M/s Vaigai Investments Pvt. Ltd., Bangalore V. ACIT, Bangalore

ITA 453/BANG/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8683 (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; 250; 208; 192; 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 NO.453/BANG/2010 ASSESSMENT YEAR : 2006-07 M/S. VAIGAI INVESTMENTS 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 A GAINST THE ORDER OF THE LD. CIT (A)-VI, BANGALORE, IN ITA NO: 252 ACIT CC 2(3)/ CIT(A)-VI/2008-09 DATED: 2.2.2010 FOR THE ASSESSMEN T YEAR 2006-07. ITA NO.453/BANG/10 PAGE 2 OF 29 2. THE ASSESSEE COMPANY [THE ASSESSEE IN SHORT] HAS RAISED FIVE EXHAUSTIVE GROUNDS IN AN ILLUSTRATIVE AND NARR ATIVE MANNER. FOR THE SAKE OF CLARITY, THE ISSUES 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 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. 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), IT WAS CONTENDED BY THE LD. A R THAT THE PROVISIONS OF S.153C OF THE ACT WERE NOT ATTRACTED TO THE ASSESSEE SINCE NOTHING INCRIMINATING RELATING T O THE ASSESSEE HAVE BEEN FOUND AT THE TIME OF SEARCH, THAT ONLY THE REG ULAR BOOKS OF ACCOUNTS WERE FOUND AND SEIZED DURING THE COURSE OF SEARCH A ND, THEREFORE, THE AO OUGHT NOT TO HAVE PROCEEDED TO INVOKE THE PROVISION S OF S.153C OF THE ACT AND THAT THE LD. CIT (A) HAD GROSSLY ERRED IN OUT-R IGHTLY REJECTING THE CASE LAWS ON WHICH THE ASSESSEE HAD PLACED STRONG RELIAN CE. IT WAS, THEREFORE, PLEADED THAT THE ORDER OF AO WAS OPPOSED TO LAW WHICH REQUIRES TO BE SUMMARILY ANNULLED. ITA NO.453/BANG/10 PAGE 3 OF 29 4. THE LD. D R WAS VEHEMENT IN HER SUBMISSION THAT THE AO WAS WITHIN HIS DOMAIN TO INVOKE THE PROVISIONS OF S .153C OF THE ACT WHICH HAS BEEN JUDICIOUSLY RATIFIED BY THE LD. CIT (A) AN D, THUS, IT WAS SUBMITTED, THE ASSESSEE 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 BLOCK ASSESS MENT (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 BAGMANE DEVELOPERS PVT. LTD. ON 14.9.2006 WHEREIN C ERTAIN DOCUMENTS BELONGING TO ITS GROUPS WERE UNEARTHED. CONSEQUENT LY, A NOTICE U/S 153A R.W.S.153C OF THE ACT WAS ISSUED BY INVOKING THE PR OVISIONS OF S.153C OF THE ACT. THIS ACTION OF THE AO HAS BEEN HOTLY CONT ESTED BY THE ASSESSEE. 5.1. 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. ITA NO.453/BANG/10 PAGE 4 OF 29 5.2. 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 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 REALM TO RESORT TO ISSUE OF NOTICE U/S 153C OF THE ACT AND, ACCORDINGLY, THE ASSESSEES OBJECTION IS NOT SUSTAINABLE AND, ACCORDINGLY, DISMISSED. 6. WITH REGARD TO THE ASSESSEES GRIEVANCE IN APPL YING THE PROVISIONS OF S.2 (22) (E) OF THE ACT BY THE AO AND TREATING THE AMOUNTS RECEIVED UNDER CONTRACTUAL TERMS AS LOANS FOR THE AY 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 ITA NO.453/BANG/10 PAGE 5 OF 29 SHARES HOLDING OF 99% SHARES IN THE CASE OF BDPL W AS ALSO HOLDING SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY IN TER MS 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 50% OF EQUITY SHARES IN THE COMPANY. ACCORDING TO THE AO, BDPL WHO WAS HAVING ACCUMULATED PROFITS IN THE AY HAD SHOWN UNSECURED LOANS IN ITS BOOKS OF ACCOUNT IN THE NAME OF THE ASSESSEE FOR THE AY UNDER DISPUTE AND, THUS, TREATED THE UNSECURED LOANS SHOWN BY BDPL TO THE EXTENT OF ACCUMULATED PR OFITS 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. 6.1. ACCORDINGLY, THE AO HAD, AFTER REJECTING THE CONTENTIONS PUT FORTH BY THE ASSESSEE DURING THE COURSE OF ASSESSME NT PROCEEDINGS, ASSESSED RS.1 LAKH FOR THE ASSESSMENT YEAR UNDER DI SPUTE IN THE HANDS OF THE ASSESSEE. 6.2. 