Harinder Singh, CHENNAI V. ACIT, CHENNAI

ITA 606/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8713 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 15-03-2016
• Court: TRIBUNAL
• Department Lawyers: K N DHANDA
• Keywords: Peak credit; Deemed dividend

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , . !' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NOS.598,599 & 600/MDS./2016 / ASSESSMENT YEARS : 2005-06,2006-07 & 2007-08 SHRI GURBINDER SINGH , NO.37,TTK ROAD,ALWARPET, CHENNAI 600 018. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(3), CHENNAI-34. [PAN AAGPG 9885 M ] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) ./ I.T.A.NOS.601,602 & 603/MDS./2016 / ASSESSMENT YEARS : 2005-06,2006-07 & 2007-08 SHRI HARBINDER SINGH , NO.37,TTK ROAD,ALWARPET, CHENNAI 600 018. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(3), CHENNAI-34. [PAN AAAPH 9969 F ] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) ./ I.T.A.NOS.604,605 & 606/MDS./2016 / ASSESSMENT YEARS : 2005-06,2006-07 & 2007-08 SHRI HARINDER SINGH, NO.37,TTK ROAD,ALWARPET, CHENNAI 600 018. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(3), CHENNAI-34. [PAN AARPH 6987 Q ] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) ITA NOS.598 TO 603/MDS./16 :- 2 -: / APPELLANT BY : MR. B.RAMAKRISHNAN,C.A MRS.K.HEMALATHA,ACA /RESPONDENT BY : MR.K.N.DHANDAPANI,JCIT D.R / DATE OF HEARING : 12 - 05 - 201 6 !' / DATE OF PRONOUNCEMENT : 22 - 07 - 2016 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS FILED BY THE ASSESSEES IN RESPECT OF ABOVE THREE DIFFERENT ASSESSEES IS DIRECTED AGAINST THE DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-3, CHENNAI PER TAINING TO ASSESSMENT YEARS 2005-06,2006-07 & 2007-08. SINCE ISSUES INVOLVED IN ALL THESE ASSESSEES APPEALS ARE SIMILAR IN NATURE, THESE APPEALS ARE CLUBBED TOGETHER, HEARD TOGETHER, DISPOSED OFF BY T HIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST COMMON ISSUE IN ALL THESE APPEALS FOR OUR CONSIDERATION IS WITH REGARD TO CONFIRMING THE ADDITION MADE BY T HE AO ON ACCOUNT OF DEEMED DIVIDEND BY INVOKING THE PROVISIONS OF TH E SECTION 2(22)(E) OF THE ACT. 3. FOR BREVITY WE CONSIDER THE FACTS NARRATED IN O NE OF THE ASSESSEES CASE, NAMELY GURBINDER SINGH. THE FACTS OF THE CASE ARE THAT A SURVEY WAS CARRIED OUT ON M/S.RATTHA OVERSEA S COMPANY PVT LTD. AND M/S.ROVERCO APPAREL CO. PVT. LTD., ON 31.0 8.2009. THE SURVEY ITA NOS.598 TO 603/MDS./16 :- 3 -: ACTION REVEALED THAT THE ABOVE MENTIONED TWO COMPAN IES HAVE MADE PAYMENTS ON VARIOUS DATES TO THE DIRECTORS/SHAREHOL DERS, WHO HELD SUBSTANTIAL INTEREST IN THE ABOVE MENTIONED COMPANI ES. ACCORDINGLY ORIGINAL ASSESSMENT S U/S.143(3) R.W.S.147 WERE COM PLETED BY INVOKING SEC.2(22)(E) AND MADE AN ADDITION ON ACCOUNT OF DEE MED DIVIDEND FOR ASSESSMENT YEARS 2005-06,2006-07 & 2007-08. ON APPEAL, LD.CIT(A) IN HIS COMMON ORDER DATED 02.05.2011 GRANTED PARTIAL RELIE F. AGGRIEVED BY ASSESSEE, THE CIT(A) ORDER WAS CHALLENGED BEFORE TH E ITAT. THE CHENNAI TRIBUNAL HAD PASSED A COMMON ORDER DATED 17.01.2012 FOR ASSESSMENT YEARS 2005-06,2006-07 & 2007-08 IN RESPECT OF ABOV E THREE ASSESSEES. THE RELEVANT DIRECTIONS GIVEN IN THE ORDER BY THE ITAT ARE REPRODUCED AS UNDER:- 12. WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED THE ISSUE. IT IS NOT PROPER ON THE PART OF THE COM MISSIONER OF INCOME-TAX(APPEALS) TO HOLD THAT CREDIT ENTRIES MAD E IN THE ACCOUNTS OF THE ASSESSEES BY THE COMPANY WOULD NOT FALL UNDER SECTION 2(22)(E) ONLY FOR THE REASON THAT THE CREDI TS WERE PROVIDED THROUGH JOURNAL ENTRIES. THAT IS NOT A SU STAINABLE PROPOSITION. AN ASSESSEE MAY AVAIL BENEFIT EITHER BY DIRECT TRANSFER OF FUNDS OR BY CONFERRING CREDIT BY PASSIN G JOURNAL ENTRY OR THROUGH ANY OTHER LAWFUL METHOD AND STILL SUCH BENEFIT WOULD AMOUNT TO DEEMED DIVIDEND UNDER SECTION 2(22) (E) OF THE ACT. THEREFORE, IT IS NOT THE FORM WHICH IS PA RAMOUNT, WHAT IS IMPORTANT IS THE SUBSTANCE. THE ASSESSING AUTHORITY SHOULD HAVE EXAMINED EVERY JOURNAL ENTRY CONFERRING CREDIT TO THE ASSESSEES AND VERIFY WHETHER ANY FUND/BENEFIT H AS BEEN TRANSFERRED BY THE COMPANY TO THE ASSESSEES DIRECTL Y OR INDIRECTLY. THE ASSESSING AUTHORITY SHOULD EXAMINE THE CONTEXT ITA NOS.598 TO 603/MDS./16 :- 4 -: IN WHICH THE CREDIT ENTRY WAS PASSED. THE