AND, THEREFORE, THE LOAN GIVEN TO THE ASSESSEE COMES UNDER THE PURVIEW OF S.2 (22)(E) OF THE ACT; 9.2. THE REASONING OF THE LD. CIT (A) WAS THAT (I) EXCEPT THE ALLEGED MOU (SIC) AGREEMENT, NO OTHER EV IDENCE WAS ADVANCED TO PROVE THAT THE ADVANCES GIVEN WERE FOR THE PURPOSE OF THE BUSINESS OF BDPL; (II) THE ALLEGED AGREEMENT WAS PRODUCED BEFORE THE AO ON LY ON 15.12.2008 WHICH WAS NEITHER A REGISTERED DOCUMENT NOR A DOCUMENT ENTERED INTO BY AN INDEPENDENT PERSON, BU T, WAS BETWEEN A HUSBAND AND WIFE AND, THEREFORE, SELF SER VING DOCUMENT; & ITA NO.447-450/BANG/10 PAGE 13 OF 30 (III) THE CASE LAWS RELIED ON BY THE ASSESSEE HAS NOT COM E TO ITS RESCUE AS THEY WERE DISTINGUISHABLE. 9.3. ON ANALYZING THE REASONS ATTRIBUTED BY THE AU THORITIES BELOW, THE FOLLOWING CRUCIAL POINTS WERE EMERGED THAT (1) BOTH THE COMPANIES - BDPL AND THE ASSESSEE CO MPANY GOVERNED BY THE BOARD OF DIRECTORS - WERE IN THE BUSINESSES OF (I) REAL ESTATE OF ACQUIRING LANDS AND DEVELOPING THEM INTO BUILDINGS; AND (II) OTHER BEING A DEVELOPER OF DEVELOPING TECH PARKS ETC., SINCE B OTH THE PARTIES WERE IN THE SAME LINE OF BUSINESS REAL ESTATE AND DEVELO PING OF TECH. PARK - THEY HAVE PERHAPS ENTERED INTO NEGOTIATIONS AND SCRIPTED THE TERMS AND CONDITIONS WHICH WERE REDUCED THROUGH AN AGREEME NT ENTERED INTO ON 11.12.2002 [SOURCE: P 189 OF PB AR], ACCORDING TO W HICH, FOR PROCUREMENT OF LANDS AND DEVELOPMENT OF THE SAME INTO COMMERCIA L USE WAS TO BE EXECUTED BY BBPL FOR WHICH NECESSARY FUNDS WERE PRO VIDED TO THE ASSESSEE UNTIL SUCH A TIME BBPL HAD ARRANGED FINAN CE FOR ITS PROJECTS FROM OTHER SOURCES SUCH AS BANKS ETC.,[CLAUSE 10 OF THE AGREEMENT]. AS COULD BE SEEN FROM THE AGREEMENT CITED SUPRA, THE PURPOSE INTENDED AND THE TERMS AND CONDITIONS HAVE BEEN DULY EARMARKED. THI S HAS NEITHER BEEN DISPUTED BY THE AO NOR BY THE FIRST APPELLATE AUTHO RITY. THE AOS SOLE OBJECTION WAS THAT SUCH AMOUNTS HAVE BEEN SHOWN UND ER THE HEAD UNSECURED LOANS IN ITS BALANCE SHEETS. IN THIS C ONNECTION, WE WOULD LIKE TO POINT OUT THAT THE FUNDS FLOWN THROUGH FROM BDPL TO THE ASSESSEE COMPANY HAVE NOT BEEN DISPUTED, BUT, THIS DISPUTE REVOLVED ONLY WITH REGARD TO THE NOMENCLATURE IN THE BALANCE SHEETS OF THE ASSESSE E. IN THE BALANCE- SHEETS, THE FUNDS RECEIVED COULD HAVE BEEN SHOWN IN ADVERTENTLY AS ITA NO.447-450/BANG/10 PAGE 14 OF 30 UNSECURED LOANS OR ADVANCES BY THE PERSONS WHO WERE AT THE HELM OF AFFAIRS IN THE ACCOUNTING SECTION OF THE ASSESSEE W HICH, IN OUR CONSIDERED VIEW, DOESNT ALTER THE NATURE AND CHARACTER OF THE TRANSFER OF FUNDS WHICH TOOK PLACE AND IT CANNOT BE A SOLE REASON TO BRAND THEM THAT THE FUNDS WERE UNSECURED LOANS AND, THUS, THE PROVISIONS OF S .2 (22)(E) OF THE ACT HAVE COME TO PLAY A ROLE. IN THIS CONNECTION, IT IS MORE APPROPRIATE TO HAVE A GLIMPSE OF THE RULING OF THE HONBLE APEX COURT IN THE CASE OF S.A . BUILDERS V. CIT REPORTED IN 288 ITR 1 (SC) WHEREIN THE HONBLE COURT, IN ITS INFINITE WISDOM, HAD OBSERVED THUS THE EXPRESSION COMMERCIAL EXPEDIENCY IS ONE OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BU SINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY..THAT THE BORROWED AMOUNT I S NOT UTILIZED BY THE ASSESSEE IN ITS OWN BUSINESS BU T HAD BEEN ADVANCED AS INTEREST FREE LOAN TO ITS SISTER CONCERN IS NOT REL EVANT. WHAT IS RELEVANT IS WHETHER THE AMOUNT WAS ADVANCED AS A MEASURE OF COM MERCIAL EXPEDIENCY AND NOT FROM THE POINT OF WHETHER THE AM