DCIT, Hyderabad V. M/s Margadarsi Marketing (P) Limited, Hyderabad

ITA 689/HYD/2010

• Counselvise Citation: 68922514 RSA 2010
• Duration Of Justice: 3 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 05-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: K GOPAL CHOWDHRY
• Keywords: Deemed dividend; Reason to believe
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 689, 690 & 1234/HYD/2010 & 1849/HYD/2011 ASSESSMENT YEARS : 2005-06, 2006-07, 2007-08 & 2008 -09 DY. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE - 16(2,)HYDERABAD. VS. M/S MARGADARSHI MARKETING (P) LTD., RESPONDE NT HYDERABAD (PAN AAACA2210N) APPELLANT BY : SHRI P. SOMASEKHAR REDDY RESPONDENT BY : SHRI K. GOPAL CHOWDHRY DATE OF HEARING : 26/09/2013 DATE OF PRONOUNCEMENT : 3 0/09/2013 ORDER PER SAKTIJIT DEY, J.M.: THESE APPEALS PERTAINING TO ONE ASSESSEE PREFERRE D BY THE REVENUE ARE DIRECTED AGAINST SEPARATE ORDERS OF CIT (A)-V, HYDERABAD, FOR THE ASSESSMENT YEARS 2005-06 TO 200 8-09. AS IDENTICAL ISSUE IS INVOLVED IN ALL THESE APPEALS, T HEY WERE CLUBBED AND HEARD TOGETHER, THEREFORE, A COMMON ORDER IS PA SSED FOR THE SAKE OF CONVENIENCE. 2. IN THE GROUNDS RAISED THE DEPARTMENT HAS CHALLENGED THE ORDER OF THE CIT(A) DELETING THE ADD ITION MADE BY THE ASSESSING OFFICER BY TREATING THE AMOUN T ITA NOS. 689, 690 & 1234/HYD/2010 & 1849/H/11 M/S MARGDARSHI MARKETING (P) LTD. 2 RECEIVED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT , IN ALL THE YEARS UNDER CONSIDERATION. 3. SINCE THE ISSUE IS COMMON AND FACTS ARE IDENTICA L IN ALL THESE APPEALS, WE WILL DEAL WITH THE FACTS IN I TA NO. 689/HYD/2010 PERTAINING TO THE ASSESSMENT YEAR 2005 - 06 FOR THE SAKE OF CONVENIENCE. 4. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A PRIVATE LTD. COMPANY MAINLY ENGAGED IN THE BUSINESS OF MARKETING AND SALE PROMOTION BESIDES VARIOUS OTHER ACTIVITIES . FOR THE ASSESSMENT YEAR UNDER DISPUTE THE ASSESSEE FILE D ITS RETURN OF INCOME ON 30/10/2005 DECLARING TOTAL INCO ME OF RS. 92,04,420/-. THE RETURN WAS PROCESSED U/S 143(1 ) OF THE ACT. SUBSEQUENTLY, THE ASSESSING OFFICER HAVING REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMEN T ON ACCOUNT OF DIFFERENCE BETWEEN THE RECEIPT ADMITT ED BY THE ASSESSEE AND RECEIPT SHOWN IN THE TDS CERTIFICA TES, REOPENED THE ASSESSMENT BY ISSUING A NOTICE U/S 14 8 OF THE ACT ON 10/04/2007. DURING THE REASSESSMENT PROCEEDING THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WAS PROVIDING SERVICES TO M/S USHODAYA ENTERPRISES LTD. FOR RENDERING SERVICES THE ASSESSE E WAS RECEIVING ADVANCES FROM USHODAYA ENTERPRISES AND TH E ADVANCES ARE SUBSEQUENTLY ADJUSTED AGAINST THE BILL S RAISED FOR THE SERVICES RENDERED. THE ASSESSING OFF ICER FURTHER NOTICED THAT CH. RAMOJI RAO (HUF) IS HOLDIN G 90% SHARE OR VOTING RIGHT IN BOTH THE COMPANIES. USHODA YA ENTERPRISES LTD IS ALSO HAVING ACCUMULATED PROFITS. THE ASSESSING OFFICER THEREFORE WAS OF THE VIEW THAT TH E EXCESS ADVANCES RECEIVED