ASSESSIN G AUTHORITY SHOULD ALSO EXAMINE THE PURPOSE FOR WHICH THE JOURN AL ENTRIES WERE PASSED. THE ASSESSING AUTHORITY SHOULD FURTHER EXAMINE WHETHER THE ASSESSEES HAVE DRAWN FUNDS FROM THEIR A CCOUNTS AND FROM THE COMPANY IN THE BACKDROP OF THE EARLIER CREDITS TRANSFERRED TO THEIR PERSONAL ACCOUNTS BY MEANS OF JOURNAL ENTRIES. ALL THESE MATTERS HAVE TO BE LOOKED INTO. WITHOUT MAKING ANY SUCH ENQUIRY, IT IS NOT POSSIBLE FOR THE ASSESSING AUTHORITY TO COME TO A LAWFUL CONCLUSION THAT THE C REDIT ENTRIES PASSED IN FAVOUR OF THE ASSESSEES COULD BE IN THE N ATURE OF DEEMED DIVIDENDS UNDER SECTION 2(22)(E) OF THE ACT. AS FAR AS THESE CASES ARE CONCERNED, THE ASSESSING AUTHORITY HAS NOT UNDERTAKEN ANY SUCH ENQUIRY OR VERIFICATION. THE COMMISSIONER OF INCOME-TAX(APPEALS) ALSO WENT WRONG IN COMING TO THE CONCLUSION THAT THE CREDIT ENTRIES WO ULD NOT AMOUNT TO DEEMED DIVIDENDS UNDER SECTION 2(22)(E) J UST FOR THE REASON THAT THE CREDITS WERE PASSED BY MEANS OF JOURNAL ENTRIES. 13. THEREFORE, WE SET ASIDE THE ORDERS OF THE COMMISSIONER OF INCOME-TAX(APPEALS) AS WELL AS THE ASSESSING AUTHORITY ON THIS POINT FOR THE ASSESSMENT YEARS 20 05-06, 2006-07 AND 2007-08. THE ISSUE IS REMITTED BACK TO THE ASSESSING OFFICER TO RE-EXAMINE THE NATURE AND CHAR ACTER OF THE JOURNAL ENTRIES PASSED BY THE COMPANY GIVING CR EDITS TO THE ASSESSEES. THE ASSESSING AUTHORITY IS DIRECTED TO COME TO A CONCLUSION AFTER SUCH EXAMINATION AND VERIFICATION OF THE FACTS AND CIRCUMSTANCES OF EVERY JOURNAL ENTRY PASSED WIT H REFERENCE TO THE ASSESSEES. 14. REGARDING THE ASSESSMENT YEAR 2008-09, WE FIND THAT THE MATERIALS RELIED ON BY THE COMMISSION ER OF INCOME-TAX(APPEALS) WERE PLACED BEFORE HIM BY THE A SSESSEES FOR THE FIRST TIME. THE ASSESSING AUTHORITY HAD NO OCCASION TO ITA NOS.598 TO 603/MDS./16 :- 5 -: EXAMINE THE ISSUE IN THE LIGHT OF THOSE EVIDENCES, LATER ON RELIED ON BY THE ASSESSEES. THEREFORE, THERE IS A CLEAR VIOLATION OF RULE 46A. IN THESE CIRCUMSTANCE WE SET ASIDE TH E SAID ORDERS OF THE COMMISSIONER OF INCOME-TAX(APPEALS) F OR THE ASSESSMENT YEAR 2008-09 AND REMIT BACK THE ISSUE TO THE ASSESSING AUTHORITY. THE ASSESSEES ARE DIRECTED TO PRODUCE EVIDENCES BEFORE THE ASSESSING AUTHORITY TO PROVE T HEIR CASES THAT THE AMOUNTS WERE PAID TO THE ASSESSEES BY THE COMPANY FOR THE PURPOSE OF ACQUIRING PROPERTIES IN ITS NAME . 15. IN RESULT, WE HAVE SET ASIDE THE ORDERS OF BOTH THE ASSESSING AUTHORITY AND THE COMMISSIONER OF INCOME- TAX(APPEALS) FOR ALL THE FOUR ASSESSMENT YEARS UNDE R APPEAL. THE FILES ARE REMITTED BACK TO THE ASSESSING AUTHOR ITY. HE IS DIRECTED TO EXAMINE THE EVIDENCES AND DETAILS WITH REFERENCE TO THE ISSUES AND ARRIVE AT A LAWFUL CONCLUSION, BE FORE WHICH HE SHALL PROVIDE AMPLE OPPORTUNITIES TO THE ASSESSEES TO PRESENT THEIR CASES BEFORE HIM. THEREAFTER HONBLE ITAT CHENNAI BENCH A HAS PASSE D ANOTHER ORDER DATED 06.08.2010 VIDE ITA NO.443/MDS./2010 IN THE C ASE OF SHRI HARBINDER SINGH FOR ASSESSMENT YEAR 2007-08, THE RE LEVANT DIRECTIONS OF THE ITAT ORDER ARE REPRODUCED HEREUNDER: 6. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND THE MATERIAL ON RECORD. CERTAIN BASIC FACTS ARE NOT IN DISPUTE. THREE COMPANIES ARE INVOLVED IN THE MATTER. THEY AR E RHPL, ROCPL AND RACPL AS MENTIONED EARLIER. IT IS NOT IN DISPUTE THAT ALL THE THREE COMPANIES ARE ASSOCIATE CONCERNS AND THAT THE ASSESSEE IS A DIRECTOR WITH SUBSTANTIAL SHAREHO LDING IN ALL THE THREE COMPANIES. THE COMPANIES ARE NOT IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED. IT IS ALSO NOT IN DISPUTE THAT ITA NOS.598 TO 603/MDS./16 :- 6 -: ROCPL AND RACPL HAVE MADE PAYMENTS TO THE ASSESSEE AS MENTIONED EARLIER. THE DISPUTE IS WHETHER THESE PAY MENTS CAN BE SAID TO BE IN THE NATURE OF LOANS OR ADVANCES BY THE TWO COMPANIES TO THE ASSESSEE. ACCORDING TO THE DEPARTM ENT, THEY ARE LOANS TO THE ASSESSEE BY THE TWO COMPANIES. ACC ORDING TO THE ASSESSEE, IT IS A LOAN BY RHPL TO THE ASSESSEE. 