ITL FABRICS P.LTD, MUMBAI V. ACIT OSD 1 CEN RG 7, MUMBAI

ITA 7247/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8907 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 05-09-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 22-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K G KUTTY
• Assessee Lawyers: N R AGARWAL
• Keywords: Reopening of assessment; Difference of opinion; Deemed dividend; Change of opinion
• Section: 143(3); 80IB; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I , MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 7247/MUM/2010 ASSESSMENT YEAR : 2002-03 M/S. ITL FABRICS PRIVATE LTD. C/O. JAM CASTING PVT. LTD. 154, GURU GOVIND SINGH INDL. ESTATE, GOREGAON (E) MUMBAI-400 063. PAN NO. AAACI 4803 N ASSTT. COMMISSIONER OF INCOME TAX OSD-1 CENTRAL RANGE, AAYAKAR BHAVAN MUMBAI. (APPELLANT) VS. (RESPONDENT) ASSESSEE BY : SHRI N.R. AGARWAL DEPARTMENT BY : SHRI K.G. KUTTY DATE OF HEARING : 5.9.2012 DATE OF PRONOUNCEMENT : 21.9.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 17.9.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2002-03. TH E DISPUTES RAISED IN THIS APPEAL RELATE TO LEGAL VALIDITY OF RE- OPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE INCOME TAX ACT, 1961 (T HE ACT) AND THE ADDITION MADE BY AO AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. ITA NO.7247/M/10 A.Y.02-03 2 2. WE FIRST TAKE UP THE ISSUE OF LEGAL VALIDITY OF RE OPENING OF THE ASSESSMENT. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FOR THE RELEVANT YEAR HAD DECLARED LOSS OF RS.7,71,770/- IN THE ORIGINA L RETURN OF INCOME FILED ON 31.10.2002. THEREAFTER REGULAR ASSESSMEN T UNDER SECTION 143(3) WAS COMPLETED ON 18.10.2005 IN WHICH TOTA L INCOME WAS DETERMINED AT RS.2,95,770/-. THEREAFTER THE AO NO TED THAT THE ASSESSEE HAD OBTAINED UNSECURED LOANS OF RS.2.00 CRORES FROM ITL INDUSTRIES LTD. IT WAS ALSO NOTED BY HIM THAT SHRI RAJA N K. LAL WAS COMMON SHARE HOLDER HAVING 55% SHARE HOLDING IN ASSESSEE COMPANY AND 21.12% IN ITL INDUSTRIES LTD. THUS, HE WAS HAVING SUBSTANTIAL INTEREST IN BOTH THE CONCERNS AND ACCORDINGLY AO FORMED T HE OPINION THAT PROVISIONS OF SECTION 2(22)(E) WERE APPLICABLE IN RESPECT OF LOANS RECEIVED BY THE ASSESSEE FROM ITL INDUSTRIES LTD. THE AO FURTHER NOTED THAT M/S. ITL INDUSTRIES LTD. WAS HAVING ACCUMULATED PRO FIT/RESERVES AND SURPLUS OF RS.97,91,884/- TILL 31.3.2001 AND RS.1,2 5,65,756/- TILL 31.3.2002. THEREFORE SUM OF RS.1,25,65,756/- WAS ASSESSAB LE AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME T AX ACT IN CASE OF THE ASSESSEE. AO ALSO NOTED THAT THE ASSESSEE HAD NOT FUR NISHED SHARE HOLDING PATTERN IN RESPECT OF ITL INDUSTRIES LTD. FOR ASSESSMENT YEAR 2002-03. THE ASSESSEE HAD THEREFORE, FAILED TO DISCL OSE TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. HE, THEREF ORE, FORMED THE BELIEF THAT INCOME CHARGEABLE TO TAX TO THAT EXTE NT HAD ESCAPED ITA NO.7247/M/10 A.Y.02-03 3 ASSESSMENT. THEREFORE, AFTER RECORDING REASONS TO THE ABOV E EFFECT, THE AO REOPENED THE ASSESSMENT BY ISSUING NOTICE UNDER SECT ION 148 ON 17.10.2008. THE ASSESSEE CHALLENGED THE RE-OPENING OF THE ASSESSMENT BEFORE AO. IT WAS SUBMITTED THAT THE ORIGINAL ASSESSMENT HAD BEEN COMPLETED BY AO AFTER OBTAINING NECESSARY DETA ILS UNDER SECTION 143(3) OF THE ACT. IT WAS POINTED OUT THAT BOTH THE ASSESSEE AND ITL INDUSTRIES LTD. WERE ASSESSED UNDER THE SAME CHARGE AND BOTH ASSESSMENTS WERE COMPLETED BY THE AO. THERE WAS THEREFORE, NO FAILURE ON PART OF THE ASSESSEE TO DISCLOSE TRULY AND FULL Y ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. IT WAS ARGUED THAT REOPENING OF ASSESSMENT BY AO WAS DUE TO CHANGE OF OPINION WHICH WAS NOT PERMITTED. 