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) ITA NO.453/BANG/10 PAGE 6 OF 29 OPINED THAT THE CONCLUSION DRAWN BY THE AO WAS LOGI CAL, CONSIDERING THE 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 FURTHER TO UPHOLD THE STAND OF THE AO IN INVOKING THE PROVISIO NS OF S.2 (22)(E) OF THE ACT ON THE GROUND THAT THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE TO PROV E THAT THE ADVANCES GIVEN WERE FOR THE PURPOSE OF THE BUSINESS OF BDPL. 6.3. 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. 7. DISHEARTENED WITH THE FINDINGS OF THE LD. CIT ( A) CITED SUPRA, THE ASSESSEE HAS COME UP WITH THE PRESENT APPEAL. 7.1. DURING THE COURSE OF HEARING, THE STAND OF TH E AUTHORITIES BELOW WAS VEHEMENTLY CONTESTED BY THE LD. AR WITH H IS 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 FOR ALLOTMENT OF BUILT-UP AREA IN THE BUILDINGS WHICH THEY DEVELOP; - THE SISTER CONCERNS WERE NOTHING BUT THE SPECIAL PURPOSE VEHICLES [SPV] FORMED BY THE PROMOTERS TO ARRANGE FUNDS FOR DIFFER ENT PROJECTS BEING EXECUTED BY THEM. EQUITY PARTNERS LOOK OR PROJECT SPECIFIC SPV TO INVEST AS THEY WOULD NOT GENERALLY INVEST IN HOLDING COMPA NY FOR OBVIOUS REASONS BECAUSE OF EXISTING LOAN COMMITMENTS, TAX DUES ARIS ING OUT OF PAST ITA NO.453/BANG/10 PAGE 7 OF 29 TRANSACTIONS, PENDING LEGAL ISSUES ETC. THE BANKS A LSO HAVE PER COMPANY EXPOSURE TO FUND THEIR PROJECTS. BY CREATING MORE COMPANIES, PROMOTERS WILL BE IN A POSITION TO RAISE MORE FUNDS FROM BANK S. THIS COMMERCIAL FITNESS AND BUSINESS EXIGENCY HAD PROMOTED THE ASSE SSEE TO CREATE MORE COMPANIES; - THE MOMENT BDPL DECIDED TO ALLOCATE FUNDS, IT E NTERED INTO AN AGREEMENT WITH THE ASSESSEE WHEREIN THE PURPOSE INT ENDED AND THE TERMS AND CONDITIONS HAVE BEEN IMPLICITLY EARMARKED; - BDPL ENTERED INTO AN AGREEMENT WITH THE ASSESSEE AND ALLOCATED FUNDS WHICH HAD ACTUALLY BEEN UTILIZED BY THE ASSESSEE FO R THE INTENDED PURPOSE. HOWEVER, THE AO TREATED THE SAME AS NOT RELATING TO BUSINESS. BDPL HAD, IN FACT, FUNDED THE AMOUNTS AT ARMS LENGTH BASIS WI TH AN INTENTION TO MAKE OR EARN PROFITS FROM SUCH VEN TURE AND ON A COMMERCIAL UNDERSTANDING. - THIS COMMERCIAL UNDERSTANDING HAS BEEN ENACTED DURING THE COURSE OF BUSINESS AND FOR THE PURPOSES OF BUSINESS ALONE WHI CH WAS WELL OUTSIDE THE AMBIT OF DEEMED DIVIDEND; - 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 IT R 261 (SC) - THE AOS REASON FOR REJECTING THE AGREEMENT WAS THAT IT WAS NOT FOUND AT THE TIME OF SEARCH. IT WAS NOT AS IF THE SEARCH PA RTY EXPECTED TO RECORD/SEIZE EVERY PAPER ON WHICH IT LAYS ITS HANDS . THIS AGREEMENT WAS KEPT ALONG WITH THE OTHER ORIGINAL BELONGINGS OF TH E ASSESSEE AND THE SEARCHING PARTYS REASONING IN NOT SEIZING THIS AG REEMENT CANNOT NOW BE SPECULATED; AND THE WORST, THE ASSESSEE CANNOT BE FOUND FAULT WITH EITHER; - JUST BECAUSE THE SAID DOCUMENT WAS NOT SEIZED BY THE SEARCH PARTY, IT DOESNT MEAN TO CONCLUDE THAT THE DOCUMENT DID NOT EXIST AT ALL. THE AO HAD NOT PROVED WITH ANY DOCUMENTARY EVIDENCE EXCEPT ALLEGING THAT THE DOCUMENT WAS NOT GENUINE; - NO AGREEMENT NEEDS TO BE REDUCED IN WRITING AND I T 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, THE AGREEMENT WAS REDUCED IN WRITING ON STAMP PAPERS, JUST BECAUSE IT WAS NOT REGISTERED, THERE CAN BE NO REAS ON TO REJECT IT; ITA NO.453/BANG/10 PAGE 8 OF 29 - THE OTHER REASONING OF THE AO WAS THAT AS PER SP ECIFIC 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 WAS A VAILABLE UNDER SRA, THE AGGRIEVED PARTY CAN HAVE RECOURSE TO NORMAL PRO VISIONS OF THE CIVIL PROCEDURE CODE; - 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 IN LAND AND WOULD LIKE TO C ONSERVE THE RESOURCES AND, THUS, DISTRIBUTION OF DIVIDENDS WOULD BE ITS L AST PRIORITY, 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 APPLICABLE FOR THE REASONS THAT (A) ACIT V. SMT. LAKSHMI KUTTI NARAY ANAN 112 TTJ 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, DELHI BENCH) & (E) SEASMIST PROPERTIES PVT. LTD. 