AGAINST THE SERVICES TO BE RENDERED COMES UNDER THE PURVIEW OF DEEMED DIVIDEND ITA NOS. 689, 690 & 1234/HYD/2010 & 1849/H/11 M/S MARGDARSHI MARKETING (P) LTD. 3 U/S 2(22)(E) OF THE ACT. THOUGH IT WAS SUBMITTED BY THE ASSESSEE THAT THE ADVANCES ARE NOT IN THE NATURE OF LOANS BUT WERE TRADE CREDITS AGAINST WHICH BILLS WERE RAI SED AND SERVICES WERE RENDERED, THE ASSESSING OFFICER HOWEVER REJECTING SUCH CONTENTION HELD THAT ADVANCE S RECEIVED FELL WITHIN THE PURVIEW OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT AND ACCORDINGLY TREATED THE AMO UNT OF RS. 23,97,24,392/- AS INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER DISPUTE. 5. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER SO PASSED BY PREFERRING AN APPEAL BEFORE THE CIT(A). T HE CIT(A) FOLLOWING HIS FINDING IN ASSESSEES APPEAL F OR THE ASSESSMENT YEAR 2006-07 HELD THAT ADDITION MADE BY THE ASSESSING OFFICER IN TERMS OF DEEMED DIVIDEND COULD NOT BE MADE IN THE HANDS OF THE ASSESSEE AS THE ASSESSE E IS NOT A SHAREHOLDER OF M/S USHODAYA ENTERPRISES LTD. HE FURTHER HELD THAT THE ADVANCES MADE BY USHODAYA ENTERPRISES LTD ARE IN THE FORM OF A RUNNING ACCOUN T OF COMMERCIAL TRADE, HENCE DO NOT COME WITHIN THE PURV IEW OF DEEMED DIVIDEND AS PER SECTION 2(22)(E) OF THE A CT. THE CIT(A) ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 6. BEING AGGRIEVED OF THE AFORESAID ASSESSMENT ORDE R OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 7. HAVING HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WE LL AS OTHER MATERIALS ON RECORD, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF THE CIT(A). THE FACT THAT THE ASSESSEE IS NOT A SHAREHOLDER OF M/S USHODAYA ENTERPRISES LTD. HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT. THEREFORE, AS PER ITA NOS. 689, 690 & 1234/HYD/2010 & 1849/H/11 M/S MARGDARSHI MARKETING (P) LTD. 4 THE PROVISION CONTAINED U/S 2(22)(E) OF THE ACT THE ADVANCES CANNOT BE CONSIDERED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. THE HONBLE DELHI HIGH C OURT IN CASE OF CIT VS. ANKITECH P. LTD. 340 ITR 14, WH ILE CONSIDERING IDENTICAL ISSUE APPROVED THE DECISION O F THE ITAT, MUMBAI SPECIAL BENCH IN CASE OF BHAUMIC COLOU RS (P) LTD., 313 ITR (AT) 146 AND HELD AS UNDER: 22. INSOFAR AS THE PROVISIONS OF SECTION 2(22)(E) ARE CONCERNED, WE HAVE ALREADY EXTRACTED THIS PROVISION AND TAKEN NOTE OF THE CONDITIONS/REQUISIT ES WHICH ARE TO BE ESTABLISHED FOR MAKING PROVISION APPLICABLE. IN COMMISSIONER OF INCOME TAX VS. C.P. SARATHY MUDALIAR[1972] 83 ITR 170, THE SUPREME COURT HAD TRACED OUT THE ASSESSEE OF THIS PROVISION IN THE FOLLOWING MANNER: ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTEREST, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER 31.05.19987 BY WAY OF ADVANCE OR LOAN. FIRST LIMB A) TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PERCENT OF THE VOTING POWER, SECOND LIMB B) OR TO MY CONCERN IN WHICH, SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) THIRD LIMB C) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OR ANY SUCH ITA NOS. 689, 690 & 1234/HYD/2010 & 1849/H/11 M/S MARGDARSHI MARKETING (P) LTD. 5 SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS. 23. IT IS RIGHTLY POINTED OUT BY THE BOMBAY HIGH COURT IN UNIVERSAL MEDICARE (P) LTD.