2.1 THE AO HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISE D. IT WAS OBSERVED BY HIM THAT MERE PRODUCTION OF EVIDENCE BEFOR E AO WAS NOT ENOUGH. THERE SHOULD HAVE BEEN TRUE AND FULL DISCLOSURE . HE REFERRED TO THE JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY IN TH E CASE OF DR. AMINS PATHOLOGY LABORATORY (252 ITR 673) IN WHICH IT WAS HELD THAT IF THE MATERIAL EVIDENCE WAS NOT WRIT LARGE BUT WAS EMBED DED IN SOME VOLUMINOUS BOOKS OR RECORDS REQUIRING CAREFUL SCRUTINY, T HIS DID NOT MEAN DISCLOSURE WITHIN THE MEANING OF SECTION 147. THE AO ALSO REFERRED TO THE JUDGMENT OF HON'BLE HIGH COURT OF ALL AHABAD IN THE CASE OF RAM PRASAD VS. ITO (82 TAXMANN 199) IN WHICH IT WAS HELD ITA NO.7247/M/10 A.Y.02-03 4 THAT THE ASSESSEE COULD NOT BE EXONERATED FROM THE DUTY TO MAKE FULL AND TRUE DISCLOSURE OF MATERIAL FACTS MERELY BECAUSE AO IN THE ORIGINAL ASSESSMENT PROCEEDINGS COULD HAVE FOUND OUT CORRECT FACTUAL A FFAIRS BY PROBING INTO THE MATERIAL EVIDENCE PLACED BEFORE HIM BUT THAT HE HAD FAILED TO DO SO. AO ACCORDINGLY HELD THAT THE PROCEEDIN GS INITIATED UNDER SECTION 147 OF THE ACT WERE LEGALLY VALID AND RE JECTED THE OBJECTIONS RAISED BY THE ASSESSEE. 2.2 IN APPEAL CIT(A) AGREED WITH THE FINDING OF THE AO THAT RE- OPENING OF THE ASSESSMENT WAS LEGALLY VALID. HE REFERRED TO THE PROVISIONS OF EXPLANATION-1 TO SECTION 147 IN WHICH IT W AS CLEARLY PROVIDED THAT PRODUCTION BEFORE AO OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE WITH DUE DILIGENCE COULD H AVE BEEN COVERED BY AO, COULD NOT NECESSARILY MEAN DISCLOSURE WITH IN THE MEANING OF THE PROVISO. THE MERE FACT THAT BOTH THE A SSESSEE AND THE CREDITOR COMPANY WERE ASSESSED BY THE SAME AO COULD NOT BE THE BASIS TO HOLD THAT THE AO WAS EXPECTED TO KNOW ALL THE DETAILS OF THE TWO CASES. FURTHER, MERELY BECAUSE THE AO COULD HAVE EXER CISED EXTRA DILIGENCE BY LINKING THE CREDITOR AND DEBTOR FROM AMO NGST THOUSANDS OF FILES LYING UNDER HIS JURISDICTION, THIS COULD NOT EXON ERATE THE ASSESSEE FROM DISCLOSURE OF ALL FACTS. CIT(A) OBSERVED THAT PROV ISIONS OF SECTION 2(22)(E) WERE TRIGGERED ON DISCLOSURE OF SHARE HOLDING PATTERN OF COMPANY WHERE ONE OR MORE COMMON SHARE HOLDER HAD SUBST ANTIAL ITA NO.7247/M/10 A.Y.02-03 5 INTEREST IN BOTH. CIT(A) THEREFORE UPHELD THE LEGAL VALIDITY OF RE- OPENING OF THE ASSESSMENT BY AO AGGRIEVED BY WHICH ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.3 BEFORE US, THE LD. AR ARGUED THAT ORIGINAL ASSESSMEN T IN THIS CASE HAD BEEN COMPLETED UNDER SECTION 143(3) ON 18.3.2005 A ND SAME HAD BEEN RE-OPENED AFTER EXPIRY OF FOUR YEARS FROM THE E ND OF RELEVANT ASSESSMENT YEAR WHICH WAS POSSIBLE ONLY IF THERE WAS FAILURE ON PART OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT IN TERMS OF PROVISO TO SECTION 147. IN THIS CASE, CO MPLETE DETAILS HAD BEEN DISCLOSED BY THE ASSESSEE. THE LD. AR REFE RRED TO THE BALANCE SHEET OF THE ASSESSEE PLACED AT PAGE-20 OF THE PAP ER BOOK IN WHICH A SUM OF RS.2.00 CRORES HAD BEEN SHOWN AS DEPOSIT R ECEIVED FROM M/S. ITL INDUSTRIES LTD. IT WAS ALSO DISCLOSED THAT TH E ASSESSEE HAD MADE INVESTMENT IN 190510 SHARES OF ITL INDUSTRIES L TD. AT FACE VALUE OF RS. 10/- THE BALANCE SHEET ALSO SHOWED THE OPENING BALANCE OF LOANS AND ADVANCES FROM ITL INDUSTRIES LTD. WHICH WAS RS.95,68,938.88. THE LD. AR FURTHER REFERRED TO THE BALANCE SHEET OF ITL INDUSTRIES PLACED AT PAGE 43 OF THE PAPER BOOK IN WHICH A SUM OF RS. 2.00 CRORES HAD BEEN SHOWN AS LOANS AND ADVANCES TO THE ASSESSEE. IT WAS THUS ARGUED THAT THE ASSESSMENT HAD BEEN COMP LETED ORIGINALLY BY CONSIDERING ALL DETAILS AND EVIDENCES