1 SOT 142 (MUM) 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) ITA NO.453/BANG/10 PAGE 9 OF 29 - MERELY BECAUSE THE SUM WAS SHOWN AS UNSECURED LOA N 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 THE 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 IN THE HANDS OF A SHARE HOLDER HAVING SUBSTANTIAL INTEREST IN THE LENDING C OMPANY. THE ASSESSEE WAS NOT A SHAREHOLDER IN BDPL FROM WHOM THE 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 AMO UNTS RECEIVED BY THE ASSESSEE DURING THE WHOLE FINANCIAL YEAR FROM BDPL 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); 7.2. ON THE OTHER HAND, THE LD. D.RS URGE WAS REV OLVED AROUND TO THE FACT THAT THE ISSUE IN DISPUTE HAS EXTENSIVELY BEEN ANALYZED BY THE AO AND ALSO DRAWING STRENGTH FROM VARIOUS JUDICIAL PRO NOUNCEMENTS ARRIVED AT ITA NO.453/BANG/10 PAGE 10 OF 29 A CONCLUSION THAT THE ENTIRE AMOUNTS RECEIVED FROM BDPL AS LOAN FOR THE AY UNDER CHALLENGE AND WAS RIGHTLY TREATED THEM AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE BY BRINGING IT TO TAX NET UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LEARNED FIRST APPELLATE A UTHORITY 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. 8. 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. 8.1. ON A CRITICAL 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 BE CATEGORIZED AS UNDER: - THE ASSESSEE IN ITS BALANCE SHEET HAD REFLECTED A LIABILITY OF RS.1,25,000/- TO BDPL IN SCHEDULE 2 HAD SHOWN THOSE AMOUNTS UNDER THE HEAD UNSECURED LOANS; - THE DETAILS SHOW THAT THE LIABILITIES HAVE BEEN RAISED OF CERTAIN PAYMENTS MADE BY BDPL ON BEHALF OF THE ASSESSEE AND, THUS, T HEY WERE IN THE NATURE OF LOANS AND ADVANCES; - THE ASSESSEE HAD FAILED TO SUBSTANTIATE ITS CLAIM THAT THE FUNDS WERE RECEIVED FROM BDPL FOR BUSINESS EXPEDIENCY AND WER E IN THE NATURE OF CONTRACTUAL PAYMENTS; ITA NO.453/BANG/10 PAGE 11 OF 29 - THE AGREEMENT PRODUCED TO SUBSTANTIATE ITS CLAIM THAT THE FUNDS WERE FLOWN FROM BDPL FOR BUSINESS EXIGENCIES AND WERE IN THE N ATURE OF CONTRACTUAL PAYMENTS APPEARS TO BE AN AFTER THOUGHT SINCE IT WA S NOT IN EXISTENCE AT THE TIME OF SEARCH OPERATION; - THE EVIDENCE PRODUCED IN THE FORM OF AN AGREEMENT SIGNED BY RAJA BAGMANE AND HIS WIFE SMT VASUNDHARA RAJA WAS TO BE AN AFTER THOUGHT TO GO SCOT-FREE; THAT THE JOURNAL ENTRIES PASSED IN TH E CASE OF BDPL RESULTED INTO THE PERSONAL BENEFIT TO THE ASSESSEE; -BDPL WH O ADVANCED THE LOAN TO THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF MON EY LENDING AND, THEREFORE, THE LOAN GIVEN TO THE ASSESSEE COMES UND ER THE PURVIEW OF S.2 (22)(E) OF THE ACT. 8.2. THE REASONING OF THE LD. CIT (A) WAS THAT - EXCEPT THE ALLEGED AGREEMENT, NO OTHER EVIDENCE W AS ADVANCED TO PROVE THAT THE ADVANCES GIVEN WERE FOR THE PURPOSE OF T HE BUSINESS OF BDPL;& - THE CASE LAWS RELIED ON BY THE ASSESSEE HAS NOT C OME TO ITS RESCUE AS THEY WERE DISTINGUISHABLE. 8.3. 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 C OMPANY GOVERNED BY THE BOARD OF DIRECTORS - WERE IN THE BUSINESSES OF (I) REAL ESTATE OF ACQUIRING LANDS AND DEVELOPING THEM INTO BUILDINGS AND (II) TO DEVELOP AND SELL THE SPACE ETC. RESPECTIVELY. SINCE BOTH THE PARTIES WERE IN THE SAME LINE OF BUSINESS REAL ESTATE AND DEVELOPING OF T ECH. PARK - THEY HAVE ENTERED INTO NEGOTIATIONS AND SCRIPTED THE TERMS AN D CONDITIONS WHICH WERE REDUCED THROUGH AN AGREEMENT DATED: 24.12.2003 [SO URCE: P 194 OF PB AR], ACCORDING TO WHICH, FOR PROCUREMENT OF LANDS A ND DEVELOPMENT OF THE SAME INTO COMMERCIAL USE WAS TO BE EXECUTED BY THE ASSESSEE FOR WHICH NECESSARY FUNDS WERE PROVIDED TO THE ASSESSEE UNTIL SUCH A TIME BDPL HAD ARRANGED FINANCE FOR ITS PROJECTS FROM OTHER S OURCES SUCH AS BANKS ITA NO.453/BANG/10 PAGE 12 OF 29 ETC.,. THE RELEVANT CLAUSES 10 AND 11 OF THE SAID A GREEMENT ARE REPRODUCED, FOR APPRECIATION OF FACTS, AS UNDER: 10. THE SECOND PARTY SHALL ADVANCE FUNDS TO THE FI RST PARTY FROM TIME TO TIME FOR ACQUIRING THE PROPERTIES AND SHALL FINANCE THE CONSTRUCTION TILL SUCH TIME THE FIRST PARTY IS ABLE TO SECURE FINANCE FROM THE BANKS FOR THE PROJECT OR FIND AN INVESTOR FOR THE PROJECT. 