(SUPRA)THAT SECTION 2(22)(E) OF THE ACT IS NOT ARTISTICALLY WOR DED. BE AS IT MAY, WE MAY REITERATE THAT AS PER THIS PROVISION, THE FOLLOWING CONDITIONS ARE TO BE SATISFIED: (1) THE PAYER COMPANY MUST BE A CLOSELY HELD COMPANY. (2) IT APPLIES TO ANY SUM PAID BY WAY OF LOAN OR ADVANCE DURING THE YEAR TO THE FOLLOWING PERSONS: (A) A SHAREHOLDER HOLDING AT LEAST 10 OF VOTING POWER IN THE PAYER COMPANY. (B) A COMPANY IN WHICH SUCH SHAREHOLDER HAS AT LEAST 20% OF THE VOTING POWER. (C) A CONCERN (OTHER THAN COMPANY) IN WHICH SUCH SHAREHOLDER HAS AT LEAST 20% INTEREST. (3) THE PAYER COMPANY HAS ACCUMULATED PROFITS ON THE DATE OF ANY SUCH PAYMENT AND THE PAYMENT IS OUT OF ACCUMULATED PROFITS. (4) THE PAYMENT OF LOAN OR ADVANCE IS NOT IN COURSE OF ORDINARY BUSINESS ACTIVITIES. 24. THE INTENTION BEHIND ENACTING PROVISIONS OF SECTION 2(22)(E) IS THAT CLOSELY HELD COMPANIES (I. E. COMPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED), WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH THE COMPANY HAS ACCUMULATED PROFITS WOULD NOT DISTRIBUTE SUCH PROFI T AS DIVIDEND BECAUSE IF SO DISTRIBUTED THE DIVIDEND INCOME WOULD BECOME TAXABLE IN THE HANDS OF THE SHAREHOLDERS. INSTEAD OF DISTRIBUTING ACCUMULATED PROFITS AS DIVIDEND, COMPANIES DISTRIBUTE THEM AS LOAN OR ADVANCES TO SHAREHOLDERS OR TO CONCERN IN WHICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST O R MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL ITA NOS. 689, 690 & 1234/HYD/2010 & 1849/H/11 M/S MARGDARSHI MARKETING (P) LTD. 6 BENEFIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVISIONS, SUCH PAYMENT BY THE COMPANY IS TREATED AS DIVIDEND. THE INTENTION BEHIN D THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IS TO TAX DIVIDEND IN THE HANDS OF SHAREHOLDERS. THE DEEMING PROVISIONS AS IT APPLIES TO THE CASE OF LOA NS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON T HE PRESUMPTION THAT THE LOANS OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. 25. FURTHER, IT IS AN ADMITTED CASE THAT UNDER NORMAL CIRCUMSTANCES, SUCH A LOAN OR ADVANCE GIVEN TO THE SHAREHOLDERS OR TO A CONCERN, WOULD NOT QUALIFY AS DIVIDEND. IT HAS BEEN MADE SO BY LEGAL FICTION CREATED UNDER SECTION 2(22)(E) OF THE ACT. WE HAVE TO KEEP IN MIND THAT THIS LEGAL PROVISION RELA TES TO DIVIDEND. THUS, BY A DEEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLARGED. LEGAL FIC TION DOES NOT EXTEND TO SHAREHOLDER. WHEN WE KEEP IN MIND THIS ASPECT, THE CONCLUSION WOULD BE OBVIOUS, VIZ., LOAN OR ADVANCE GIVEN UNDER THE CONDITIONS SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT WOULD ALSO BE TREATED AS DIVIDEND. THE FICTION HAS TO STO P HERE AND IS