7. BEFORE WE ANALYSE THE ABOVE FACTS, IT WILL NOT B E OUT OF PLACE TO TAKE NOTE OF CERTAIN WELL ESTABLISHED PRIN CIPLES RELATING TO THE PROVISIONS OF SEC.2(22)(E) OF THE A CT. FIRSTLY, IT IS A DEEMING PROVISION. IT MEANS THAT A STATE OF AF FAIRS HAVE TO BE ASSUMED TO BE EXISTING REALLY THOUGH ACTUALLY IT MAY NOT BE EXISTING. IN OTHER WORDS, A BORROWING BY A SUBSTANT IAL SHAREHOLDER FROM THE COMPANY IS, PER SE, NOT A DIVI DEND BUT BY WAY OF LEGAL FICTION SEC.2(22)(E) REQUIRES THE C OURTS TO ASSUME IT AS DIVIDEND AND TAX IT AS INCOME. THEREFO RE, THE PROVISION HAS TO BE STRICTLY CONSTRUED. AS HAS BEEN HELD IN A NUMBER OF CASES, A LEGAL FICTION MUST BE CARRIED TO ITS LOGICAL CONCLUSION AND NOT TO AN ILLOGICAL LENGTH. SECONDLY , ONLY A LOAN, WHICH WOULD INCLUDE OTHER PAYMENTS MENTIONED IN SEC.2(22)(E), CAN BE DEEMED TO BE DIVIDEND AND THAT TOO ONLY TO THE EXTENT OF THE COMPANY HAS ACCUMULATED PROFIT S ON THE DATE OF THE PAYMENT. FOR A PAYMENT TO BE CONSTRUED AS LOAN, THERE MUST BE A LENDER, A BORROWER AND A THING LOAN ED. ONE OF THE MOST IMPORTANT ASPECT OF THE PROVISION IS THAT THE AMOUNT OF PAYMENT DEEMED TO BE DIVIDEND CANNOT EXCEED THE ACCUMULATED PROFITS OF THE COMPANY AS ON THE DATE O F PAYMENT. IN OTHER WORDS, WHEN A PAYMENT IS MADE, TH E ACCUMULATED PROFITS MUST BE NOTIONALLY REDUCED BY T HE AMOUNT OF ALL LOANS ETC. AND THE LAST PAYMENT WILL BE DEEM ED TO BE DIVIDEND ONLY TO THE EXTENT OF THE BALANCE ACCUMULA TED PROFITS. IF SOME AMOUNT IS REPAID BY THE SHAREHOLDER, THE AM OUNT SO REPAID CANNOT GO TO AUGMENT THE ACCUMULATED PROFITS . NOW LET ITA NOS.598 TO 603/MDS./16 :- 7 -: US EXAMINE THE FACTS OF THE PRESENT CASE IN THE LIG HT OF THE PRINCIPLES MENTIONED ABOVE. 8. TWO ASPECTS NEED TO BE ADDRESSED BY US. THE FIRS T IS, THE LOAN GIVEN BY THE TWO COMPANIES ROCPL AND RACPL OR, IS IT GIVEN BY RHPL. THE SECOND ASPECT IS, HAS THE ASSESS ING OFFICER RIGHTLY QUANTIFIED THE AMOUNT OF ADDITION A S ENVISAGED IN SEC.2(22)(E) OF THE ACT. THE FIRST ASPECT IS TAK EN UP FIRST. ADMITTEDLY, THE PAYMENTS WERE GIVEN BY THE TWO COMP ANIES VIZ., ROCPL AND RACPL. APPARENTLY, THE LOANS ARE DE EMED TO HAVE BEEN GIVEN BY THESE TWO COMPANIES. HOWEVER, TH E CONTENTION OF THE LD. COUNSEL IS THAT THE TWO COMPA NIES OWED CERTAIN MONIES TO RHPL. RHPL, INSTEAD OF GETTING IT S REPAYMENT DIRECTLY, DIRECTED THE TWO COMPANIES TO P AY THE AMOUNTS TO THE ASSESSEE. THEREFORE, THE ARGUMENT IS THAT THE LOAN IS DEEMED TO HAVE BEEN GIVEN BY RHPL AND NOT T HE TWO COMPANIES. IF THE LOAN IS DEEMED TO HAVE BEEN GIVEN BY RHPL, THEN ON THE DATE OF PAYMENT RHPL HAD ACCUMULA TED LOSSES AND HENCE, THE PAYMENT CANNOT BE DEEMED TO B E DIVIDEND. THIS CONTENTION OF THE LD. COUNSEL HAS TO BE EXAMINED IN THE LIGHT OF THE JUDGMENT OF THE SUPREM E COURT IN THE CASE OF MISS P. SARADA V. CIT (229 ITR 444) ON WHICH THE LD. D.R. HAS RELIED. WE SHALL NOW EXAMINE THE SAID JUDGMENT. 9. IN THE CASE BEFORE THE SUPREME COURT, THE ASSESS EE WHO WAS A MAJOR SHAREHOLDER IN A CLOSELY HELD COMPANY H AD WITHDRAWN ` 93,027/- FROM THE COMPANY. THE ASSESSIN G OFFICER TREATED THIS AS DEEMED DIVIDEND ON THE GROU ND THAT THE ASSESSEE HAD NO CREDIT BALANCE IN HER ACCOUNT W ITH THE SAID COMPANY AT THE MATERIAL TIME AND THAT THERE WE RE SUFFICIENT ACCUMULATED PROFITS TO COVER THE WITHDRA WAL. THE CONTENTION OF THE ASSESSEE WAS THAT MAHESH, ANOTHER SHAREHOLDER, HAD DIRECTED THE COMPANY TO MAKE AVAIL ABLE TO THE ASSESSEE A SUM OF ` 1 LAC OUT OF HIS CREDIT BAL ANCE IN THE ITA NOS.598 TO 603/MDS./16 :- 8 -: COMPANY AND THEREFORE, THE WITHDRAWAL MADE BY THE A SSESSEE SHOULD BE TREATED AS WITHDRAWAL FROM THE ACCOUNT OF MAHESH. SUPREME COURT REJECTED THE CONTENTION OF THE ASSESS EE ON THE FACTS OF THE CASE. THE QUESTION IS, WHICH ARE THOSE FACTS WHICH LED THE SUPREME COURT TO NEGATIVE THE CONTENTION OF THE ASSESSEE. THE COURT FOUND THAT THE WITHDRAWALS WERE NOT MADE BY DEBITING THE CREDIT BALANCE OF MAHESH WHICH REMAINED INTACT TILL 31.3.1973, I.E. UPTO THE LAST DAY OF THE ACCOUNTING YEAR ON WHICH DATE THE ADJUSTING ENTRY W AS PASSED. THIS SINGULAR FACT FINDS MENTION IN THE OPE RATIVE PART OF THE JUDGMENT AT NO LESS THAN FOUR PLACES. ACCORD ING TO OUR UNDERSTANDING OF THE JUDGMENT, HAD THE WITHDRAWALS BEEN DEBITED TO THE ACCOUNT OF MAHESH ON THE VERY SAME D AY WHEN THE WITHDRAWAL WAS MADE, PERHAPS, THE DECISION COUL D HAVE BEEN DIFFERENT. IT IS ABUNDANTLY CLEAR FROM THE OBS ERVATIONS MADE BY THE COURT IN THE LAST PARAGRAPH OF THE JUDG MENT THAT THE WITHDRAWALS WERE DEEMED TO BE FROM THE COMPANY S ACCUMULATED PROFITS AS THE ENTIRE CREDIT BALANCE OF MAHESH STOOD AS IT WAS TILL THE LAST DAY OF THE ACCOUNTING YEAR. IN THE PRESENT CASE, THIS