OUNT WAS ADVANCED FOR EARNING PROFITS. WITH HIGHEST REGARDS, WE WOULD LIKE TO POINT THAT T HE ASSESSEE HAD RECEIVED FUNDS WITH AN INTENTION TO EARN PROFITS OU T OF THIS VENTURE WHICH, IN ANY STRETCH OF IMAGINATION, CAN BE TERMED AS EITHER ADVANCE OR LOAN AS ALLEGED BY THE REVENUE. WHILE DECIDING THE ISSUE I N THE CASE OF S.A.BUILDERS CITED SUPRA, THE HONBLE SUPREME COURT HAD PUTS ITS SEAL OF APPROVAL THE RATIO LAID DOWN BY THE HONBLE DELHI H IGH COURT IN THE CASE OF CIT V. DALMIA CEMENT REPORTED IN 254 ITR 377 (DEL) WHEREIN THE HONBLE COURT HELD THAT THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM T HEIR OWN ITA NO.447-450/BANG/10 PAGE 15 OF 30 VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. AS A LREADY STATED ABOVE, WE HAVE TO SEE THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS . (2) THE AOS ANOTHER CONTENTION WAS THAT THE ASS ESSEE WAS UNABLE TO SUBSTANTIATE ITS CLAIM THAT THE FUNDS WERE GIVEN FO R BUSINESS EXIGENCIES AND WAS IN THE NATURE OF CONTRACTUAL PAYMENTS. IN THIS CONNECTION, WE WOULD LIKE TO MENTION HERE THAT THE BALANCE-SHEETS, JOURN AL ENTRIES IN THE BOOKS OF ACCOUNT AMPLY MAKE IT CLEAR THAT THE FUNDS WERE PRO VIDED DURING THE COURSE OF BUSINESS.. (3) THE OTHER REASONING OF THE AO WHICH WAS RATIFI ED BY THE LEARNED FIRST APPELLATE AUTHORITY THAT THE ALLEGED NON-REGISTERED AGREEMENT PRODUCED BEFORE THE AO ONLY ON 15.12.2008 WERE SIGNED BY HUS BAND AND WIFE [RAJA BAGMANE AND SMT. VASUNDHARA RAJA] WHICH WAS NOTHING BUT AN AFTER THOUGHT AND SO ON AND SO FORTH. WITH REGARD TO THE CIT(A)S ARGUMENT TH AT THE AGREEMENT DT.11.12.2002 WAS PRODUCED BY THE ASSESSEE AS A PIE CE OF EVIDENCE ONLY ON 15.12.2008 BEFORE THE AO EVEN THOUGH THE HEARING WAS GOING ON AND ALSO WHEN THE AO CONTEMPLATED TO TREAT THE SAME AS DEEMED DIVIDEND BY ISSUANCE OF SHOW-CAUSE NOTICE ETC., IT MAY NOT BE O UT PLACE TO BRING ON RECORD THAT THE ASSESSEE HAD IN FACT PRODUCED THE E VIDENCE IN THE MIDST OF ASSESSMENT PROCEEDINGS AND, THUS, THIS COULD NOT B E A SOUND REASON TO PUT THE VERY EXISTENCE OF THE AGREEMENT ITSELF UND ER THE SCANNER. ITA NO.447-450/BANG/10 PAGE 16 OF 30 IN A NUT-SHELL, THE AUTHORITIES BELOW HAVE FAILED TO BRING ON RECORD ANY CREDIBLE DOCUMENTARY EVIDENCE TO PROVE THAT THE ACTION OF THE ASSESSEE WAS AN AFTER THOUGHT AND THE DOCUMENT ITSE LF WAS SELF SERVING ETC., MERELY MAKING A SWEEPING REMARK ON THE GENU INENESS OF THE VERY EXISTENCE OF AN AGREEMENT WITHOUT AN INDISPUTABLE E VIDENCE, IN OUR VIEW, IS LACKING CONVICTION. ANALYZING THE OTHER REASONING OF THE LD. CIT (A) THAT THE AGREEMENT WAS NEITHER A REGISTERED DOCUMENT NOR A DOCUMENT EN TERED BY AN INDEPENDENT PERSON BECAUSE THE DOCUMENT HAS BEEN AU THENTICATED BY HUSBAND AND WIFE, IT WAS NOTICED THAT THE FUNDAMEN TAL FACT HAS BEEN LOST SIGHT OF THAT THE AGREEMENT WAS EXECUTED NOT IN THE STATUS OF A WIFE AND A HUSBAND AS HAS BEEN PROJECTED, BUT, REPRESENTING T WO LIMITED COMPANIES. NO DOUBT, THE WIFE AND HUSBAND HAVE REPRESENTED THE IR RESPECTIVE COMPANIES IN THE CAPACITY OF MANAGING DIRECTOR AN D AUTHORIZED SIGNATORY RESPECTIVELY AND, THUS, THE QUESTION OF MARITAL RELATIONSHIP SHOULD NOT HAVE BEEN DRAGGED IN TO DOUBT THE VERY BONA FID E OF THE AGREEMENT ITSELF. THE AGREEMENT HAS NOT BEEN ENTERED INTO BY RAJA BAGMANE AND MRS. VASUNDHARA RAJA IN THE STATUS OF HUSBAND AND W IFE, BUT, IN THE CAPACITY OF MANAGING DIRECTOR AND AUTHORIZED SIGNAT ORY REPRESENTING THEIR RESPECTIVE