RE QUIRED FOR ITA NO.7247/M/10 A.Y.02-03 6 ASSESSMENT AND RE-OPENING OF THE ASSESSMENT WAS BASED ON CHAN GE OF OPINION. THE LD. AR PLACED RELIANCE ON THE FOLLOWING JUDGMENTS :- I) (79 ITR 609) (SC) IN CASE OF CIT VS. BURLOP DEALERS LT D. II) (329 ITR 249) (BOM.) IN CASE OF BHAVESH DEVELOPERS VS. A O AND ORS. III) (325 ITR 459) (BOM.) IN CASE OF PURITY TECHTEXTILE PVT . LTD. VS. ACIT IT WAS ALSO ARGUED THAT THAT THE AO HAD RE-OPENED THE ASSESSMENT ON THE GROUND THAT ONE OF THE SHAREHOLDERS WAS COMMON WHICH IS NOT A CONDITION FOR APPLICATION OF SECTION 2(22)(E) AS HELD B Y SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BHOWMICK COLOUR LAB LTD .(313 ITR (AT) 146). 2.4 THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW ON THE LEGAL VALIDITY OF THE RE-OPENING OF THE ASSESSMENT AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THIS REGARD IN THE RESPECTIVE ORDERS. IT WAS POINTE D OUT THAT SHARE HOLDING PATTERN OF THE TWO COMPANIES HAD NOT BEEN GIV EN BEFORE AO WHICH WAS NECESSARY FOR ASSESSMENT AS ASSESSEE HAD SHOWN ADVANCE FROM ITL INDUSTRIES LTD., AN ASSOCIATE COMPANY. 2.5 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE RAISED IN THIS GROUND IS REGARDING LEGAL VALIDITY OF RE-OPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT. THE ORIGINAL ASSESSMENT IN THIS CASE HAD BEEN COMPLETE D UNDER ITA NO.7247/M/10 A.Y.02-03 7 SECTION 143(3) ON 18.10.2005. THEREAFTER ASSESSMENT HAD B EEN REOPENED BY THE AO BY ISSUING NOTICE UNDER SECTION 148 O N 17.10.2008. THUS THERE IS NO DISPUTE THAT THE ASSESSMENT H AD BEEN RE-OPENED AFTER EXPIRY OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR. UNDER PROVISO TO SECTION 147, IN CASE, ASSESSME NT HAD BEEN MADE UNDER SECTION 143(3), THE SAME CAN BE RE- OPENED AFTER EXPIRY OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR ONLY IF THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL FACTS TRULY AND FULLY NECESSARY FOR ASSESSMENT. THE AO HELD THA T THE ASSESSEE HAD NOT FILED TRULY AND FULLY MATERIAL FACTS SUCH AS SHARE HOLDING PATTERN OF THE ASSESSEE AND ITL INDUSTRIES LTD. W HICH WAS NECESSARY FOR APPLICATION OF PROVISIONS OF SECTION 2(22)(E ) AS ASSESSEE HAD RECEIVED LOANS/ADVANCES FROM ITS SISTER CONCERN I.E. I TL INDUSTRIES LTD. THE CASE OF THE ASSESSEE IS THAT IT HAD FILED ALL NECE SSARY DETAILS AT THE TIME OF ORIGINAL ASSESSMENT AND THEREFORE IT WAS A CASE OF CHANGE OF OPINION AND ASSESSMENT COULD NOT BE REOPENED AFTER EX PIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. 2.6 BEFORE WE PROCEED TO ADJUDICATE THE ISSUE, IT WOUL D BE APPROPRIATE TO DEAL WITH A PRELIMINARY OBJECTION RAI SED BY THE LD. AR REGARDING REASONING GIVEN FOR RE-OPENING OF THE ASSESSM ENT. REASON GIVEN BY AO FOR APPLICATION OF SECTION 2(22)(E) WAS THA T SHRI RAJAN K. LAL WAS A COMMON SHARE HOLDER IN THE ASSESSEE COMPANY AND I TL ITA NO.7247/M/10 A.Y.02-03 8 INDUSTRIES LTD. HAVING MORE THAN 20% SHARE HOLDING IN BOTH THE COMPANIES AND THEREFORE, PROVISIONS OF SECTION 2(22)(E) W ERE APPLICABLE. THE LD. AR FOR THE ASSESSEE ARGUED THAT THIS COULD NOT BE REASON FOR APPLICATION OF PROVISIONS OF SECTION 2(22)(E). THE PROVISIONS COULD BE APPLIED WHEN LOAN / ADVANCES HAVE BEEN RECEIV ED BY A SHARE HOLDER HAVING MORE THAN 10% OF SHARE HOLDING AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BHOWMIK COLOUR LA B LTD. (SUPRA). WE FIND THAT BEFORE THE DECISION OF SPECIAL BENCH OF T HE TRIBUNAL THERE WAS SOME AMBIGUITY IN PROVISIONS OF SECTION 2(22)(E). THE PROVISIONS WERE APPLICABLE WHEN LOANS/ADVANCES WERE RECEIVED BY SH ARE HOLDER HAVING MORE THAN 10% SHARE HOLDING OR BY CONCERNS IN WH ICH SUCH SHARE HOLDER HAD