ASPECT HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER AT ALL. THE CIT(A) DID CONSIDER T HIS ARGUMENT BUT NOT IN THE LIGHT OF THE ABOVE DECISION AND BRUS HED IT ASIDE AS A METHOD ADOPTED BY THE ASSESSEE TO ESCAPE FROM THE MISCHIEF OF SEC.2(22)(E) OF THE ACT. IN OUR CONSIDE RED OPINION, THIS ASPECT NEEDS TO BE EXAMINED IN DETAIL. THE MAT TER, THEREFORE, HAS TO GO BACK TO THE ASSESSING OFFICER TO EXAMINE THE SAME. THE ASSESSING OFFICER SHALL EXAMINE : A) THE DATES ON WHICH THE TWO COMPANIES HAD MADE PAYMENTS TO THE ASSESSEE, B) WHEN WAS THE DIRECTION GIVEN BY RHPL T O THE TWO COMPANIES TO MAKE PAYMENTS TO THE ASSESSEE, C) THE PAYMENTS MADE PRIOR TO THE DIRECTION CANNOT BE TREA TED AS LOAN GIVEN BY RHPL,) WHETHER THE PAYMENTS WHICH WER E MADE ITA NOS.598 TO 603/MDS./16 :- 9 -: AFTER THE DIRECTION BY RHPL, WERE BY WAY OF DEBIT T O THE ACCOUNT OF RHPL. IF THE DEBIT TO THE ACCOUNT OF RHP L IS DELAYED EVEN BY ONE DAY, IT WILL BE TREATED AS A LO AN FROM THE TWO COMPANIES AND HENCE, DEEMED DIVIDEND. SUBSEQUEN T ADJUSTMENT IN THE ACCOUNT OF RHPL WILL NOT SAVE THE ASSESSEE FROM THE MISCHIEF OF SEC.2(22)(E). THIS HAS BEEN CA TEGORICALLY HELD BY THE SUPREME COURT IN THE CASE OF P. SARADA (SUPRA) AS OBSERVED AT PLACITUM B ON PAGE 449 OF ITR 229. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE FIRST ASPECT OF THE MATTER AS DISCUSSED ABOVE. 10. WE NOW COME TO THE SECOND ASPECT WHICH IS WHETH ER THE ADDITION IS CORRECTLY QUANTIFIED. IN OUR OPINION, T HE REPLY IS CLEARLY IN THE NEGATIVE. IT IS WELL ESTABLISHED THA T THE COMPUTATION OF THE AMOUNT OF DEEMED DIVIDEND IS TO BE MADE ON THE BASIS OF COMPANYS ACCUMULATED PROFITS ON EA CH DAY A LOAN OR ADVANCE TO THE ASSESSEE IS MADE. THISPROPOS ITION IS SUPPORTED BY SCORES OF DECISIONS AND TO CITE ONLY A FEW, THEY ARE : A) CIT V. G. NARASIMHAN 118 ITR 60 (MAD) B) CIT V. P.K. BADIANI 76 ITR 369 (BOM) C) CIT V. JAMNADAS KHIMJI KOTHARI 92 ITR 105 (BOM ) D) RAJPAL BROTHERS PVT. LTD. V. CIT 80 ITR 463 (B OM) E) NAVNITLAL C. JAVERI V. CIT 80 ITR 582 (BOM) IN THE PRESENT CASE, THE ASSESSING OFFICER HAS TAKE N ONLY THE TOTAL AMOUNT PAID OUT BY THE TWO COMPANIES DURING T HE YEAR. IT IS NOT KNOWN WHETHER THE ENTIRE AMOUNT WAS PAID ON A SINGLE DAY OR WHETHER THE PAYMENTS WERE ON DIFFEREN T DATES TOTALLING TO THE AMOUNT TAKEN BY THE ASSESSING OFFI CER. FURTHER, INSTEAD OF ASCERTAINING THE EXACT AMOUNT W ITHDRAWN BY THE ASSESSEE, THE ASSESSING OFFICER HAS TAKEN ON E THIRD OF THE ACCUMULATED PROFITS ON THE GROUND THAT THREE DI RECTORS HAVE RECEIVED LOANS FROM THE COMPANIES. ANOTHER ERR OR ITA NOS.598 TO 603/MDS./16 :- 10 - : COMMITTED BY THE ASSESSING OFFICER IS THAT DESPITE THE FINDING THAT TWO COMPANIES HAVE MADE PAYMENTS TO THE ASSESS EE, THE ASSESSING OFFICER HAS CONSIDERED THE ACCUMULATED PR OFITS OF ONLY RACPL. HE HAS LEFT OUT ROCPL, ADMITTEDLY BECAU SE THE SAID COMPANY HAS INCURRED LOSS IN ASSESSMENT YEAR 2 007-08. THIS IS ABSOLUTELY AGAINST THE PROVISIONS OF LAW. S EC.2(22)(E) RULES OUT ANY ARBITRARINESS. IN FACT, KERALA HIGH C OURT IN THE CASE OF ACHAMMA GEORGE V. IAC (180 ITR 57) WHILE DE ALING WITH THE INTERPRETATION OF THE AGRICULTURAL INCOME- TAX ACT, 1950 OBSERVED IN CONNECTION WITH A LEGAL FICTION AS FOLLOWS : IF A FICTION IS SO CREATED, IT SHOULD BE EXTENDED IN ITS EFFECT AND IMPACT TO ALL THE PERMISSIBLE AREAS. THE CLOSE ENUNCIATION DEALING WITH THE OPERATION OF A FICTION, CANNOT BE OVERLOOKED IN THAT CONTEXT. WHEN THE STATUTE COMMANDS A DEEMIN G OF THE PUTATIVE STATE OF AFFAIRS AS THE REAL STATE OF AFFA IRS, IMAGINATION SHOULD NOT BOGGLE HALF WAY THROUGH. IN THE PRESENT CASE, THE ADDITION IS EXACTLY THE RE SULT OF THE ASSESSING OFFICERS IMAGINATION WHICH BOGGLED HALF WAY THROUGH. 11. SUMMING UP THE ABOVE DISCUSSION, THE ASSESSING OFFICER IS DIRECTED FIRST TO ASCERTAIN WHICH COMPANY OR COMPAN IES HAVE GIVEN LOANS TO THE ASSESSEE ON THE BASIS OF THE DIS CUSSION IN PARAGRAPH 9 ABOVE. HAVING ARRIVED AT THE CONCLUSION IN ACCORDANCE WITH LAW WITH REGARD TO THE FIRST ASPECT , HE WILL THEN DECIDE UPON THE QUANTUM OF DEEMED DIVIDEND ON THE BASIS OF PAYMENT MADE ON EACH DAY VIS-AVIS THE ACCU MULATED PROFITS OF THAT COMPANY ON THE DATE OF PAYMENT. IN THE LIGHT OF THE ABOVE BACKGROUND, AO HAD GIVEN EFFECT TO THE ABOVE TRIBUNALS ORDERS MENTIONED HEREIN ABOVE FOR ASSES SMENT YEARS 2005- ITA NOS.598 TO 603/MDS./16 :- 11 - : 06,2006-07 & 2007-08 U/S.143(3) R.W.S.147 R.W.S254 ON 27.03.2013. THESE ORDERS OF AO ARE CHALLENGED BEFORE THE LD.CIT (A). 