COMPANIES GOVERNED BY THE BOARD OF DIREC TORS. THERE WAS ALSO NO LEGAL IMPEDIMENT TO SUGGEST THAT AN AGREEMENT CO ULD NOT BE ENTERED INTO BY THE HUSBAND AND WIFE WHEN THEY WERE REPRESE NTING THEIR RESPECTIVE COMPANIES/ORGANIZATIONS ETC., ITA NO.447-450/BANG/10 PAGE 17 OF 30 (4) THE OTHER REASONING OF THE AO WAS THAT BD PL WHICH ADVANCED THE ALLEGED LOANS TO THE ASSESSEE NOT ENGAGED IN THE B USINESS OF MONEY LENDING AND, THEREFORE, THE LOAN GIVEN TO THE ASSES SEE COMES UNDER THE PURVIEW OF S.2 (22)(E) OF THE ACT. WE WOULD LIKE T O REITERATE THAT THE BDPL WAS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING, B UT, THE FUNDS SO ALLOCATED TO THE ASSESSEE DURING THE COURSE OF BUSI NESS WHICH PURELY ON BUSINESS EXIGENCY AND, THUS, THE AMOUNTS SO FUNDED DO NOT FALL WITHIN THE SPHERE OF ADVANCE OR LOAN , AS THE CASE MAY BE, SO AS TO BRING IT UNDER THE PURVIEW OF S. 2 (22)(E) OF THE ACT. (5) WE ARE IN TOTAL DISAGREEMENT WITH THE LD. C IT (A)S PERCEPTION THAT THE ASSESSEES RELIANCE ON THE RULING OF HONBLE SU PREME COURT IN THE CASE OF S.A.BUILDERS V. CIT CITED SUPRA WAS NOT APPLICAB LE. NO DOUBT, THE ISSUE WAS WHETHER INTEREST ON BORROWED CAPITAL ALLOWABLE OR NOT. HOWEVER, THE LD. CIT (A) HAD FAILED TO NOTICE, MAY BE BY OVERSIG HT, THE CONCEPT [THE RATIO] LAID DOWN BY THE HONBLE COURT ON THE ISSUE. FOR THE SAKE OF APPRECIATION OF FACTS, WE REPRODUCE THE RELEVANT PO RTION OF THE RULING OF THE HONBLE COURT THAT IT WAS REQUIRED TO BE ENQUIRED AS TO WHETHER THE IN TEREST- FREE LOAN WAS GIVEN TO THE SISTER CONCERN AS A MEAS URE OF COMMERCIAL EXPEDIENCY. IF IT IS SO, INTEREST ON BORROWED FUNDS IS TO BE AL LOWED IT, FURTHER, WENT ON TO OBSERVE THAT THE AUTHORITIES SHOULD EXAMINE THE PURPOSE FOR WHIC H THE ASSESSEE ADVANCED THE MONEY TO ITS SISTER CONCERN A ND WHAT THE SISTER CONCERN DID WITH THIS MONEY IN ORDER TO DECIDE WHET HER IT WAS FOR COMMERCIAL EXPEDIENCY. THUS, THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE CITED SUPRA IS FIT IN TO THE ISSUE ON HAND. WHILE ITA NO.447-450/BANG/10 PAGE 18 OF 30 ANALYZING THE ISSUE, WE SHOULD KEEP IN VIEW THE RAT IO LAID DOWN BY THE HONBLE SUPREME COURT AS TO WHETHER THE FUNDS RECEI VED WAS DURING THE COURSE OF BUSINESS OR OTHERWISE. AS THE TRANSACTIO N TOOK PLACE DURING THE COURSE OF BUSINESS AND IN THE BUSINESS EXIGENCY, WE ARE OF THE FIRM VIEW THAT THE RATIO LAID DOWN BY THE HONBLE SUPREME COU RT IN THE CASE OF S.A.BUILDERS CITED SUPRA IS DIRECTLY APPLICABLE TO THE FACTS OF THE ISSUE ON HAND. (6) THE AO HAD PLACED RELIANCE ON THE RULING OF TH E HONBLE APEX COURT IN THE CASE OF CIT V. MYSODET (P) LTD. (1999) 237 I TR 35 (SC) TO DRIVE HOME HIS POINT. WE HAVE DILIGENTLY PERUSED THE OBS ERVATION OF THE HONBLE COURT WHEREIN IT WAS RULED THAT A PERUSAL OF SECTION 2(22)(E) SHOWS THAT FOR THE P URPOSE OF THE ACT, ANY PAYMENT MADE BY A COMPANY OF ANY SUM OF MONEY BY WA Y OF ADVANCE OR LOAN TO ITS SHAREHOLDERS IS DEEMED TO BE A DIVIDEND . SINCE THE ACT HAS NOT PROVIDED FOR ANY OTHER DEFINITION OF THE WORD DIVI DEND EXCEPT THE ONES ENUMERATED IN SECTION 2(22), IT SHOULD BE CONSTRUED THAT THIS DEFINITION WOULD BE APPLICABLE TO ALL PROVISIONS WHICH CONTAIN THE TERM DIVIDEND IN THE ACT. WITH RESPECTS, WE WOULD LIKE TO MENTION HERE THAT T HE HONBLE COURT HAD OBSERVED ON A PERUSAL OF S.2 (22)(E ) ANY PAYMENT MADE BY A COMPANY OF ANY SUM OF MONEY BY WAY OF ADVANCE OR LOAN TO ITS SHAREHOLDERS IS DEEMED TO BE A