NOT TO BE EXTENDED FURTHER FOR BROADENING THE CONCEPT OF SHAREHOLDERS BY WAY OF LEGAL FICTION. IT IS A COMMON CASE THAT ANY COMPANY IS SUPPOSED TO DISTRIBUTE THE PROFITS IN THE FORM O F DIVIDEND TO ITS SHAREHOLDERS/MEMBERS AND SUCH DIVIDEND CANNOT BE GIVEN TO NON-MEMBERS. THE SECOND CATEGORY SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT, VIZ., A CONCERN (LIKE THE ASSESSEE HEREIN) , WHICH IS GIVEN THE LOAN OR ADVANCE IS ADMITTEDLY NO T A SHAREHOLDER/MEMBER OF THE PAYER COMPANY. THEREFORE, UNDER NO CIRCUMSTANCE, IT COULD BE TREATED AS SHAREHOLDER/MEMBER RECEIVING DIVIDEND. IF THE INTENTION OF THE LEGISLATURE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEMED DIVIDEND AT THE HANDS OF DEEMING SHAREHOLDER, THEN THE LEGISLATURE WOULD HAVE INSERTED DEEMING PROVISION IN RESPECT OF SHAREHOLDER AS WELL, THAT HAS NOT HAPPENED. MOST OF THE ARGUMENTS OF THE LEARNED COUNSELS FOR THE REVENUE WOULD STAND ANSWERED, ONCE WE LOOK INTO THE MATTER FROM THIS PERSPECTIVE. 26. IN A CASE LIKE THIS, THE RECIPIENT WOULD BE A ITA NOS. 689, 690 & 1234/HYD/2010 & 1849/H/11 M/S MARGDARSHI MARKETING (P) LTD. 7 SHAREHOLDER BY WAY OF DEEMING PROVISION. IT IS NOT CORRECT ON THE PART OF THE REVENUE TO ARGUE THAT IF THIS POSITION IS TAKEN, THEN THE INCOME IS NOT TAX ED AT THE HANDS OF THE RECIPIENT. SUCH AN ARGUMENT BASED ON THE SCHEME OF THE ACT AS PROJECTED BY THE LEARNED COUNSELS FOR THE REVENUE ON THE BASIS OF SECTIONS 4, 5, 8, 14 AND 56 OF THE ACT WOULD BE OF NO AVAIL. SIMPLE ANSWER TO THIS ARGUMENT IS THAT SUCH LOAN OR ADVANCE, IN THE FIRST PLACE, IS NOT AN INCO ME. SUCH A LOAN OR ADVANCE HAS TO BE RETURNED BY THE RECIPIENT TO THE COMPANY, WHICH HAS GIVEN THE LOAN OR ADVANCE. 27. PRECISELY, FOR THIS VERY REASON, THE COURTS HA VE HELD THAT IF THE AMOUNTS ADVANCED ARE FOR BUSINESS TRANSACTIONS BETWEEN THE PARTIES, SUCH PAYMENT WOULD NOT FALL WITHIN THE DEEMING DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. 28. INSOFAR AS RELIANCE UPON CIRCULAR NO. 495 DATE D 22.09.1997 ISSUED BY CENTRAL BOARD OF DIRECT TAXES IS CONCERNED, WE ARE INCLINED TO AGREE WITH THE OBSERVATIONS OF THE MUMBAI BENCH DECISION IN BHAUMIK COLOUR (P) LTD. (SUPRA)THAT SUCH OBSERVATIONS ARE NOT BINDING ON THE COURTS. ONCE IT IS FOUND THAT SUCH LOAN OR ADVANCE CANNOT BE TREATE D AS DEEMED DIVIDEND AT THE HANDS OF SUCH A CONCERN WHICH IS NOT A SHAREHOLDER, AND THAT ACCORDING TO U S IS THE CORRECT LEGAL POSITION, SUCH A CIRCULAR WOUL D BE OF NO AVAIL. 29. NO DOUBT, THE LEGAL FICTION/DEEMED PROVISION CREATED BY THE LEGISLATURE HAS TO BE TAKEN TO MAGIGICAL CONCLUSION AS HELD IN ANDALEEB SEHGAL (SUPRA). THE REVENUE WANTS THE DEEMING PROVISION TO BE EXTENDED WHICH IS ILLOGICAL AND ATTEMPT IS TO CREATE A REAL LEGAL FICTION, WHICH IS NOT CREATED B Y THE LEGISLATURE. WE SAY AT THE COST OF REPETITION T HAT THE DEFINITION OF SHAREHOLDER IS NOT ENLARGED BY AN Y FICTION. 