3.1 ON APPEAL, THE LD.CIT(A) OBSERVED THAT AFTER EXAMINING THE SUBMISSIONS OF THE LD.A.R, NO EVIDENCE WHATSOEVER H AS BEEN FILED BEFORE THE AO TO SUBSTANTIATE THE LOANS AND ADVANCE S GIVEN BY THE TWO RESPECTIVE COMPANIES ARE IN THE NATURE OF COMMERCIA L TRANSACTIONS AND FAILED TO PROVE THESE TWO COMPANIES HAVE ALSO BENEF ITED OUT OF LOANS AND ADVANCES GIVEN BY THE ASSESSEE TO THE TWO COMP ANIES UNDER DISCUSSION. THEREFORE, THE RATIO RELIED BY THE LD.A .R IN THE CASE OF ITO WARD 2(2) VS. SMT GAYATRI CHAKRABORTH (2016) 45 ITR 197 (KOL.-TRIB) IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE. FURTHER HE OBSERVED THAT JURISDICTIONAL HIGH COURT IN THE CASE OF SUNIL KAPOOR VS. CIT 375 ITR 1 (MAD.) WHEREIN THE LORDHIP S HAVE DISCUSSED ELABORATELY ON THE ISSUE ON HAND AND ALSO DISCUSSED THE EFFECT OF SUPREME COURT JUDGEMENT IN THE CASE OF SMT.TARULATA SHYAM VS. CIT [1997] 108 ITR 345 (SC). FURTHER, HE OBSERVED THAT THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF SMT.TARULA TA SHYAM VS. CIT IS APPLICABLE TO THE CASE OF THE ASSESSEE AND HE CONFI RMED THE ORDER OF THE AO AND ALSO THE LEVY OF INTEREST U/S.234B & 234 C OF THE ACT. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LD.A.R SUBMITTED THAT TWO COMPAN IES CALLED ROVERCO APPAREL COMPANY PVT. LTD AND RATTHA OVERSEA S COMPANY PVT. ITA NOS.598 TO 603/MDS./16 :- 12 - : LTD., HAD RUNNING ACCOUNTS WITH ITS DIRECTORS, WHO HAD ADVANCED MONIES TO THE COMPANY FROM TIME TO TIME WITH FREE O F INTEREST AND VICE VERSE. THEREFORE, HE STATED THAT THESE TRANSACTIONS WERE DONE IN THE ORDINARY COURSE OF BUSINESS. HENCE THE PROVISIONS O F THE SECTION 2(22)(E) ARE NOT APPLICABLE. LD.A.R RELIED ON THE O RDER OF THE TRIBUNAL OF KOLKATA BENCH IN THE CASE OF ITO VS. SMT. GAYATR I CHAKRABORTY IN ITA NO.151/KOL/2013 DATED 30.10.2015 WHEREIN HELD T HAT THE LOAN ACCOUNT IS DIFFERENT FROM A CURRENT ACCOUNT WITH A SHAREHOLDER AND THE TRANSACTIONS BETWEEN THE ASSESSEE AND BAPL ARE IN T HE NATURE OF CURRENT ACCOUNT AND THE PROVISIONS OF SECTION 2(22) (E) OF THE ACT WILL NOT BE APPLICABLE TO THE CASE OF THE ASSESSEE. FUR THER, HE SUBMITTED THAT THE AMOUNT IN DISPUTE WAS ADVANCED BY GROUP CO MPANY CALLED M/S.RATTHA HOLDING COMPANY PVT LTD.(RHCPL) AND M/S. ROVERCO APPARELS PVT. LTD.(RAPL), WITH DIRECTION TO PAY THE SE AMOUNTS TO THESE DIRECTORS. FURTHER IT WAS STATED THAT RHCPL DID NO T HAVE ANY ACCUMULATED PROFITS SO AS TO BRING THE AMOUNT ADVAN CED UNDER DEEMED DIVIDEND. FOR THIS PURPOSE HE RELIED ON THE JUDGEMNET OF SUPREME COURT IN THE CASE OF P.SARADA [229 ITR 444] . FURTHER, HE SUBMITTED THAT EVEN IF IT IS PRESUMED THAT SEC.2(22 )(E) OF THE ACT IS APPLICABLE, THEN COMPUTATION OF DEEMED DIVIDEND HAS TO BE MADE ON THE BASIS OF COMPANY ACCUMULATED PROFIT ON THE DAY OF LOAN OR ADVANCE FUND TO HAVE BEEN MADE TO THE ASSESSEE. FURTHER, I T WAS SUBMITTED ITA NOS.598 TO 603/MDS./16 :- 13 - : THAT WORKING OF DEEMED DIVIDEND HAD TO BE COMPUTED DAY TO DAY BASIS AFTER SETTING OFF THE LOANS GIVEN BY THE DIRECTOR O F THE ASSESSEE COMPANY. HE RELIED ON THE FOLLOWING JUDGEMENTS. A) CIT VS. NARASHMHAN 118 ITR 60(MAD.) B) CIT VS. P K BADIANI 76 ITR 369(BOM.) C) CIT VS. JAMNADAS KHIMJI KOTHARI 92 ITR 105(BO M.) D) RAJPAL BROTHERS PVT LTD. VS. CIT 80 ITR 463( BOM.) E) NAVNITLAL C.JAVERI VS. CIT 80 ITR 582 (BOM.) ACCORDING TO HIM, MOST TRANSACTIONS ARE JOURNAL ENT RIES. THESE ENTRIES SHOULD BE IGNORED. 5. ON THE OTHER HAND, LD.D.R SUBMITTED THAT PROVIS IONS OF THE SECTION 2(22)(E) OF THE ACT IS APPLICABLE IN VIEW O F THE FOLLOWING UNDISPUTED FACTS. A) THERE IS NO DISPUTE ON THE FACT OF THAT THE ASSE SSEE HOLDS MORE THAN 10% OF THE VOTING POWER IN BOTH M/S.ROVERCO AP PAREL CO. PVT. LTD AND M/S.RATTHA OVERSEAS COMPANY PVT LTD. B) IT IS WELL SETTLED THAT THE WITHDRAWALS MADE BY THE ASSESSEE FROM THE COMPANIES AMOUNTS TO GRANT OF LOAN OR ADVA NCE. THIS FACT OF THE MATTER HAS NOT BEEN DISPUTE BY THE ASSE SSEE ALSO. C) IT HAS BEEN BROUGHT OUT EARLIER THAT BOTH THE SA ID COMPANIES IN ABOVE PARA (A) HAVE GOT ACCUMULATED PROFITS DURING THE RELEVANT ASSESSMENT YEARS. ITA NOS.598 TO 603/MDS./16 :- 14 - : ACCORDING