11. ON COMPLETION OF THE CONSTRUCTION ON THE PROPE RTIES ACQUIRED, THE FIRST PARTY SHALL ASSIGN THE AREA ON THE BASIS OF COST + 5% MARGIN TO THE SECOND PARTY FOR THE AMOUNTS PAID BY THE SECOND PARTY TO T HE FIRST PARTY PURSUANT TO THE ABOVE ARRANGEMENT ENTERED. THE ALLOTMENT OF SP ACE IS IRREVOCABLE. IN THIS CONNECTION, THE FIRST PARTY SHALL IN CLOSE CO- ORDINATION WITH THE SECOND PARTY FREEZE THE COST OF PROJECT PER SQ. FEET AND S HALL ALLOW THE REPRESENTATIVES OF THE SECOND PARTY FOR PERIODICAL ACCESS TO ITS ACCOUNTS. AS COULD BE SEEN FROM THE AGREEMENT CITED SUPRA, THE PURPOSE INTENDED AND THE TERMS AND CONDITIONS HAVE BEEN DUL Y EARMARKED. THIS HAS NEITHER BEEN DISPUTED BY THE AO NOR THE FIRST A PPELLATE AUTHORITY. THE AOS SOLE OBJECTION WAS THAT SUCH AMOUNTS HAVE BEEN SHOWN UNDER THE HEAD LIABILITY IN ITS BALANCE SHEET. IN THIS CON NECTION, WE WOULD LIKE TO POINT OUT THAT THE FUNDS FLOWN THROUGH FROM BDPL TO THE ASSESSEE COMPANY HAVE NOT BEEN DISPUTED, BUT, THE DISPUTE REVOLVED O NLY WITH REGARD TO THE NOMENCLATURE IN THE BALANCE SHEET OF THE ASSESSEE . IN THE BALANCE- SHEET, THE FUNDS RECEIVED COULD HAVE BEEN SHOWN INA DVERTENTLY AS UNSECURED LOANS OR ADVANCES BY THE PERSON WHO W AS 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 CATEGO RIZE THAT THE FUNDS WERE UNSECURED LOANS AND, THUS, THE PROVISIONS OF S.2 (22)(E) OF THE ACT HAVE COME TO PLAY A ROLE. IT COULD BE SEEN THAT THE FUN DS HAVE BEEN PROVIDED ITA NO.453/BANG/10 PAGE 13 OF 29 WITH AN INTENTION TO INDULGE IN SUCH A VENTURE DURI NG THE COURSE OF BUSINESS EXPEDIENCY AS EVIDENCED IN THE AGREEMENT ENTERED IN TO CITED SUPRA. (2) 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 WID E IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INC URRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINESS EXP ENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY..T HAT THE BORROWED AMOUNT IS NOT UTILIZED BY THE ASSESSEE IN ITS OWN BUSINESS BUT HAD BEEN ADVANCED AS INTEREST FREE LOAN TO ITS SISTER C ONCERN IS NOT RELEVANT. WHAT IS RELEVANT IS WHETHER THE AMOUNT WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. WITH WARM REGARDS, WE WOULD LIKE TO POINT OUT THAT THE ASSESSEE HAD RECEIVED FUNDS AS A MEASURE OF COMMERCIAL EXPED IENCY OF THIS VENTURE WHICH, IN ANY STRETCH OF IMAGINATION, CAN BE TERMED AS EITHER ADVANCE OR LOAN AS ALLEGED BY THE REVENUE. WHILE DECIDING TH E ISSUE IN THE CASE OF S.A. BUILDERS CITED SUPRA, THE HONBLE SUPREME COUR T HAD PUTS ITS SEAL OF APPROVAL TO THE RATIO LAID DOWN BY THE HONBLE DELH I HIGH COURT IN THE CASE OF CIT V. DALMIA CEMENT REPORTED IN 254 ITR 377 (DE L) WHEREIN THE HONBLE COURT HELD THAT THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM T HEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALREAD Y STATED ABOVE, WE HAVE TO SEE THE TRANSFER OF THE BORROWED FUNDS TO A SIST ER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE P OINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. ITA NO.453/BANG/10 PAGE 14 OF 29 (3) THE AOS ANOTHER CONTENTION WAS THAT THE ASSESSE E 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-SHEET, JOURNA L ENTRIES IN THE BOOKS OF ACCOUNT AMPLY MAKE IT CLEAR THAT THE FUNDS WERE PRO VIDED DURING THE COURSE OF BUSINESS. (4) THE OTHER REASONING OF THE AO WHICH WAS RATIFI ED BY THE LEARNED FIRST APPELLATE AUTHORITY THAT THE ALLEGED NON-REGISTERED AGREEMENT WAS PRODUCED BEFORE THE AO ONLY ON 15.12.2008 WHICH WAS NOTHING BUT