DIVIDEND . THE LITERALLY MEANING OF ANY SUM OF MONEY BY WAY OF ADVANCE OR LOAN TO ITS SHAREHOLDERS, IT IS DEEMED TO BE A DIVIDEND WHEREAS IN THE CASE ON HAND, THE AMOUNTS RECEIVED WERE IN THE NORMAL COURSE OF B USINESS AND FOR THE BUSINESS EXIGENCY AND, THEREFORE, IT CANNOT BE TERM ED AS ADVANCE OR ITA NO.447-450/BANG/10 PAGE 19 OF 30 LOAN TO INVOKE THE PROVISIONS OF S.2 (22)(E) OF THE ACT. WITH DUE REGARDS, WE REITERATE THAT THE FINDING OF THE HONBLE SUPREM E COURT REFERRED SUPRA HAS NO APPLICATION TO THE FACTS OF THE ISSUE ON HAN D. SIMILARLY, THE CASE LAW [SMT. TARULATA SHYAM V. CIT (1977) 108 ITR 345 (SC)] RELIED ON THE AO HAS NO RELEVANCE FOR THE REASONS RECORDED SUPRA. (7) IN THE CASE OF MS. P SARADA V. CIT REPORTED IN 229 ITR 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 THE YEAR 1973-74 ? AFTER DUE CONSIDERATION OF THE FACTS OF THE CASE, THE 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 THAT 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 T HAT THE ASSESSEE HAD NOT RECEIVED ANY LOAN OR ADVANCE FOR ITS OWN BENEFIT, BUT, THE FUNDS WERE PROVIDED FOR THE EXECUTION SPECIFIC PURPOSE ON ITS BEHALF. THUS, IN OUR ITA NO.447-450/BANG/10 PAGE 20 OF 30 CONSIDERED VIEW, THE CASE LAW CITED BY THE AUTHORIT IES BELOW IS DISTINGUISHABLE. 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, BUT, FUNDS WERE ALLOCATED FOR EXECUTION WORK ASSIGNED TO THE ASSESSEE ON ITS BEHALF; (2) NO PAYM ENTS WERE MADE ON ITS BEHALF; AND (3) PAYMENTS MADE WERE NOT FOR ANYBODYS INDIVI DUAL BENEFIT. THE PAYMENTS IN QUESTION WERE PROVIDED DUE TO BUSINESS EXIGENCIES OF BDPL AND THE FUNDS SO PROVIDED FOR THE SOLE BENEFIT OF BDPL AND NOT TO INDIVIDUAL BENEFITS OF A SHAREHOLDER AND, THEREF ORE, THE QUESTION OF APPLICABILITY OF THE PROVISIONS OF S.2 (22)(E) OF T HE ACT DOESNT ARISE. WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT THE CASE LAWS RELIED ON BY THE AUTHORITIES BELOW HAS NO RELEVANCE TO THE ISSUE ON HAND. 9.4. THE HONBLE DELHI HIGH COURT IN ITS RECENT JUDGMENT IN THE CASE OF CIT V. CREATIVE DYEING AND PRINTING PVT. LIMITED RE PORTED IN 318 ITR 476 (DEL) RULED THAT SECTION 2 (22) (E) OF THE ACT CAN BE APPLIED TO LOANS OR ADVANCES SIMPLICITER AND NOT TO THOSE TRANSACTION S CARRIED OUT IN THE COURSE OF BUSINESS AS SUCH. IN THE COURSE OF CARRY ING ON BUSINESS 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 -W HAT IS THE PURPOSE OF SUCH ADVANCE? IF THE AMOUNT IS GIVEN AS ADVANCE SI MPLICITER OR AS SUCH PER SE WITHOUT ANY FURTHER OBLIGATION BEHIND RECEIV ING SUCH ADVANCES, MAY ITA NO.447-450/BANG/10 PAGE 21 OF 30 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 DECISION, THE HONBLE HIGH COURT HAD PLACED RELIANCE IN THE DECISION OF THE CASE OF CIT V. RAJ KUMAR (2009) 318 ITR 462 (DEL), CIT V. AMBASSADOR TRAVELS (P.) LTD. (2009) 3 18 ITR 376 AND CIT V. NAGIN DAS M. KAPADIA (1989) 177 ITR 393)(BOM). WE REPRODUCE THE RELEVANT PORTION OF THE FINDING IN THE CASE OF CIT V. CREATIVE DYEING AND PRINTING P. LTD. FOR REFERENCE: BEFORE US, THE LEARNED COUNSEL FOR THE APPELLANT/R EVENUE 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 TO THE ASS ESSEE-COMPANY BUT THE LENDING COMPANY, NAMELY, M/S. PEE EMPRO EXPORTS PVT . LTD. IS NOT INTO THE BUSINESS OF MONEY LENDING AS REQUIRED BY SECTION 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. RA J KUMAR [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 WOULD NOT MEAN THAT THE SAME