TO LD.D.R, THE ISSUE IS SQUARELY COVERED BY THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF ACIT V S.SMT.G.SREEVIDYA REPORTED IN [2012] 138 ITD 427 (CHEN). FURTHER, HE PLACED RELIANCE IN THE CASE OF CIT VS. P.K.BADIANI REPORTED IN 76 ITR 369 (BOM.) WHEREIN HELD THAT: AMOUNT OF LOAN ONCE DEEMED TO BE A DIVIDEND, AMOUN T ON REPAYMENT BE AGAIN CREDITED TO THE FUND OF ACCUMUL ATED PROFITS AND COMPANYS ACCUMULATED PROFITS HAVE TO BE ASCERTAINED AT THE TIME OF EACH LOAN AND WHERE SHAR EHOLDER HAS A MUTUAL, OPEN AND CURRENT ACCOUNT ONLY THE DEB IT IN EXCESS OF CREDITS CAN BE CONSIDERED AS LOAN TO THE EXTENT OF ACCUMULATED PROFITS. FINALLY, DEPARTMENTAL REPRES ENTATIVE SUBMITTED THAT AO DULY CONSIDERED THE DIRECTION OF THE TRIBUNAL WHILE REMITTING THE ISSUE TO HIM FOR FRESH CONSIDERATION AND HE RELIED ON THE JUDGEMENT OF JUR ISDICTIONAL HIGH COURT IN THE CASE OF SUNIL KAPOOR REPORTED IN [2015] 375 ITR 1 (MAD) WHEREIN HELD THAT IN THE CASE ON HA ND, THE ASSESSING OFFICER HAS TAKEN THE ENTIRE AMOUNT OF RS .76,86,829 RECEIVED BY THE ASSESSEE FROM THE COMPANY AS DIVIDE ND, WHILE COMPUTING THE INCOME, BUT HAS LOST SIGHT OF THE PAY MENT MADE. IN SUCH CIRCUMSTANCES, THIS COURT IS OF THE C ONSIDERED OPINION THAT THE COMMISSIONER OF INCOME-TAX (APPEAL S) HAS RIGHTLY COME TO THE CONCLUSION THAT 'THE POSITION A S REGARDS EACH DEBIT WILL HAVE TO BE INDIVIDUALLY CONSIDERED BECAUSE IT MAY OR MAY NOT BE A LOAN. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO VERIFY EACH DEBIT ENTRY ON THE AFORESAI D LINE AND TREAT ONLY THE EXCESS AMOUNT AS DEEMED DIVIDEND UND ER SECTION 2(22)(E) OF THE ACT'. SUCH A DIRECTION ISSU ED BY THE COMMISSIONER OF INCOME-TAX (APPEALS), AS UPHELD BY THE ITA NOS.598 TO 603/MDS./16 :- 15 - : TRIBUNAL IS IN CONSONANCE WITH THE PROVISION OF SEC TION 2(22)(E) OF THE ACT AND ONLY THOSE AMOUNTS, WHICH R EFLECT IN THE DEBIT SIDE OF THE BOOKS OF ACCOUNT OF THE COMPA NY FALLING UNDER THE DEFINITION OF LOANS AND ADVANCES, WITH RE GARD TO THE SHAREHOLDER, IN THE RELEVANT YEAR WILL BE ENTITLED TO BE TAKEN AS DEEMED DIVIDEND. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, ADMITTEDLY THE ASSESSEES HERE IN ARE DIRECTORS IN RACPL AND ROCPL. EACH ONE OF THEM WERE HOLDING 33. 33% OF SHARES IN BOTH THE COMPANIES AND THERE IS ACCUMULATED PROF IT IN BOTH THE COMPANIES FOR THESE ASSESSMENT YEARS. THE DIRECTORS I.E. ASSESSEE HEREIN RECEIVED THE PAYMENT FROM THE COMPANY BY A L OAN AND ADVANCE. NOW, THE CONTENTION OF LD.A.R IS THAT THE ASSESSEE HEREIN IS ALSO GIVEN ADVANCE TO THOSE COMPANIES AND THE COMPA NIES ARE ALSO BENEFITTED FROM THE LOANS GIVEN TO DIRECTORS AND TH ESE ARE RUNNING ACCOUNTS BETWEEN THE DIRECTORS AND THE COMPANIES AN D THE RUNNING ACCOUNT CANNOT BE CONSIDERED FOR THE PURPOSE OF INV OKING THE PROVISIONS OF THE SECTION 2(22)(E) OF THE ACT. 7. BEFORE PROCEEDING FURTHER, LET US EXAMINE WHAT IS THE INTENTION OF THE LEGISLATION IN ENACTING PROVISIONS OF THE SECTION 2 (22)(E) OF THE ACT. SEC.2(22)(E) OF THE ACT READS AS UNDER:- 2(22)(E) ANY PAYMENT BY A COMPANY, NOT BEING A C OMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, O F ANY SUM ITA NOS.598 TO 603/MDS./16 :- 16 - : (WHETHER AS REPRESENTING A PART OF THE ASSETS OF TH E COMPANY OR OTHERWISE) MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITL ED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT. OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTI AL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID C ONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE I NDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S ; BUT DIVIDEND DOES NOT INCLUDE (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLAU SE (C) OR SUB-CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR F ULL CASH CONSIDERATION, WHERE THE HOLDER OF THE SHARE IS NOT ENTITLED IN THE EVENT OF LIQUIDATION TO PARTICIPATE IN THE SURP LUS ASSETS ; (IA) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLA USE (C) OR SUB-CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS AT TRIBUTABLE TO THE CAPITALISED PROFITS OF THE COMPANY REPRESENTING BONUS SHARES ALLOTTED TO ITS EQUITY SHAREHOLDERS AFTER TH E 31ST DAY OF MARCH, 1964, AND BEFORE THE 1ST DAY OF APRIL, 1965 ; (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR T HE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY ; (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET O FF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PR EVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEA NING OF SUB- CLAUSE (E), TO THE EXTENT TO WHICH IT IS SO SET OFF ; (IV) ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF I TS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PR OVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956 (1 OF 1956) ; (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERG ER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERG ED COMPANY (WHETHER OR NOT THERE IS A REDUCTION OF CAP ITAL IN THE DEMERGED COMPANY). EXPLANATION 1. THE EXPRESSION ACCUMULATED PROFITS , WHEREVER IT OCCURS IN THIS CLAUSE, SHALL NOT INCLUD E CAPITAL GAINS ARISING BEFORE THE 1ST DAY OF APRIL, 1946, OR AFTER THE 31ST DAY OF MARCH, 1948, AND BEFORE THE 1ST DAY OF APRIL, 19 56 ; EXPLANATION 2. THE EXPRESSION ACCUMULATED PROFITS , IN SUB- CLAUSES (A), (B), (D) AND (E), SHALL INCLUDE ALL PR OFITS OF THE COMPANY UP TO THE DATE OF DISTRIBUTION OR PAYMENT R EFERRED TO IN THOSE SUB-CLAUSES, AND IN SUB-CLAUSE (C) SHALL I NCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF LIQUIDATIO N, BUT SHALL NOT, WHERE THE LIQUIDATION IS CONSEQUENT ON THE COM PULSORY ITA NOS.598 TO 603/MDS./16 :- 17 - : ACQUISITION OF ITS UNDERTAKING BY THE GOVERNMENT OR A CORPORATION OWNED OR CONTROLLED BY THE GOVERNMENT U NDER ANY LAW FOR THE TIME BEING IN FORCE, INCLUDE ANY PROFIT S OF THE COMPANY PRIOR TO THREE SUCCESSIVE PREVIOUS YEARS IM MEDIATELY PRECEDING THE PREVIOUS YEAR IN WHICH SUCH ACQUISITI ON TOOK PLACE ; EXPLANATION 3. FOR THE PURPOSES OF THIS CLAUSE, (A) CONCERN MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY ; (B) A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIM E DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS TH AN TWENTY PER CENT. OF THE INCOME OF SUCH CONCERN ; 8. THE READING OF THE ABOVE PROVISION MAKES IS EVID ENTLY CLEAR THAT THE LAW- MAKERS WANTED TO BRING TO TAX MONIES PAID BY CLOSEL Y HELD COMPANIES TO THEIR PRINCIPAL SHAREHOLDERS, IN THE GUISE OF LOANS AND ADVANCES TO AVOID PAYMENT OF TAX. THE HONBLE SUPREME COURT ALSO HELD IN THE CASE OF NAVNEET LAL C.JHAVERI V K.K.SEN (1965) 56 ITR 198 (S.C) THA T THE PROVISIONS OF SECTION 2(22) (E) OF THE ACT MUST BE MADE APPLICABL E WHERE DIVIDEND DISGUISED AS LOAN IS PAID BY A COMPANY. BUT, THEY H AVE ALSO HELD THAT THIS CONCEPT SHOULD NOT BE STRETCHED TOO FAR TO INVOLVE ANY ABSURDITIES. THIS SECTION DEFINES DIVIDEND BY GIVING AN EXCLUSIVE DEF INITION. THE SUB-CLAUSES (A) (B) (C) (D) AND (E) ARE DIFFERENT TYPES OF PAYM ENTS. IF THE SAME ARE MADE IN THE CONDITIONS DEFINED IN THOSE CLAUSES EXIST IN A GIVEN CASE, SUCH PAYMENTS ARE TREATED AS DEEMED DIVIDEND. THIS SECTI ON, FURTHER, LAYS DOWN EXCLUSIVE SITUATIONS WHEREIN SUCH DISTRIBUTION OF P AYMENTS ARE NOT TREATED AS DEEMED DIVIDEND. IN THE EXPLANATIONS, THE EXPRESSIO N ACCUMULATED PROFITS HAS BEEN DEFINED VIDE EXPLANATION 2 WITH REFERENCE TO CLAUSES (A) (B) (D) & (E). SINCE WE ARE CONCERNED WITH CLAUSE (E) OF SECT ION 2(22) OF THE ACT, ITA NOS.598 TO 603/MDS./16 :- 18 - : EXPLANATION 2 WOULD BE RELEVANT. IN THIS EXPLANATIO N ACCUMULATIVE PROFITS ARE DEFINED AS SHALL INCLUDE ALL PROFITS OF THE CO MPANY UPTO THE DATE OF DISTRIBUTION OR PAYMENT REFERRED TO IN SUB-CLAUSE ( E) VIDE EXPLANATION 3, IT IS PROVIDED THAT A PERSON SHALL BE DEEMED TO HAVE A SU BSTANTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIM E DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS THAN 2O% OF THE INCOME OF SUCH CONCERN. WE HAVE FOUND IT FOR A FACT THAT THE APPEL LANT HAS A SHAREHOLDER. 