30. BEFORE WE PART WITH, SOME COMMENTS ARE TO BE NECESSARILY MADE BY US. AS POINTED OUT ABOVE, IT IS NOT IN DISPUTE THAT THE CONDITIONS STIPULATED IN SECTION 2(22)(E) OF THE ACT TREATING THE LOAN AND ADVANCE AS DEEMED DIVIDEND ARE ESTABLISHED IN THESE CASES. THEREFORE, IT WOULD ALWAYS BE OPEN TO THE REVENUE TO TAKE CORRECTIVE MEASURE BY TREATING ITA NOS. 689, 690 & 1234/HYD/2010 & 1849/H/11 M/S MARGDARSHI MARKETING (P) LTD. 8 THIS DIVIDEND INCOME AT THE HANDS OF THE SHAREHOLDERS AND TAX THEM ACCORDINGLY. AS OTHERWISE, IT WOULD AMOUNT TO ESCAPEMENT OF INCOME AT THE HANDS OF THOSE SHAREHOLDERS. 8. THE SAME VIEW HAS ALSO BEEN EXPRESSED BY THE HONBLE DELHI HIGH COURT AGAIN IN CASE OF CIT VS. N AVYUG PROMOTERS P. LTD. (203 TAXMAN 618) AND HONBLE BOMB AY HIGH COURT IN CASE OF CIT VS. UNIVERSAL MEDICARE (P ) LTD., (324 ITR 263). 9. THE ITAT, HYDERABAD BENCH IN CASE OF MARC MANUFACTURERS PVT. LTD. VS. ACIT IN ITA NO. 555/HYD/2008 DT. 31/08/2009 WHILE CONSIDERING IDENT ICAL ISSUE OF ADVANCEMENT OF LOAN TO ONE COMPANY, WHICH IS NOT A SHAREHOLDER OF THE LENDER COMPANY FOLLOWING T HE DECISION OF ITAT MUMBAI SPECIAL BENCH IN CASE OF BHAUMIK COLOUR P. LTD. (SUPRA) AND OTHER DECISIONS HELD AS UNDER: 5. IT CAN BE SEEN FROM THE CIRCULAR THAT THE PROVI SIONS OF AMENDED SECTION 2(22)(E) ARE TO BE APPLIED ONLY TO THE PAYMENTS MADE TO THE SHAREHOLDERS AND NOT TO ANY OTHER PERSO N OR CONCERN OTHER THAN THE SHAREHOLDERS. THE ALLAHABAD HIGH COU RT IN THE CASE OF CIT VS. H.K. MITTAL REPORTED IN 219 ITR 420 HELD THAT THE CHIEF INGREDIENT OF DIVIDEND AS DEFINED IN SUB CLAUSE (E) OF CLAUSE (22) OF SECTION 2 OF THE I T ACT IS THAT THE RECIPIENT SHOU LD A SHAREHOLDER ON THE DAY THE LOAN WAS ADVANCED. IF THAT FACT IS NOT ESTABLISHED, THERE CANNOT BE A DEEMED DIVIDEND. THEREFORE, THE PROVISI ONS OF SEC. 2(22)(E) CANNOT BE APPLIED TO MARC AS IT IS NOT A S HAREHOLDER IN MTAR TECHNOLOGIES PVT. LTD. (HEREINAFTER CALLED AS MTAR). IN THIS REGARD, THE ASSESSEE RELIES ON THE DECLSLON OF THE ITAT MUMBAI BENCH 'G' IN THE CASE OF SEAMIST PROPERTIES PVT. LT D. VS. ITO REPORTED IN (2005) 1 SOT PAGE 142. THE ASSESSEE FUR THER SUBMITS THAT THE PROVISIONS OF SEC. 2(22)( E) MENTION AS UN DER: 'ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN W HICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) (MADE AFTER THE 31ST DAY OF MAY, 1987, B Y 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 ITA NOS. 689, 690 & 1234/HYD/2010 & 1849/H/11 M/S MARGDARSHI MARKETING (P) LTD. 9 IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF T HE 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 T HE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHA LF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER , TO THE- EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS' 6. THE INTENTION OF THE LEGISLATURE IS CLA RIFIED IN CIRCULAR ISSUED BY THE CBIT AS AT THE TIME OF AMENDMENT OF CLAUSE (E) OF SUB SECTION (22) OF SEC. 2 IS FURTHER FORTIFIED BY THE FACT THA T FOR DEDUCTION OF TAX AT SOURCE. SEC. 194 PROVIDE THAT SUCH DEDUCTION