AN AFTER THOUGHT AND SO ON AND SO FORTH. IT MAY NOT BE OUT PLACE TO BRING ON RECORD THAT THE ASSESSEE HAD IN FACT PRODUCED THE EVIDENCE IN THE MIDST OF ASSESSME NT PROCEEDINGS AND, THUS, THIS COULD NOT BE A SOUND REASON TO PUT THE V ERY EXISTENCE OF THE AGREEMENT ITSELF UNDER THE SCANNER. (5) IN A NUT-SHELL, THE AUTHORITIES BELOW HAVE FA ILED TO BRING ON RECORD ANY CREDIBLE DOCUMENTARY EVIDENCE TO NAIL THE ACTION O F THE ASSESSEE WAS NOTHING BUT AN AFTER THOUGHT AND THAT THE DOCUMENT ITSELF WAS SELF SERVING ETC., MERELY MAKING A SWEEPING REMARK ON THE GENU INENESS OF THE VERY EXISTENCE OF AN AGREEMENT WITHOUT AN INDISPUTABLE D OCUMENTARY EVIDENCE, IN OUR VIEW, IS LACKING CONVICTION. (6) THE OTHER REASONING OF THE AO WAS THAT BDPL WHO 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 ITA NO.453/BANG/10 PAGE 15 OF 29 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. (7) WE ARE IN TOTAL DISAGREEMENT WITH THE LD. CIT ( 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 APPLICA BLE. NO DOUBT, THE ISSUE WAS WHETHER INTEREST ON BORROWED CAPITAL ALLOWABLE OR NOT. HOWEVER, THE LD. CIT (A) HAD FAILED TO NOTICE, PERHAPS BY OVERSI GHT, THE CONCEPT AND THE RATIO LAID DOWN BY THE HONBLE COURT WHILE DECIDING THE ISSUE. FOR THE SAKE OF READY REFERENCE, WE REPRODUCE THE RELEVANT PORTI ON OF THE RULING OF THE HONBLE COURT THAT IT WAS REQUIRED TO BE ENQUIRED AS TO WHETHER THE INTEREST-FREE LOAN WAS GIVEN TO THE SISTER CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY. IF IT IS SO, INTEREST ON BO RROWED FUNDS IS TO BE ALLOWED IT, FURTHER, WENT ON TO OBSERVE THAT THE AUTHORITIES SHOULD EXAMINE THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MONEY TO ITS SISTER CONCERN AND WHAT THE SISTER CONCERN DID WITH THIS M ONEY IN ORDER TO DECIDE WHETHER IT WAS FOR COMMERCIAL EXPEDIENCY. THUS, THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE CITED SUPRA I S FIT IN TO THE ISSUE ON HAND. ONE SHOULD ANALYZE THE ISSUE, KEEPING IN VI EW THE PROCEDURE LAID DOWN BY THE HONBLE SUPREME COURT, WHETHER THE FUND S RECEIVED WAS DURING THE COURSE OF BUSINESS OR OTHERWISE. AS THE TRANSACTION TOOK PLACE ITA NO.453/BANG/10 PAGE 16 OF 29 DURING THE COURSE OF BUSINESS AND IN THE BUSINESS E XIGENCY, WE ARE OF THE FIRM VIEW THAT THE RATIO LAID DOWN BY THE HONBLE S UPREME COURT IN THE CASE OF S.A. BUILDERS CITED SUPRA IS ABSOLUTELY APPLICAB LE TO THE FACTS OF THE ISSUE ON HAND. (8) THE AO HAD PLACED RELIANCE ON THE RULING OF THE HONBLE APEX COURT IN THE CASE OF CIT V. MYSODET (P) LTD. (1999) 237 ITR 35 (SC) TO DRIVE HOME HIS POINT. WE HAVE DILIGENTLY PERUSED THE OBSERVAT ION OF THE HONBLE COURT WHEREIN IT WAS RULED THAT A PERUSAL OF SECTION 2(22)(E) SHOWS THAT FOR THE PURPOSE OF THE ACT, ANY PAYMENT MADE BY A COMPANY O F ANY SUM OF MONEY BY WAY OF ADVANCE OR LOAN TO ITS SHAREHOLDERS IS DEEME D TO BE A DIVIDEND. SINCE THE ACT HAS NOT PROVIDED FOR ANY OTHER DEFINI TION OF THE WORD DIVIDEND 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 THE HONBLE COURT HAD OBSERVED ON A PERUSAL OF S.2 (22)(E ) THAT ANY PAYMENT MADE BY A COMPANY OF ANY SUM OF MONEY BY WAY OF ADVANCE OR LO AN 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 W ERE IN THE NORMAL COURSE OF BUSINESS AND FOR THE BUSINESS EXIGENCY AN D, THEREFORE, IT CANNOT BE TERMED AS ADVANCE OR LOAN SO AS TO INVOKE THE PROVISIONS OF S.2 (22)(E) OF THE ACT. WITH DUE REGARDS, WE REITERATE THAT TH E FINDING OF THE HONBLE ITA NO.453/BANG/10 PAGE 17 OF 29 SUPREME COURT REFERRED SUPRA HAS NO APPLICATION TO THE FACTS OF THE ISSUE ON HAND. (9) 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. (10) 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 FOR THE YEAR 1973-74 ? AFTER DUE CONSIDERATION OF THE FACTS OF THE CASE, THE HONBLE COURT WAS PLEASE D TO RULE THAT