WOULD BECOME A DEEMED DIVIDEND INASMUCH AS MONEYS A RE 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 AR RIVED AT BY THE TRIBUNAL : 7.5 IN THE PRESENT CASE THE AMOUNT PAID BY M/S. PE E 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 PURPOSE OF BUSINESS BECAUSE TH E ULTIMATE BENEFICIARY OF THE PROPOSED EXPANSION OF PLANT AND MACHINERY IS M/ S. PEE EMPRO EXPORTS ITSELF. M/S. PEE EMPRO EXPORTS HAS NOT MADE THE PAY MENT TO THE APPELLANT- COMPANY FOR THE INDIVIDUAL BENEFIT OF MR. R.S. UPPA L AND MR. P.M.S. UPPAL ITA NO.447-450/BANG/10 PAGE 22 OF 30 AND ON THE CONTRARY THESE TWO DIRECTORS HAVE ALSO P ROVIDED 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 EXPORTS. IF THE ASSESSEE HAS NOT UNDERTAKEN SUCH EXPANSION, NO ADVANCE COULD HAVE BE EN MADE TO IT OR THAT PEE EMPRO EXPORTS WOULD NOT HAVE DISTRIBUTED AS DIV IDEND TO ITS SHAREHOLDERS. THUS, BUT FOR THE ADVANCES, THE AMOUN T OF ADVANCES COULD NOT HAVE REACHED ASSESSEE AT ALL. WE THEREFORE, DELETE THE ADDITIONS AS MADE BY THE ASSESSING OFFICER AS THE AMOUNT RECEIVED BY ASS ESSEE IS NOT DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. THE COUNSEL FOR THE REVENUE HAS ALSO FURTHER STATED 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 NOT 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 SUBSEQUENT YEARS FOR TH E JOB WORK OF PRINTING AND DYEING WHICH IS DONE BY THE ASSESSEE-COMPANY FO R M/S. PEE EMPRO EXPORTS PVT. LTD. WE FIND THAT THE TRIBUNAL IN THE PRESENT CASE HAS V ERY EXTENSIVELY DEALT WITH LEGISLATIVE INTENTION OF INTRODUCING SECTION 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] 5 6 ITR 198 WHERE A SIMILAR PROVISION OF THE INCOME-TAX ACT, 1922 I.E., SECTION 2(6A)(E) WAS IN ISSUE BY REPRODUCING THE RELEVANT PARA IN NAVNIT LAL C. JAVE RIS 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 IMPU GNED SECTION APPLIES ARE COMPANIES IN WHICH AT LEAST 75 PER CENT OF THE VOTI NG POWER LIES IN THE HANDS OF OTHER THAN THE PUBLIC, AND THAT MEANS THAT THE C OMPANIES ARE CONTROLLED BY A GROUP OF PERSONS ALLIED TOGETHER AND HAVING TH E SAME INTEREST. IN THE CASE OF SUCH COMPANIES, THE CONTROLLING GROUP CAN D O WHAT IT LIKES WITH THE MANAGEMENT OF THE COMPANY, ITS AFFAIRS AND ITS PROF ITS WITHIN THE LIMITS OF THE COMPANIES ACT. IT IS FOR THIS GROUP TO DETERMINE WH ETHER THE PROFITS MADE BY THE COMPANY SHOULD BE DISTRIBUTED AS DIVIDENDS OR N OT. THE DECLARATION OF DIVIDEND IS ENTIRELY WITHIN THE DISCRETION OF THIS GROUP. WHEN THE LEGISLATURE REALIZED THAT THOUGH MONEY WAS REASONABLY AVAILABLE WITH THE COMPANY IN THE FORM OF 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 LO AN OR ADVANCE TO ONE OF ITS SHAREHOLDERS, IT WAS PLAIN THAT THE OBJECT OF S UCH A LOAN OR ADVANCE WAS TO EVADE THE PAYMENT OF TAX ON ACCUMULATED PROFITS UNDER SECTION 23A. IT WILL BE REMEMBERED THAT AN ADVANCE OR LOAN WHICH FALLS W ITHIN THE MISCHIEF OF ITA NO.447-450/BANG/10 PAGE 23 OF 30 THE IMPUGNED SECTION IS ADVANCE OR LOAN MADE BY A C OMPANY WHICH DOES NOT NORMALLY DEAL IN MONEY-LENDING, AND IT IS MADE WITH THE FULL KNOWLEDGE OF THE PROVISIONS CONTAINED IN THE IMPUGNED SECTION. T HE OBJECT OF KEEPING ACCUMULATED PROFITS WITHOUT DISTRIBUTING THEM OBVIO USLY IS TO TAKE THE BENEFIT OF THE LOWER RATE OF SUPER-TAX PRESCRIBED FOR COMPA NIES. 