SUBSTANTIAL INTEREST. THERE WAS SOME AM BIGUITY AS TO THE NAME IN WHICH DEEMED DIVIDEND UNDER SECTION 2(22)( B) COULD BE ASSESSED IN CASE OF LOAN/ADVANCES RECEIVED BY A CONCERN IN WHI CH SHARE HOLDER HAD SUBSTANTIAL INTEREST. THE SPECIAL BENCH HELD THAT THE AMOUNT CAN BE ASSESSED ONLY IN THE NAME OF SHARE HOLDER WHO WAS NOT ONLY REGISTERED SHARED HOLDER BUT ALSO BENEFICIAL SHARE HOLDER. THE AO HAD RE-OPENED THE ASSESSMENT BASICALLY ON THE GROUND THA T PROVISIONS OF SECTION 2(22)(E) WERE APPLICABLE AND ASSESSEE HAD FAILE D TO GIVE NECESSARY DETAILS IN RELATION THERETO. THEREFORE, IN CASE ULTIMATELY IT IS FOUND THAT THE PROVISIONS OF SECTION 2(22)(E) WERE APPL ICABLE AND ASSESSEE HAD NOT FILED TRULY AND FULLY ALL MATERIAL FAC TS, THEN RE- ITA NO.7247/M/10 A.Y.02-03 9 OPENING OF THE ASSESSMENT CAN NOT BE HELD INVALID. THE A SSESSEE HAS NOT DISPUTED THAT IT HAD MORE THAN 10% SHARE HOLDING IN M/S. ITL INDUSTRIES LTD. AND THEREFORE, FOLLOWING THE DECISION O F THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BHOWMIK COLOUR LA B LTD. (SUPRA), PROVISIONS OF SECTION 2(22)(E) ARE APPLICABLE AS THE ASSESSEE HAD RECEIVED LOAN/ADVANCES FROM THAT CONCERN. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE PRELIMINARY OBJECTION RAISED BY THE LD. AR AS PROVISIONS OF SECTION 2(22)(E) WERE ULTIMATELY APPLICAB LE THOUGH REASONS GIVEN WERE DIFFERENT. 2.7 REVERTING TO THE ISSUE AS TO WHETHER ASSESSEE HAD FIL ED TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR APPLICATION OF THE PROVISIONS OF SECTION 2(22)(E), THE LD. AR HAS ARGUED THAT THE ASSESSEE IN THE BALANCE SHEET HAD DISCLOSED A SUM OF RS.2.00 CRORES AS DEPO SIT RECEIVED FROM ITL INDUSTRIES LTD. AND IN THE BALANCE SHE ET, IT HAD ALSO SHOWN THE INVESTMENT IN 190510 SHARES OF ITL INDUSTRIES L TD. AT FACE VALUE OF RS.10/-. HOWEVER, FROM THESE DETAILS IT IS NOT CLEAR AS TO WHAT PERCENTAGE OF SHARE CAPITAL WAS HELD BY THE ASSESSEE IN M/ S. ITL INDUSTRIES LTD. AS THE BALANCE SHEET OF M/S. ITL INDUSTRIE S HAD NOT BEEN FILED BEFORE THE AO. THOUGH THE ASSESSEE IN THE PA PER BOOK HAS FILED COPY OF BALANCE SHEET OF M/S. ITL INDUSTRIES LTD., THE CERTIFICATE GIVEN IN THE PAPER BOOK SHOWS THAT ALL DOCUMENTS WERE M ADE AVAILABLE BEFORE CIT(A). MOREOVER, AS PER EXPLANATION TO SECTION 147 MERE ITA NO.7247/M/10 A.Y.02-03 10 PRODUCTION BEFORE AO OF BOOKS OF ACCOUNT OR OTHER EVID ENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE B EEN DISCOVERED BY THE AO WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHI N THE MEANING OF THE SAID SECTION. THEREFORE, EVEN IF THE BALANCE S HEET OF ITL INDUSTRIES LTD. HAD BEEN FILED BEFORE AO AND FROM WHI CH NECESSARY DETAILS COULD HAVE BEEN GATHERED BY AO THIS DOES NOT ME AN DISCLOSURE OF INFORMATION BY THE ASSESSEE WITHIN THE MEANING OF TH E PROVISO. SINCE ASSESSEE HAD RECEIVED LOAN/ADVANCE FROM ITL INDUSTRIE S LTD. ASSESSEE WAS REQUIRED TO GIVE DETAILS BEFORE AO AT THE TIME OF ORIGINAL ASSESSMENT THAT ASSESSEE WAS HOLDING MORE THAN 10% OF THE SH ARE CAPITAL IN ITL INDUSTRIES LTD. BUT, IT WAS NOT DECLARING THE AMOUNT RECEIVED DURING THE YEAR AS DEEMED DIVIDEND BECAUSE THE SAME WAS A DEPOSIT AND NOT LOAN/ADVANCE. THIS WOULD HAVE BEEN THE TRUE AND FULL DISCLOSURE OF MATERIALS NECESSARY FOR ASSESSMENT WHICH HAD NOT BEEN DONE BY THE ASSESSEE. MERELY, BECAUSE THE ITL INDUSTRIES LTD. WAS BEING ASSESSED IN THE SAME CHARGE, COULD NOT BE THE GROUND TO ARGUE THAT MATERIAL FACTS WERE AVAILABLE WITH THE AO. THE MATERIAL FACTS HAVE TO BE DISCLOSED BY THE ASSESSEE IN CASE OF THE ASSESSEE IN THE RETURN OF INCOME OR DURING THE ASSESSMENT PROCEEDINGS WHICH HAD NOT B EEN DONE. THEREFORE, IN OUR VIEW ON THE FACTS OF THE CASE IT IS QUITE REASONABLE TO CONCLUDE THAT THE ASSESSEE HAD FAILED TO GIV E TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT AT THE TI ME OF ORIGINAL ITA NO.7247/M/10 A.Y.02-03 11 ASSESSMENT. THE RE-OPENING OF THE ASSESSMENT IS THEREFORE H ELD LEGALLY VALID. 