THE WITHDRAWALS MADE BY THE APPELLANT FROM THE COMPANY AMOUNTED TO GRANT OF LOAN OR ADVANCE BY THE COMPANY TO THE SHAREHOLDER. THE LEGAL FICTION CAME INTO PLAY AS SOON AS THE MONIES WERE PAID BY THE CO MPANY TO THE APPELLANT. THE ASSESSEE MUST BE DEEMED TO HAVE RECEIVED DIVIDE NDS ON THE DATES ON WHICH SHE WITHDREW THE AFORESAID AMOUNTS OF MONEY F ROM THE COMPANY. THE LOAN OR ADVANCE TAKEN FROM THE COMPANY MAY HAVE BEE N ULTIMATELY REPAID OR ADJUSTED, BUT THAT WILL NOT ALTER THE FACT THAT THE ASSESSEE, IN THE EYE OF LAW, HAD RECEIVED DIVIDEND FROM THE COMPANY DURING THE R ELEVANT 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 ITA NO.453/BANG/10 PAGE 18 OF 29 ANY LOAN OR ADVANCE FOR ITS OWN BENEFIT, BUT, THE FUNDS WERE PROVIDED F OR THE EXECUTION SPECIFIC PURPOSE ON BEHALF OF BDPL. THUS , IN OUR CONSIDERED VIEW, THE CASE LAW CITED BY THE AUTHORITIES BELOW I S DISTINGUISHABLE WITH DUE RESPECTS, WE WOULD LIKE TO MAKE IT CLEAR THAT N ONE OF THE THREE CONDITIONS PRESCRIBED BY THE HONBLE COURT ARE APPL ICABLE 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 OF WORK ASSIGNED TO THE ASSESSEE ON ITS BEHALF; (2) NO PAYMENTS WERE MADE ON ITS BEHALF; AND (3) PAYMENTS MADE WERE NOT FOR ANYBODY S INDIVIDUAL BENEFIT . THE PAYMENTS IN QUESTION WERE PROVIDED DUE TO BUSIN ESS EXIGENCIES OF BDPL AND THE FUNDS SO PROVIDED FOR THE SOLE BENEFIT OF BDPL AND NOT TO INDIVIDUAL BENEFIT OF A SHAREHOLDER AND, THEREFORE, THE QUESTION OF APPLICABILITY OF THE PROVISIONS OF S.2 (22)(E) OF T HE ACT DOESNT ARISE. 8.4. WE ARE, THEREFORE, OF THE CONSIDERED VIEW THA T THE CASE LAWS RELIED ON BY THE AUTHORITIES HAS NO RELEVANCE TO TH E PRESENT ISSUE. 8.5. THE HONBLE DELHI HIGH COURT IN ITS R ECENT 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 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 ITA NO.453/BANG/10 PAGE 19 OF 29 PER SE WITHOUT ANY FURTHER OBLIGATION BEHIND RECEIV ING 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 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 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 [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 : ITA NO.453/BANG/10 PAGE 20 OF 29 7.5 IN THE PRESENT CASE THE AMOUNT PAID BY M/S. PE E EMPRO EXPORTS TO THE APPELLANT-COMPANY DOES NOT BEAR THE CHARACTE RISTIC OF LOANS AND ADVANCES. THE AMOUNT HAS BEEN PAID BY M/S. PEE EMPR O EXPORTS IN ITS OWN INTEREST AND THAT TOO FOR THE PURPOSE OF BUSINESS B ECAUSE THE ULTIMATE BENEFICIARY OF THE PROPOSED EXPANSION OF PLANT AND MACHINERY IS M/S. PEE EMPRO EXPORTS ITSELF. M/S. PEE EMPRO EXPORTS HAS NO T MADE THE PAYMENT TO THE APPELLANT-COMPANY FOR THE INDIVIDUAL BENEFIT OF MR. R.S. UPPAL AND MR. P.M.S. UPPAL AND ON THE CONTRARY THESE TWO DIRECTOR S HAVE ALSO PROVIDED FUNDS TO THE APPELLANT-COMPANY AS OWNERS OF THE COM PANY 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 EXPOR TS. IF THE ASSESSEE HAS NOT UNDERTAKEN SUCH EXPANSION, NO ADVANCE COULD HAV E BEEN MADE TO IT OR THAT PEE EMPRO EXPORTS WOULD NOT HAVE DISTRIBUTED A S DIVIDEND 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 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, 19 22 I.E., SECTION 2(6A)(E) ITA NO.453/BANG/10 PAGE 21 OF 29 WAS IN ISSUE BY REPRODUCING THE RELEVANT PARA IN NA VNIT 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 T HE IMPUGNED SECTION APPLIES ARE COMPANIES IN WHICH AT LEAST 75 PER CENT OF THE VOTING POWER LIES IN THE HANDS OF OTHER THAN THE PUBLIC, AND THAT MEA NS THAT THE COMPANIES ARE CONTROLLED BY A GROUP OF PERSONS ALLIED TOGETHER AN D HAVING THE SAME INTEREST. IN THE CASE OF SUCH COMPANIES, THE CONTRO LLING GROUP CAN DO WHAT IT LIKES WITH THE MANAGEMENT OF THE COMPANY, ITS AFFAI RS AND ITS PROFITS WITHIN THE LIMITS OF THE COMPANIES ACT. IT IS FOR THIS GRO UP TO DETERMINE WHETHER