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 ACCUMULATED PROFITS WILL BE DEEMED TO HAVE BEEN DIS TRIBUTED AGAINST THEM. SIMILARLY, SECTION 12(1B) PROVIDES THAT IF A CONTRO LLED COMPANY ADOPTS THE DEVICE OF MAKING A LOAN OR ADVANCE TO ONE OF ITS SH AREHOLDERS SUCH SHAREHOLDERS WILL BE DEEMED TO HAVE RECEIVED THE SA ID AMOUNT OUT OF THE ACCUMULATED PROFITS AND WOULD BE LIABLE TO PAY TAX ON THE BASIS THAT HE HAS RECEIVED THE SAID LOAN BY WAY OF DIVIDEND. IT IS CL EAR THAT WHEN SUCH A DEVICE IS ADOPTED BY A CONTROLLED COMPANY, THE CONTROLLING GROUP CONSISTING OF SHAREHOLDERS HAVE DELIBERATELY, DECIDED TO ADOPT TH E DEVICE OF MAKING A LOAN OR ADVANCE. SUCH AN ARRANGEMENT IS INTENDED TO EVAD E THE APPLICATION OF SECTION 23A. THE LOAN MAY CARRY INTEREST AND THE SA ID INTEREST MAY BE 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 [19 89] 177 ITR 393 1 IN WHICH IT WAS HELD THAT BUSINESS TRANSACTIONS ARE OU TSIDE THE PURVIEW OF SECTION 2(22)(E) OF THE ACT. IN THE SAID CASE, THE COMPANY IN WHICH KAPADIA WAS HAVING SUBSTANTIAL INTEREST HAD PAID VARIOUS AM OUNT TO KAPADIA. THE TRIBUNAL HAD FOUND THAT KAPADIA HAD BUSINESS TRANSA CTIONS WITH THE COMPANY AND ON VERIFICATION OF THE ACCOUNTS, THE TR IBUNAL DELETED THE AMOUNTS WHICH WERE RELATING TO THE BUSINESS TRANSAC TIONS AND WHICH FINDING WAS UPHELD BY THE HIGH COURT. IN THE PRESENT CASE THE TRIBUNAL ON CONSIDER ING DECISIONS 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 ADVANCES, IT CAN BE HELD THAT SECTION 2(22)(E) CAN BE APPLIED TO LOANS OR ADVANCES SI MPLICITER AND NOT TO THOSE TRANSACTIONS CARRIED OUT IN COURSE OF BUSINESS AS S UCH. IN THE COURSE OF CARRYING ON BUSINESS TRANSACTION BETWEEN A COMPANY AND A STOCKHOLDER, THE COMPANY MAY BE REQUIRED TO GIVE ADVANCE IN MUTUAL I NTEREST. 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 FURTHER OBLIGATION BEHIND R ECEIVING SUCH ADVANCES, MAY BE TREATED IS DEEMED DIVIDEND, BUT IF IT IS O THERWISE, THE AMOUNT GIVEN CANNOT BE BRANDED AS ADVANCES WITHIN THE MEANING OF DEEMED DIVIDEND ITA NO.447-450/BANG/10 PAGE 24 OF 30 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 OF MONEY IS A SUBSTANTIA L PART OF THE BUSINESS OF THE COMPANY, ADVANCE IN THE ORDINARY COURSE OF CARR YING ON BUSINESS CANNOT BE CONSIDERED AS DIVIDEND WITHIN THE MEANING OF S ECTION 2(22)(E). BY GRANTING ADVANCE IF THE BUSINESS PURPOSE OF THE COM PANY IS SERVED AND WHICH IS NOT THE SUM, WHICH IT OTHERWISE WOULD HAVE DISTRIBUTED AS DIVIDEND, CANNOT BE BROUGHT WITHIN THE DEEMING PROVISION OF T REATING SUCH ADVANCE AS DEEMED DIVIDEND. WE AGREE WITH THE AFORESAID OBSERVATIONS. THE FIN DING OF FACTS, ARRIVED AT BY THE TRIBUNAL, IN THE PRESENT CASE, IS THAT THE TRANSACTION IN QUESTION WAS A BUSINESS TRANSACTION AND WHICH TRANS ACTION WOULD HAVE BENEFITED BOTH THE ASSESSEE-COMPANY AND M/S. PEE EM PRO EXPORTS PVT. LTD. IN FACT, AS STATED ABOVE, THE COUNSEL FOR THE APPEL LANT HAS CONCEDED THAT THE AMOUNT IS IN FACT NOT A LOAN BUT ONLY AN ADVANCE BE CAUSE THE AMOUNT PAID TO THE ASSESSEE-COMPANY WOULD BE ADJUSTED AGAINST THE ENTITLEMENT OF MONEYS OF THE ASSESSEE-COMPANY PAYABLE BY M/S. PEE EMPRO E XPORTS 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 T HAT 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 TO 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 O NLY IF THE LENDING OF MONEYS IS BY A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MONEY-LENDING. DILATING FURTHER THE COUNSEL FOR THE APPELLANT CONT ENDED THAT SINCE M/S. PEE EMPRO EXPORTS PVT. LTD. IS NOT INTO THE BUSINESS OF LENDING OF