9. SEC. 2(22)(E) ENACTED A DEEMING FICTION WHEREBY THE SCOPE AND AMBIT OF THE WORD DIVIDEND HAS BEEN ENLARGED TO BRING W ITHIN ITS SWEEP CERTAIN PAYMENTS MADE BY A COMPANY AS PER THE SITUATIONS EN UMERATED IN S.2(22)(E). IT IS A SETTLED-RULE OF INTERPRETATION OF A FICTION THAT THE COURT SHOULD ASCERTAIN FOR WHAT PURPOSE THE FICTION IS CR EATED AND AFTER ASCERTAINING THE PURPOSE, THE COURT HAS TO ASSUME A LL FACTS WHICH ARE INCIDENTAL TO THE GIVING EFFECT TO THAT FICTION. SU CH A DEEMING FICTION WOULD NOT BE GIVEN A WIDER MEANING THAN WHAT IT PURPORTS TO DO. THE PROVISION WOULD NECESSARILY BE ACCORDED, STRICT INTERPRETATIO N AND THE AMBIT OF THE FICTION WOULD NOT BE PRESSED BEYOND ITS TRUE LIMITS . SEC. 2(22)(E) HAS NOT BEEN ENACTED TO STIFLE NORMAL BUSINESS TRANSACTION CARRIED OUT DURING THE COURSE OF BUSINESS. THE SECTION, BY INDICATING A DE EMING FACTION, WOULD BRING WITHIN ITS SWEEP ANY PAYMENT BY A COMPANY BY WAY OF ADVANCE OR LOAN TO SHAREHOLDER .... TO ANY CONCERN IN WHICH SU CH SHAREHOLDER IS A MEMBER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. THE BASIC ISSUE TO BE EXAMINED IN THE PRESENT CASE IS WHETHER DEBIT BALAN CES IN THE ACCOUNTS CAN BE CONSTRUED AS ADVANCE OR LOAN BY THESE COMPAN IES. IN SO FAR AS OTHER ITA NOS.598 TO 603/MDS./16 :- 19 - : INGREDIENTS AS REQUIRED TO BE FULFILLED UNDER S. 2( 22)(E) ARE CONCERNED, THERE IS NO DISPUTE RAISED BEFORE US. 10. IN SO FAR DEBIT BALANCE IN THE NAME OF DIRECTO R IN THE BOOKS OF ACCOUNT OF THE ASSESSEE TO BE CONSIDERED AS DEEMED DIVIDEND . IN VIEW OF THE BINDING DECISION OF JURISDICTIONAL HIGH COURT IN TH E CASE OF SUNIL KAPOOR REPORTED IN [2015] 375 ITR 1 (MAD) WHEREIN OBSERVED THAT ANY A MOUNT PAID TO THE ASSESSEE BY THE COMPANY DURING THE RELE VANT YEAR, LOAN AMOUNT REPAID BY THE ASSESSEE IN A SAME YEAR SHOULD BE DEEMED TO BE CONSTRUED AS DIVIDEND FOR ALL PURPOSES. FURTHE R IT IS NOTED BY THE JURISDICTIONAL HIGH COURT IN THAT CASE THAT WHILE C OMPUTING THE DEEMED DIVIDEND ONE HAS TO BE CONSIDERED THE PAYMENTS MADE BY THE ASSESSEE TO THE COMPANY. HENCE IT IS OBSERVED BY THE COURT T HAT EACH DEBIT WILL HAVE TO BE INDIVIDUALLY CONSIDERED BECAUSE IT MAY OR MAY NOT BE A LOAN. THE AO IS, THEREFORE, DIRECTED TO VERIFY THE EACH DEBIT ENTRY ON THE AFORESAID LOAN AND TREAT ONLY THE EXCESS AMOUNT OF DEBIT IN THE BOOKS OF ACCOUNTS OF THE COMPANY AS A DEEMED DIVIDE ND U/S.2(22)(E) OF THE ACT. IN OTHER WORDS, ONLY THOSE NET AMOUNTS WHICH REFLECTED THE DEBIT SIDE OF THE BOOKS OF ACCOUNTS OF THE ASSESSEE FALLING UNDER THE DEFINITION OF THE LOANS AND ADVANCES, IS WITH REGAR D TO THESE ASSESSEES IN THE RELEVANT ASSESSMENT YEARS WILL BE ENTITLED T O BE TAKEN AS A DEEMED DIVIDEND. IN OTHER WORDS, THE AO HAS TO COM PUTE THE DAY TO DAY DEBIT BALANCE OF THESE ASSESSEES IN THE BOOKS O F ACCOUNTS AND ITA NOS.598 TO 603/MDS./16 :- 20 - : THEREAFTER THE AO HAS TO ARRIVE AT AVERAGE YEARLY B ALANCE OF THE DEBIT IN THE BOOKS OF ACCOUNT OF EACH COMPANY AND COMPARE WITH IT, ACCUMULATED PROFIT IN RESPECT OF EACH COMPANY AND L OWER OF THESE TO BE CONSIDERED AS DEEMED DIVIDEND IN THE HANDS OF PR ESENT ASSESSEE. WITH THIS OBSERVATION, WE REMIT THE ISSUE TO THE FI LE OF AO FOR FRESH CONSIDERATION. 11. THE LD.A.R MADE PLEA BEFORE US THAT ONLY PEAK DEBIT BALANCE OF LOANS OF EACH DIRECTOR IN THE BOOKS OF ACCOUNTS IN RESPECT OF COMPANY TO BE CONSIDERED TO ARRIVE AT DEEMED DIVIDEND IN TE RMS OF SEC.2(22)(E) OF THE ACT. IN OUR OPINION, THIS ARGUMENT OF THE L D.A.R IS DEVOID OF MERIT. IF WE ACCEPT THIS CONTENTION OF THE LD.A.R, IT LEADS TO ABSURDITY AND MAKES THE SEC.2(22)(E) OF THE ACT AS REDUNDANT. SINCE PROVISION IS APPLICABLE FOR EACH PAYMENT, THEN THERE IS NO QUEST ION OF ARRIVING AT DEEMED DIVIDEND IN THE HANDS OF DIRECTOR. HENCE, WE ARE NOT IN A POSITION TO CONSIDER THESE ARGUMENTS OF THE LD.A.R THAT ONLY PEAK CREDIT TO BE CONSIDERED TO DETERMINE THE DEEMED DIV IDEND. 12. FURTHER, WE MAKE IT CLEAR THAT IN THE DOUBLE ENTRY OF BOOK KEEPING, THE JOURNAL ENTRY IS ALSO HAVE THE FINANCI AL IMPLICATION AND IT CANNOT BE IGNORED AS ARGUED BY THE LD.A.R. THE JOU RNAL ENTRIES ARE ALSO TO BE CONSIDERED WHILE COMPUTING THE YEARLY DE BIT BALANCE IN RESPECT OF LOANS AND ADVANCES. ITA NOS.598 TO 603/MDS./16 :- 21 - : 13. THE NEXT GROUND IS WITH REGARD TO LEVY OF INTE REST U/S.234B & 234C OF THE ACT, WHICH IS MANDATORY AND CONSEQUENTI AL IN NATURE TO BE COMPUTED ACCORDINGLY. SINCE THE ISSUE IN ALL THESE APPEALS IS COMMON, APPLYING THE SAME RATIO AS OBSERVED IN THE CASE OF GURBINDER SINGH, WE ARE GIVING SIMILAR DIRECTION IN CASE OF OTHER TW O ASSESSEES ALSO. 14. IN THE RESULT ALL THE APPEALS OF THE ASSESSEES ARE PARTLY ALLOWED. ORDER PRONOUNCED ON 22 ND JULY, 2016, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 22 ND JULY, 2016 K S SUNDARAM &'(()*( +* / COPY TO: ( 1 . / APPELLANT 4. ( , / CIT 2. / RESPONDENT 5. *-. (/ / DR 3. ( ,(0 1 / CIT(A) 6. .2(3 / GF