THE PROFITS MADE BY THE COMPANY SHOULD BE DISTRIBUTED A S DIVIDENDS OR NOT. THE DECLARATION OF DIVIDEND IS ENTIRELY WITHIN THE DISC RETION OF THIS GROUP. WHEN THE LEGISLATURE REALIZED THAT THOUGH MONEY WAS REAS ONABLY 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 ACCUMULATE D 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 THE PAYMENT OF TAX ON ACCUMULATED PROFITS UNDER SECTION 23A. IT WILL BE REMEMBERED THAT AN AD VANCE OR LOAN WHICH FALLS WITHIN THE MISCHIEF OF THE IMPUGNED SECTION I S ADVANCE OR LOAN MADE BY A COMPANY WHICH DOES NOT NORMALLY DEAL IN MONEY-LEN DING, AND IT IS MADE WITH THE FULL KNOWLEDGE OF THE PROVISIONS CONTAINED IN THE IMPUGNED SECTION. THE OBJECT OF KEEPING ACCUMULATED PROFITS WITHOUT D ISTRIBUTING THEM OBVIOUSLY IS TO TAKE THE BENEFIT OF THE LOWER RATE OF SUPER-TAX PRESCRIBED FOR COMPANIES. THIS OBJECT WAS DEFEATED BY SECTION 23A WHICH PROVIDES THAT IN THE CASE OF UNDISTRIBUTED PROFITS, TAX WOULD BE LEV IED ON THE SHAREHOLDERS ON THE BASIS THAT THE ACCUMULATED PROFITS WILL BE DEEM ED TO HAVE BEEN DISTRIBUTED AGAINST THEM. SIMILARLY, SECTION 12(1B) PROVIDES THAT IF A CONTROLLED COMPANY ADOPTS THE DEVICE OF MAKING A LO AN OR ADVANCE TO ONE OF ITS SHAREHOLDERS SUCH SHAREHOLDERS WILL BE DEEMED T O HAVE RECEIVED THE SAID AMOUNT OUT OF THE ACCUMULATED PROFITS AND WOULD BE LIABLE TO PAY TAX ON THE ITA NO.453/BANG/10 PAGE 22 OF 29 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 COMPA NY, THE CONTROLLING GROUP CONSISTING OF SHAREHOLDERS HAVE DELIBERATELY, DECIDED TO ADOPT THE DEVICE OF MAKING A LOAN OR ADVANCE. SUCH AN ARRANGE MENT IS INTENDED TO EVADE THE APPLICATION OF SECTION 23A. THE LOAN MAY CARRY INTEREST AND THE SAID INTEREST MAY BE RECEIVED BY THE COMPANY; BUT T HE MAIN OBJECT UNDERLYING 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 TRIBUNAL D ELETED THE AMOUNTS WHICH WERE RELATING TO THE BUSINESS TRANSACTIONS AND WHIC H 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 UNDER SECTION 2(22)(E). JUST AS PER CLAUSE (II) OF SECTION 2(22)(E), DIVIDEND IS ITA NO.453/BANG/10 PAGE 23 OF 29 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 FINDI NG 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 ITA NO.453/BANG/10 PAGE 24 OF 29 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 SECT ION 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 WITH T HE LEGISLATIVE INTENTION OF INTRODUCING SECTION 2(22)(E) AND WHICH HAS BEEN EXT ENSIVELY DEALT WITH BY THIS COURT IN THE JUDGMENT IN RAJ KUMARS CASE [200 9] 318 ITR 462 (DELHI); [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 PURPOSE OF INSERTION OF CLAUSE (E) TO SECTION 2(6A) IN THE 192 2 ACT WAS TO BRING WITHIN THE TAX NET MONIES PAID BY CLOSELY HELD COMPANIES T O THEIR PRINCIPAL 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 PA RIMATERIA WITH CLAUSE (E) OF SECTION 2(6A) OF THE 1922 ACT, PLAINLY SEEKS TO BRI NG WITHIN THE TAX NET ACCUMULATED PROFITS WHICH ARE DISTRIBUTED BY CLOSEL Y HELD COMPANIES TO ITS SHAREHOLDERS IN THE FORM OF LOANS. THE PURPOSE BEIN G THAT PERSONS WHO MANAGE SUCH CLOSELY HELD COMPANIES SHOULD NOT ARRAN GE THEIR AFFAIRS IN A MANNER THAT THEY ASSIST THE SHAREHOLDERS IN AVOIDIN G THE PAYMENT OF TAXES BY HAVING THESE COMPANIES PAY OR DISTRIBUTE, WHAT WOUL D LEGITIMATELY BE ITA NO.453/BANG/10 PAGE 25 OF 29 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. USUALLY ATTRIBUTES OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDING C OUPLED WITH ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN: IT GENERALLY C ARRIES AN INTEREST AND THERE IS AN OBLIGATION OF REPAYMENT. ON THE OTHER HAND, I N ITS WIDEST MEANING THE TERM ADVANCE MAY OR MAY NOT INCLUDE LENDING. THE WORD ADVANCE IF NOT FOUND IN THE COMPANY OF OR IN CONJUNCTION WITH A WO RD LOAN MAY OR MAY