MONEY, THE PAYMENTS MADE BY IT TO THE ASSESSEE-COMPANY WOULD, THEREFORE, BE COVERED BY SECTION 2(22)(E)(II) AND CONSEQUENTLY PAYMENTS E VEN FOR THE BUSINESS TRANSACTIONS WOULD BE A DEEMED DIVIDEND. WE DO NOT AGREE. THE TRIBUNAL HAS DEALT WITH THIS ASPECT AS REPRODUCED IN PARA (9 ) ABOVE. THE PROVISION OF SECTION 2(22)(E)(II) IS BASICALLY IN THE NATURE OF AN EXPLANATION. THAT CANNOT, HOWEVER, 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 LOAN/ADVANCE WILL NOT BE TREAT ED AS A DEEMED DIVIDEND, BUT THAT IS ALL. THE SAME CANNOT BE EXPANDED FURTHE R TO TAKE AWAY THE BASIC MEANING, INTENT AND PURPORT OF THE MAIN PART OF SEC TION 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 THE JUDGMENT IN RAJ KUMARS CASE [200 9] 318 ITR 462 (DELHI); ITA NO.447-450/BANG/10 PAGE 25 OF 30 [2009] 181 TAXMAN 155. THIS COURT IN RAJ KUMARS C ASE (SUPRA) EXTENSIVELY REFERRED TO THE REPORT OF THE TAXATION ENQUIRY COMMISSION AND THE SPEECH OF THE FINANCE MINISTER IN THE BUDGET WH ILE INTRODUCING THE FINANCE BILL. ULTIMATELY, THIS COURT IN THE SAID JU DGMENT HELD AS UNDER (PAGE 473) : A BARE READING OF THE RECOMMENDATIONS OF THE COMM ISSION AND THE SPEECH OF THE THEN FINANCE MINISTER WOULD SHOW THAT THE PU RPOSE 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 . THEREFORE, IF THE SAID BACKGROUND IS KEPT IN MIND, IT IS CLEAR THAT SUB-CLAUSE (E) OF SECTION 2(22) OF THE ACT, WHICH IS PARIMATER IA WITH CLAUSE (E) OF SECTION 2(6A) OF THE 1922 ACT, PLAINLY SEEKS TO BRING WITHI N THE TAX NET ACCUMULATED PROFITS WHICH ARE DISTRIBUTED BY CLOSELY HELD COMPA NIES TO ITS SHAREHOLDERS IN THE FORM OF LOANS. THE PURPOSE BEING THAT PERSON S WHO MANAGE SUCH CLOSELY HELD COMPANIES SHOULD NOT ARRANGE THEIR AFF AIRS IN A MANNER THAT THEY ASSIST THE SHAREHOLDERS IN AVOIDING THE PAYMEN T OF TAXES BY HAVING THESE COMPANIES PAY OR DISTRIBUTE, WHAT WOULD LEGITIMATEL Y 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 THE WORD LOAN. USUALL Y ATTRIBUTES OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDING COUPLED WI TH 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, IN ITS WIDEST MEANING THE TERM ADVANCE MAY OR MAY NOT INCLUDE LENDING. THE WORD ADVANCE IF NOT FOUND IN THE COMPANY OF OR IN CONJUNCTION WITH A WORD LO AN MAY OR MAY NOT INCLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES THE N IT WOULD BE A LOAN. THUS, ARISES THE CONUNDRUM AS TO WHAT MEANING ONE WOULD A TTRIBUTE TO THE TERM ADVANCE. THE RULE OF CONSTRUCTION TO OUR MINDS WH ICH ANSWERS THIS CONUNDRUM IS NOSCITUR A SOCIIS. THE SALE 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 CONS TRUCTION TO CONSTRUE WORDS IN AN ACT OF PARLIAMENT WITH REFERENCE TO WORDS FOU ND IN IMMEDIATE CONNECTION WITH THEM AND OUR SUPREME COURT IN THE CASE OF ROHIT PULP AND PAPER MILLS LTD. V. COLLECTOR OF CENTRAL EXCISE, AI R 1991 SC 754 AND STATE OF BOMBAY V. HOSPITAL MAZDOOR SABHA, AIR 1960 SC 61 0. THEREFORE, WE HOLD THAT THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE AMOUNTS ADVANCED FOR BUSINESS TRANSACTION BETWEEN THE PARTI ES, NAMELY, THE ASSESSEE- COMPANY AND M/S. PEE EMPRO EXPORTS PVT. LTD. WAS NO T SUCH TO FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND UNDER SECTION 2(2 2)(E). THE PRESENT APPEAL IS, THEREFORE, DISMISSED. ITA NO.447-450/BANG/10 PAGE 26 OF 30 9.5. FURTHER, S. 2(22)(E) BRINGS IN A DEEMING FICT ION. 