2.8 THE LD. AR FOR THE ASSESSEE HAS PLACED RELIANCE ON CERT AIN JUDGMENTS AS MENTIONED IN PARA 2.3 EARLIER. THE SAID J UDGMENTS HOWEVER ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN CASE OF CIT VS. BURLOP DEALERS LTD. (SUPR A), IT WAS HELD THAT THOUGH MERE PRODUCTION OF BOOKS OF ACCOUNT OR OTHER EVIDENCE FROM WHICH MATERIAL FACTS COULD WITH DUE DILIGE NCE HAD BEEN DISCOVERED DOES NOT NECESSARILY MEAN DISCLOSURE WITHIN THE M EANING OF SECTION 34(1), BUT ON THE FACTS AND MATERIAL EVIDENCE PR ODUCED IF THE ITO COULD HAVE REACHED A CONCLUSION OTHER THAN THE ONE WHICH HE HAS REACHED, THE PROCEEDINGS FOR RE-OPENING WILL NOT BE VA LID. THUS IN THAT CASE THE ASSESSEE HAD DISCLOSED MATERIAL EVIDENCE AND ITO HAD FAILED TO DRAW CORRECT INFERENCE WHICH IS NOT SO IN THE PRESENT CA SE AS IN THIS CASE MATERIAL EVIDENCE AS DISCUSSED EARLIER HAD NOT BEEN DI SCLOSED BEFORE AO. IN CASE OF BHAVESH DEVELOPERS VS. AO AND ORS. (SUPRA), THE AO RE-OPENED THE ASSESSMENT ONLY ON THE BASIS OF MA TERIAL DISCLOSED BY THE ASSESSEE ITSELF AND REASONS GIVEN ALSO DID N OT MENTION THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DI SCLOSE TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE CASE IS THUS DIFFERENT FROM THAT OF THE ASSESSEE. IN CASE OF PURITY T ECHTEXTILE (P) LTD. VS. ACIT AND ANR.(SUPRA), THE ASSESSEE HAD BEEN ALL OWED ITA NO.7247/M/10 A.Y.02-03 12 DEDUCTION UNDER SECTION 80IB IN ORIGINAL ASSESSMENT UNDER SECTION 143(3) AND SUBSEQUENTLY ASSESSMENT WAS RE-OPENED ON THE GR OUND THAT DEDUCTION HAD BEEN WRONGLY ALLOWED. THE HIGH COU RT NOTED THAT THE MATERIAL BASED ON WHICH ASSESSMENT HAD BEEN RE-OPEN ED WAS ALREADY DISCLOSED BY THE ASSESSEE AT THE TIME OF ORIGINAL ASSESSMENT. THUS THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS AT THE TIME OF ASSESSMENT. A CCORDINGLY RE- OPENING OF THE ASSESSMENT WAS HELD INVALID. THE CASE OF TH E ASSESSEE AS DISCUSSED EARLIER IS DIFFERENT. 2.9 IN VIEW OF THE FORE-GOING DISCUSSION AND FOR THE REASONS GIVEN EARLIER WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF CIT(A) HOLDING THAT RE-OPENING OF THE ASSESSMENT WAS LEGALLY VALID AND ACCORDI NGLY ORDER IS UPHELD ON THIS POINT. 3. THE ASSESSEE HAS ALSO RAISED DISPUTES ON MERIT OF ADDITIO N MADE BY AO AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME TAX ACT. ON QUERY RAISED BY AO TO ASSESS THE ADVANCE RECEIVED F ROM ITL INDUSTRIES AS DEEMED DIVIDEND UNDER SECTION 2(22)(E), TH E ASSESSEE SUBMITTED THAT IT HAD GIVEN ITS PREMISES ON RENT TO IT L INDUSTRIES AT BANGALORE, DELHI AND MADRAS ON MONTHLY RENT OF RS. 1,50,000/- AND DEPOSIT OF RS.95,68,938/- IN THE FINANCIAL YEAR 2000- 01. THE AO IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2001-02 UNDER SECTION 14 3(3) ITA NO.7247/M/10 A.Y.02-03 13 HAD ASSESSED INCOME AS INCOME FROM HOUSE PROPERTY. DURING T HE CURRENT YEAR, THE ASSESSEE HAD REQUESTED ITL INDUSTRIES TO INCREASE THE SAID DEPOSIT TO RS.2.00 CRORES AND THERE WOULD BE NO RENT FOR THE CURRENT YEAR. IT WAS POINTED OUT THAT M/S. ITL INDUSTRI ES VIDE LETTER DATED 20.3.2001 HAD ACCEPTED THE PROPOSAL AND DEPOSIT W AS INCREASED TO RS.2.00 CRORES. ASSESSEE HAD REQUESTED FOR INCREASE IN DE POSIT BECAUSE ASSESSEE NEEDED FUNDS FOR SETTING UP FACTORY IN DAMA N. IT WAS THUS ARGUED THAT THE DEPOSIT HAD BEEN TAKEN IN TH E ORDINARY COURSE OF BUSINESS AND THEREFORE PROVISIONS OF