OF TAX HAS TO BE MADE IN THE CASE OF THE PAYMENTS OF THE NATURE MENT IONED IN CLAUSES (A), (B), (C), (D) AND (E) OF SUB SECTION ( 22) OF SECTION 2 ONLY IN A CASE WHERE SUCH PAYMENTS WERE MADE TO A S HAREHOLDER. SECTION 199 ALSO INDICATES THAT ADJUSTMENT OF TOS W OULD BE PROVIDED IN THE ASSESSMENT OF SHAREHOLDER ONLY. THE VERY FACT THAT THE PROVISION FOR DEDUCTION OF TAX AT SOURCE AND AD JUSTMENT OF TAX IS ONLY IN RESPECT OF THE PAYMENTS TO THE' SHAREHOLDER WOULD CLEARLY INDICATE THAT EVEN AFTER THE AMENDMENT, THE EFFECT OF CLAUSE (E) OF SUB SECTION (22) OF SEC. 2 WOULD APPLY ONLY WHEN THE PAYMENT IS MADE TO SHAREHOLDER. WHEREVER, THE TAX IS TO BE DEDU CTED AT SOURCE FROM A DIVIDEND OR DEEMED DIVIDEND AND THE CONSEQUENTI AL EFFECT OF GIVING EFFECT TO SUCH DEDUCTION OF TAX AT SOURCE, ETC. , REFERENCE WAS MADE ONLY TO THE PAYMENTS TO THE SHAREHOLDER. THIS WOULD INDICATE CLEARLY THAT CLAUSE (E) WOULD APPLY ONLY IN CASE OF PA YMENTS TO THE SHAREHOLDER AND NOT TO OTHERS. THEREFORE, CONSIDERED IN THE LIGHT OF THE RATIOS LA ID DOWN AS AFORESAID THE ADVANCES CANNOT BE TREATED AS DEEM ED DIVIDEND COMING WITHIN THE AMBIT OF SECTION 2(22)(E ) OF THE ACT. 10. EVEN OTHERWISE ALSO THE AMOUNTS RECEIVED BY THE ASSESSEE FROM M/S USHODAYA ENTERPRISES P. LTD. CANN OT BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E ) OF THE ACT. ON A PERUSAL OF THE ORDER PASSED BY THE CI T(A) FOR THE ASSESSMENT YEAR 2006-07, WHICH IS ALSO IN A PPEAL BEFORE US, IT IS VERY MUCH EVIDENT THAT THE CIT(A) HAS ELABORATELY AND EXHAUSTIVELY DEALT WITH THE ISSUE B Y EXAMINING ALL THE RELEVANT FACTS AND MATERIALS AND THEREAFTER HAS COME TO THE CONCLUSION THAT THE AMOU NTS ITA NOS. 689, 690 & 1234/HYD/2010 & 1849/H/11 M/S MARGDARSHI MARKETING (P) LTD. 10 RECEIVED BY THE ASSESSEE FROM M/S USHODAYA ENTERPRI SES IS IN REGULAR COURSE OF TRADE, HENCE, OUTSIDE THE P URVIEW OF SECTION 2(22)(E) OF THE ACT. ON THE CONTRARY, TH E ASSESSING OFFICER NEITHER IN COURSE OF THE ASSESSME NT PROCEEDING NOR IN HIS REMAND REPORT HAS BROUGHT ANY MATERIALS TO ESTABLISH THE FACT THAT THE AMOUNT REC EIVED WAS NOT IN REGULAR COURSE OF TRADE BUT IN THE NATUR E OF LOAN AND ADVANCE AS ENVISAGED U/S 2(22)(E) OF THE A CT. IN AFORESAID VIEW OF THE MATTER, WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE CIT(A) IN AL L THE ASSESSMENT YEARS UNDER CONSIDERATION AND UPHOLD THE SAME. THE GROUNDS RAISED BY THE DEPARTMENT BEING DEVOID OF MERIT ARE THEREFORE DISMISSED IN ALL THE APPEALS UNDER CONSIDERATION. 11. IN THE RESULT, ALL THE APPEALS FILED BY THE DEPARTMENT ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30/09/2013. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMB ER HYDERABAD, DATED: 30 TH SEPTEMBER, 2013. KV COPY TO:- 1) DCIT, CIRCLE 16(2), HYDERABAD. 2) MARGARDARSHI MARKETING PVT. LTD., 6-3-570, EENAD U COMPLEX, SOMAJIGUDA, HYDERABAD 500 082. 3) CIT(A)-V, HYDERABAD. 4) CIT-IV HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T ., HYDERABAD.