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 INFRASTRUCTURE PROJECTS HAVE SPRUNG UP AND MANY ARE IN THE PIPELINE. MULTI- ITA NO.447-450/BANG/10 PAGE 27 OF 30 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. 9.6. WITH A DILIGENT PERUSAL OF THE BRIEF NOTE - O N USAGE OF FUNDS TRANSFERRED FROM BDPL TO THE ASSESSEE FURNISHED B Y THE LD. AR DURING THE COURSE OF HEARING, THE FOLLOWING DETAILS HAVE B EEN CULLED OUT AND FOR THE APPRECIATION OF FACTS, THE RELEVANT FACTS OF WH ICH ARE AS UNDER: AY 2004-05: RS.79.80 LAKHS WERE RECEIVED FROM BDPL TO MAKE ADVANCES TO THE LAND OWNERS FOR THE PURPOSES OF DEV ELOPMENT OF TECH. PARK. AY 2005-06 & 06-07 : THE MANNER OF UTILIZATION OF FUNDS OF RS.2.76 CRORES RECEIVED FROM BDPL WERE FURNISHED AS UNDER: ITA NO.447-450/BANG/10 PAGE 28 OF 30 PURPOSE OF UTILIZATION AMOUNT(IN CRORES) STATUS ANNEXURE 1. PAID TO N.K. DEVELOPERS FOR PURCHASE OF CONCORD PROPERTY ADDL. ADVANCE PAID FOR PURCHASE OF SAID PROPERTY 2. PAID TO SUBRAMANYA NAGA ENTERPRISES FOR CHALMUKUNTE PROPERTY ADDL. ADVANCE PAID 3.ADV. PAID TO SAMPANGI ON BEHALF OF VEERAPPA AND TRANSFERRED TO BDPL IN AY 2010-11 AFTER CONVERSION 4. SETTLEMENT MADE TO BYANNA PROPERTY SY.NO.151 ADDL. CONSIDERATION 5. PURCHASE OF LAND FROM RAMAN NAIR, USHA SHIVKUMAR & REGN. EXPENSES 6. PD. TO FATHIMA RAFIQ & MD.RAFIQ FOR SETTLEMENT OF TENANCY SUIT - SY.NO.151 & REGN. EXPENSES 7. PD. TO KRISHNAKUMAR SY.NO.151 8. CASH IMPREST WITH LAND AGGREGATORS A.Y. 2007-08: 9. EMD PAID FOR PARTICIPATION IN AUCTION 10.ADV. FOR SY.NO.16 11.ADV. PAID TO AKKAMMA SY.NO.15/1 RS.1.00 RS.0.25 RS.1.60 RS.0.12 RS.0.10 RS.0.55 RS.0.30 RS.1.22 RS.0.11 RS.0.66 RS.0.69 RS.0.10 RS.0.05 RS.0.01 LAND IS UNDER DISPUTE AND IN THE PROCESS OF SETTLEMENT - DO - DO - DO REGD. IN THE NAME OF VEERAPPA REGD. IN THE NAME OF VEERAPPA IN THE PROCESS OF CONVERSION - DO LAND REGD. IN THE NAME OF ASSESSEE SALE DEED DT.26.8.2005 REGD. IN THE NAME OF VEERAPPA IN THE PROCESS OF CONVERSION RETURNED SUBSEQUENTLY BY THEM. RETURNED SUBSEQUENTLY REGD. IN AY 2010-11 AFTER CONVERSION IN THE PROCESS OF CONVERSION COMMERCIAL USE MOU/3.12.04 ANNX.V -DO- ANNEX.VII ANNEX.VI -DO ANNEX.X -DO ANNEX.XI -DO ANNEX.XIV -DO ANNEX.XII -DO ANNEX.XIII -DO ANNEX.XV -DOANNEX.XVII ITA NO.447-450/BANG/10 PAGE 29 OF 30 12.LAND ADV. TO JAYARAMMAPPA SY.NO.54 13. LAND ADV. TO YASHODHA SY.NO.17 14. PD. TO SURYA ENTERPRISES FOR FENCING THE PROPERTY RS.0.02 CRORE RS.0.25 CRORE RS.0.09 CRORE IN THE PROCESS OF CONVERSION COMMERCIAL USE IN THE PROCESS OF CONVERSION COMMERCIAL USE ANNEX.XIX ANNEX.XX 9.7. TAKING INTO ACCOUNT THE RIVAL SUBMISSIONS, FA CTS 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 YEARS UNDER DISPUTE. THE LD. CIT(A)S STAND IN UPHOLDING THE FINDINGS OF THE AO WAS ALSO NOT JUSTIFIABLE FOR THE REASONS RECORDED SUPRA . IT IS ORDERED ACCORDINGLY. 10. THE ISSUE OF APPLICABILITY OF S.2 (22)(E) OF T HE ACT IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE FOR THE REA SONS RECORDED IN THE FORE-GOING PARAGRAPHS, THE ASSESSEES OTHER GRIEVA NCE THAT THE CIT(A) ERRED IN NOT REDUCING THE ACTUAL TAX LIABILITY OF T HE RELEVANT CURRENT YEAR FROM THE PROFITS OF THAT YEAR FOR THE PURPOSES OF C OMPUTATION OF ACCUMULATED PROFITS HAS NOT BEEN ADDRESSED TO. ITA NO.447-450/BANG/10 PAGE 30 OF 30 11. 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. 12. IN THE RESULT , THE ASSESSEES APPEALS FOR THE ASSESSMENT YEARS 200 4- 05, 2005-06, 2006-07 & 2007-08 ARE 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