SECTION 2(22) (E) WERE NOT APPLICABLE IN VIEW OF PROVISIONS OF CLAUSE (II) TO T HE SAID SECTION. FURTHER IT WAS ALSO SUBMITTED THAT THE PROVISIONS OF SECT ION 2(22)(E) CREATED DEEMING FICTION AND, THEREFORE, IT SHOULD BE STRICTLY CONSTRUED TO INCLUDE ONLY CASES OF LOANS AND ADVANCES AS MENTIONED IN THE SAID SECTION AND NOT TO ANY DEPOSIT. IT WAS THUS ARGUED THAT THE PROVISIONS WERE NOT APPLICABLE. THE ASSESSEE ALSO SUBMITTED THAT THE AMOUNT RECEIVED DURING THE YEAR WAS RS.1,04,31,062/- AND NOT RS.2.00 CRORES AS SUM OF RS.95,68,938/- WAS THE OPENING BALANCE. IT WA S ALSO POINTED OUT THAT WHILE APPLYING PROVISIONS OF SECTION 2 (22)(E), THE ACCUMULATED PROFITS FOR THE ASSESSMENT YEAR 2001-02 COULD ONLY BE CONSIDERED WHICH WAS RS.97,91,884/-. THE CURRENT YEAR PRO FIT COULD NOT BE CONSIDERED AS ACCUMULATED PROFIT. ITA NO.7247/M/10 A.Y.02-03 14 3.1 THE AO HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISE D. IT WAS NOTED BY HIM THAT BOTH THE COMPANIES WERE UNDER THE SA ME MANAGEMENT. THE PREMISES HAD BEEN LET OUT BY THE ASSESSE E ON A MONTHLY RENT OF RS.1,50,000/- AND DEPOSIT OF RS.95,68, 938/- IN ASSESSMENT YEAR 2001-02. THUS, THERE WAS NO ADDITIONAL SP ACE LET OUT DURING THE YEAR AND, THEREFORE, THERE WAS NO QUESTION OF TAKING ANY FURTHER DEPOSIT. THEREFORE, THE AMOUNT TAKEN WAS NOTH ING BUT LOAN AND ADVANCE WHICH WAS CLEAR FROM ASSESSEES OWN ADMISSION THAT IT WAS IN NEED OF FUNDS AND WAS LOOKING FOR FUNDS FROM OTHER PA RTIES, AND HAD THEREFORE, APPROACHED ITL INDUSTRIES LTD. FOR FUNDS. T HE AO OBSERVED THAT INCOME TAX AUTHORITIES WERE ENTITLED TO LOOK INT O REAL NATURE OF TRANSACTIONS AND MERE DESCRIPTION GIVEN BY THE ASSESSEE COULD NOT BE CONCLUSIVE. THE AO THUS CONCLUDED THAT THE ASSESSEE HAD RECEIV ED ADVANCE FROM ITL INDUSTRIES LTD. WHICH WAS COVERED BY TH E PROVISIONS OF SECTION 2(22)(E). THE AO DID NOT ACCEPT CLAIM OF THE ASSESSEE THAT ADVANCES WERE GIVEN DURING THE COURSE OF CARRYING OF BUSI NESS. FOR ITL INDUSTRIES, LENDING OF MONEY WAS NOT SUBSTANTIAL PART OF BUSINESS. THE AO NOTED THAT ACCUMULATED RESERVES AND SURPLUS IN CASE OF ITL INDUSTRIES LTD. TILL 31.3.2002 WAS RS. 1,25,65,756/-. ASSESSEE HAD ALSO TAKEN LOAN FROM ITL INDUSTRIES LTD. FOR RS.3,21,038/-. THUS TOTAL LOAN TAKEN WAS RS.2,03,21,038/-. THE AO, THEREFORE, TAXED THE ENTIRE ITA NO.7247/M/10 A.Y.02-03 15 ACCUMULATED PROFIT OF ITL INDUSTRIES LTD. AMOUNTING TO RS.1,25,65,756/- AS DEEMED DIVIDEND UNDER SECTION 2(22) (E). 3.2 THE ASSESSEE DISPUTED THE DECISION OF AO AND REITERAT ED THE SUBMISSIONS MADE EARLIER THAT THE ASSESSEE HAD TAKEN ONLY D EPOSIT IN CONNECTION WITH LETTING OUT OF THE PREMISES AS ASSESSEE NEED ED FUNDS TO SET UP NEW PROJECT AND IT WAS NOT A CASE OF LOAN OR A DVANCE. MONEY HAD BEEN TAKEN BY THE ASSESSEE IN REGULAR COURSE OF BUSINE SS AND, THEREFORE, PROVISIONS OF SECTION 2(22)(E) WERE NOT APPL ICABLE. ALTERNATIVELY IT WAS ALSO SUBMITTED THAT WHILE COMPUTIN G DEEMED DIVIDEND UNDER SECTION 2(22)(E), ONLY ACCUMULATED PROFI T OF ITL UP TO 31.3.2001 COULD BE CONSIDERED AND NOT ENTIRE ACCUMULATED PROFIT TILL 31.3.2002. CIT(A) HOWEVER DID NOT ACCEPT THE CLAIM THA T THE ASSESSEE HAD ACCEPTED DEPOSIT. IT WAS OBSERVED BY HIM THAT IRRESPE CTIVE OF THE NOMENCLATURE GIVEN BY THE ASSESSEE TO THE MONEY RECEIVED, ITS BASIC CHARACTER WAS THAT OF ADVANCE RENT WHICH WAS CLEARLY HIT BY PROVISIONS OF SECTION 2(22)(E). THE TRUE SUBSTANCE OF TRANSACTIONS WAS ADVANCE AS ASSESSEE HAD ALREADY TAKEN DEPOSIT IN THE EARLIER YEAR A ND THERE WAS NO FRESH SPACE LET OUT DURING THE YEAR. CIT(A) THEREFO RE, AGREED WITH AO THAT PROVISIONS OF SECTION 2(22)(E) WERE APPLICABLE. CIT(A) ALSO DID NOT ACCEPT THE ALTERNATE CONTENTION THAT ONLY ACCUMULATE D PROFIT TILL 31.3.2001 SHOULD BE CONSIDERED. IT WAS OBSERVED BY HIM T HAT THE ACCUMULATED PROFIT TILL THE YEAR UNDER CONSIDERATION HA D TO BE ITA NO.7247/M/10 A.Y.02-03 16 CONSIDERED. CIT(A) ACCORDINGLY CONFIRMED THE ADDITION MA DE BY AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE T RIBUNAL . 