NOT INCLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES THEN IT WOULD BE A LOAN. THUS, ARISES THE CONUNDRUM AS TO WHAT MEANING ONE W OULD ATTRIBUTE TO THE TERM ADVANCE. THE RULE OF CONSTRUCTION TO OUR MIN DS WHICH 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. GEO RGE DAY [1879] 5 AC 63 BY OBSERVING IT IS A LEGITIMATE RULE OF CONSTRU CTION TO CONSTRUE WORDS IN AN ACT OF PARLIAMENT WITH REFERENCE TO WORDS FOUND IN IMMEDIATE CONNECTION WITH THEM AND OUR SUPREME COURT IN THE CASE OF ROH IT PULP AND PAPER MILLS LTD. V. COLLECTOR OF CENTRAL EXCISE, AIR 1991 SC 75 4 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 TRANSACTION BETWEEN T HE PARTIES, NAMELY, THE ASSESSEE-COMPANY AND M/S. PEE EMPRO EXPORTS PVT. LT D. WAS NOT SUCH TO FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND UNDER SECTION 2(22)(E). THE PRESENT APPEAL IS, THEREFORE, DISMISSED. 8.6. FURTHER, S. 2(22)(E) BRINGS IN A DEEMING FICTION. 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 ITA NO.453/BANG/10 PAGE 26 OF 29 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- 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 ITA NO.453/BANG/10 PAGE 27 OF 29 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. 8.7. TAKING INTO ACCOUNT THE FACTS AND THE CIRCUMSTANCES OF THE ISSUE WHICH HAS BEEN ELABORATELY ANALYZED IN THE FO RE-GOING PARAGRAPHS, WE ARE OF THE FIRM VIEW THAT (I) THE ASSESSEE HAD FURNISHED THE REQUIRED DOCUMENTARY EVIDENCE BY MEANS OF AN AGREEMENT ENTERED INTO AND THAT THE AMO UNTS RECEIVED DURING THE COURSE OF BUSINESS AND DUE TO BUSINESS EXIGENC Y; (II) THE NOMENCLATURE ADVANCE, PERHAPS INADVERTE NTLY SHOWN IN THE BALANCE SHEETS SHALL NOT ALTER THE CHARACTER OF THE PURPOSE FOR WHICH THE AMOUNTS RECEIVED; (III) THE SWEEPING REMARK OF THE AUTHORITIES BELOW THAT THE AGREEMENT ENTERED INTO BY THE PARTIES CONCERNED WAS AN AFTER -THOUGHT, WILL NOT STAND THE TESTIMONY OF LAW UNLESS IT HAS BEEN BACKED WITH CLINCHING DOCUMENTARY EVIDENCE; (IV) THE AUTHORITIES ALLEGATION THAT THE JOURNAL EN TRIES PASSED IN THE CASE OF BDPL RESULTED INTO THE PERSONAL BENEFIT TO THE ASSE SSEE ETC., WILL NOT HOLD WATER UNLESS IT HAS BEEN PROVED SO WITH DOCUMENTARY EVIDENCE; (V) NO DOUBT, BDPL WAS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING AND, THUS, IT COULD BE TERMED THAT THE AMOUNTS SO RECEI VED COME UNDER THE AMBIT OF S. 2(22)(E) OF THE ACT PROVIDED THE AMOUNTS WERE IN THE NATURE OF ADVANCE OR LOAN. INCIDENTALLY, THIS HAS NOT BEEN IMPLICITLY PROVED B Y THE REVENUE; ITA NO.453/BANG/10 PAGE 28 OF 29 (VI) THE CLINCHING EVIDENCE IN THE FORM OF AN AGREE MENT ENTERED INTO WITH BDPL AS PRODUCED BY THE ASSESSEE HAS NOT BEEN REBUT TED WITH ANY CONCRETE PROOF. THE ONUS RATHER PLACED AT THE DOORSTEP OF TH E REVENUE HAS NOT BEEN DULY DISCHARGED; & (VII) A DD OF RS.1 LAKH WAS OBTAINED BY BDPL IN FAV OUR OF KARNATAKA STATE INDUSTRIAL INVESTMENT & DEVELOPMENT CORPORATION LIM ITED [KSIIDCL] ON BEHALF OF THE ASSESSEE TO FACILITATE THE ASSESSEE T O PARTICIPATE IN THE AUCTION OF THE PROPERTY LOCATED AT BELALLU VILLAGE, TAVARE KERE HOBLI [SOURCE: ANNEXURE II OF BRIEF NOTE OF AR ]. THIS PIECE OF EVIDENCE GOES TO PROVE THE BONA FIDE INTENTION OF THE TRANSACTION OF FUNDS FRO M BDPL TO THE ASSESSEE. 8.8. TO SUM UP, 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 WAS ALSO NOT JUSTIFIABLE FOR THE REASONS RECORDED SUPRA . IT IS ORDERED ACCORDINGLY. 8.9. SINCE THE ISSUE OF APPLICABILITY OF S.2 (22)( E) OF THE ACT IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE FOR THE REA SONS RECORDED IN THE FORE- 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. ITA NO.453/BANG/10 PAGE 29 OF 29 10. IN THE RESULT THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2006- 07 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