3.3 BEFORE US THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES THAT AMOUNT RECEIVED BY THE ASSESSEE WA S DEPOSIT AND NOT ADVANCE AND THEREFORE, PROVISIONS OF SECTION 2(2 2)(E) WERE NOT APPLICABLE. RELIANCE WAS PLACED ON THE DECISION OF THE TR IBUNAL IN THE CASE OF ACIT VS. GLOBAL AGENCIES (P) LTD. (1 SOT 510). I T WAS ALSO SUBMITTED THAT THE AMOUNT HAD BEEN TAKEN DURING COURSE OF CARRYING ON OF THE BUSINESS AND, THEREFORE, THE SAME COULD NOT BE ASSESSED AS DEEMED DIVIDEND. HE REFERRED TO THE LETTER DATED 15. 3.2001 OF THE ASSESSEE ADDRESSED TO ITL INDUSTRIES IN WHICH ASSESSEE HAD REQU ESTED TO INCREASE DEPOSIT TO RS.2.00 CRORES, FOR NOT CHARGING R ENT FOR FINANCIAL YEAR 2001-02. THE ASSESSEE NEEDED MONEY IN CONNECTION WIT H SETTING UP OF NEW PROJECT AND THEREFORE IT WAS FOR THE PURPOSE OF BUSINESS. THE PROVISIONS OF SECTION 2(22)(E) WERE NOT APPLICABLE TO MO NEY RECEIVED FOR THE PURPOSE OF BUSINESS. RELIANCE WAS PLACED ON THE FO LLOWING JUDGMENTS :- I) 318 ITR 476 (DELHI) IN THE CASE OF CIT VS. CREA TIVE DYEING AN PRINTING (P.) LTD. I) 26 SOT 95 (DEL.) IN CASE OF SUNIL SETHI VS. DCIT II) 106 TTJ 250 (CHD.) IN CASE OF DCIT VS. LAKRA BROTHE RS 3.4 THE LD. AR FURTHER ARGUED THAT BUSINESS PROFIT OF THE COMPANY ACCRUED ONLY AT THE END OF THE YEAR AND, THEREFORE, C URRENT YEAR ITA NO.7247/M/10 A.Y.02-03 17 BUSINESS PROFIT ARE NOT TO BE INCLUDED IN THE ACCUMULATE D PROFIT. RELIANCE WAS PLACED ON THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF M.B. STOCK HOLDING PVT. LTD. VS. ACIT (84 ITD 542) AND ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. V. DAMODARAN (121 ITR 572). IT WAS ALSO SUBMITTED T HAT WHILE COMPUTING DEEMED DIVIDEND UNDER SECTION 2(22)(E), OPE NING BALANCE OF LOANS AND ADVANCES HAD TO BE EXCLUDED IRRESPECTIVE OF THE FACT WHETHER SAME WAS TREATED AS DEEMED DIVIDEND IN THE EA RLIER YEAR OR NOT. RELIANCE FOR THE SAID PROPOSITION WAS PLACED ON TH E DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. GOVARDHANDAS KHIMJI (11 ITD 158) (COCH.). HE ALSO REFERRED TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MRS. MALA SADANI IN MA 610/M/0 6 IN WHICH MISTAKE COMMITTED IN RELATION TO OPENING BALANCE HAD B EEN RECTIFIED BY THE TRIBUNAL. IT WAS POINTED OUT THAT RESERVES AND SURP LUS TILL 31.3.2001 WAS ONLY RS.97.00 LACS AND IF THE OPENING BAL ANCE OF LOAN OF RS.95.00 LACS TAKEN EARLIER WAS EXCLUDED ADDITION COULD B E MADE ONLY TO THE TUNE OF RS.2.00 LACS. 3.5 THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW ON MERIT ALSO AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THE RESPECTIVE ORDERS. ITA NO.7247/M/10 A.Y.02-03 18 3.6 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING MERIT OF ADDITION MADE BY AO AS DEEMED DIVIDEND UNDER SECTION 2(22)(E). UNDE R THE PROVISIONS OF SECTION 2(22)(E), ANY PAYMENT MADE BY A C OMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY I NTERESTED BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES HOLDING NOT LESS THAN 10% OF VOTING POWER IN THE COMPANY OR TO ANY CONCERN IN WHICH SUCH SHARE HOLD ER IS A MEMBER OR PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTE REST OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OR FOR INDIVIDU AL BENEFIT OF ANY SUCH SHAREHOLDER HAS TO BE TREATED AS DEEMED DIVIDEN D TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE HAS ACCUMULATED PROFITS. FURTHER CLAUSE (II) TO SECTION 2(22)(E) PROVIDES ANY AD VANCE OR LOAN MADE TO A SHAREHOLDER OR TO THE CONCERN BY THE COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MO NEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY IS EXEMPT FROM THE PURVIEW OF SECTION 2(22)(E). 3.7 THE LD. AR HAS ARGUED THAT THE PROVISIONS OF SECTION 2(22)(E) BEING DEEMING PROVISION SHOULD BE STRICTLY CONSTRUED AND APPLIED ONLY TO LOANS/ADVANCES AS MENTIONED IN THE SAID SECTION AND NO T TO ANY DEPOSIT. IT WAS SUBMITTED THAT THE ASSESSEE HAD RECEIVED DE POSIT IN CONNECTION WITH LETTING OUT OF THE PROPERTIES TO ITL I NDUSTRIES LTD. AND, ITA NO.7247/M/10 A.Y.02-03 19 THEREFORE, SUCH DEPOSIT WAS BEYOND THE PURVIEW OF SECTION 2(22)(E). THE PLEA RAISED BY THE ASSESSEE THAT THE PROVISION CAN NOT BE APPLIED IN CASE OF DEPOSIT IS SUPPORTED BY THE DECISION OF THE TRI BUNAL IN THE CASE OF ACIT VS. GHOSHAL AGENCIES P. LTD. (SUPRA). IT HAS BEEN POINTED OUT THAT THE ASSESSEE HAD LET OUT THE PROPERTIES TO M/S . ITL INDUSTRIES LTD. IN THE FINANCIAL YEAR 2000-01 ON DEPOSIT OF RS.95 ,68,938/- AND MONTHLY RENT OF RS.1.5 LACS. THE ASSESSEE VIDE LETTER DATE D 15.3.2001 HAD REQUESTED ITL INDUSTRIES TO INCREASE DEPOSIT TO RS .2.00 CRORES AND NOT TO PAY ANY RENT DURING FINANCIAL YEAR 2001-02. I T HAS, THEREFORE, BEEN URGED THAT THE AMOUNT RECEIVED DURING THE YEAR SHOULD BE TREATED AS DEPOSIT. WE ARE HOWEVER UNABLE TO ACCEPT THE ARGUMENTS ADVANCED. IT IS A SETTLED LEGAL POSITION THAT TRUE NATU RE OF TRANSACTION DOES NOT DEPEND UPON ITS NOMENCLATURE AND HAS TO BE UNDERSTOOD FROM THE SUBSTANCE OF THE TRANSACTION. THERE IS NO DISPUTE TH AT THE ASSESSEE HAD LET OUT THE PROPERTY IN FINANCIAL YEAR 2000-01 A FTER TAKING DEPOSIT OF RS. 95,68,938/-. DURING THE CURRENT YEAR NO FURTHER PROP ERTY HAD BEEN LET OUT AND, THEREFORE, THERE COULD NOT BE ANY CASE FOR TAKING ANY FURTHER DEPOSIT. THE ASSESSEE BECAUSE OF ITS RELATIONSHIP WI TH THE SAID PARTY CAN DESCRIBE THE AMOUNT RECEIVED IN ANY MANNER BU T THE REAL NATURE OF TRANSACTION HAS TO BE UNDERSTOOD FROM THE SUB STANCE OF TRANSACTION. IT IS CLEAR FROM RECORDS THAT THE ASSESSEE WAS IN NEED OF SUBSTANTIAL FUNDS FOR SETTING UP OF NEW PROJECT FOR WHICH ASSESSEE WAS ITA NO.7247/M/10 A.Y.02-03 20 LOOKING FOR FUNDS FROM OTHER PARTIES AS PER ITS OWN SUB MISSION. MONEY RECEIVED FROM ITL INDUSTRIES LTD. IS OBVIOUSLY OF THE N ATURE OF LOANS/ADVANCES AND NOT DEPOSIT AND, THEREFORE, AMOUNT CAN NOT BE CONSIDERED AS DEPOSIT MERELY ON THE GROUND THAT THE SAME HAS BEEN DESCRIBED AS DEPOSIT IN THE BALANCE SHEET OR IN CORRESPON DENCE WITH ITL INDUSTRIES LTD. WHICH IS A GROUP CONCERN OF THE ASSESSEE. WE, THEREFORE, REJECT THE ARGUMENT THAT THE ASSESSEE HAD REC EIVED DEPOSIT AND NOT LOAN/ADVANCES AND HOLD THAT THE ASSESSEE HAD RECEI VED LOAN/ADVANCES DURING THE YEAR WHICH ARE COVERED BY THE PROVISIONS OF SECTION 2(22)(E). 3.8 ANOTHER ARGUMENT ADVANCED IS THAT MONEY HAD BEEN RECEIVED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS I.E. FOR SETTING UP OF NEW PROJECT AND, THEREFORE, PROVISIONS OF SECTION 2(22)(E) A RE NOT APPLICABLE. AS POINTED OUT EARLIER, THE PROVISIONS OF SE CTION 2(22)(E) ARE NOT APPLICABLE IF LOAN/ADVANCE IS GIVEN IN THE OR DINARY COURSE OF BUSINESS OF THE COMPANY AS MENTIONED IN CLAUSE (II) TO SECTION 2(22)(E) WHERE LENDING MONEY IS SUBSTANTIAL PART OF BU SINESS OF THE COMPANY. THUS MONEY SHOULD BE LENT IN THE ORDINARY COUR SE OF BUSINESS OF MONEY LENDING OF THE LENDING COMPANY. AUTHO RITIES BELOW HAVE GIVEN A FINDING THAT MONEY LENDING WAS NOT SUBST ANTIAL PART OF BUSINESS OF ITL INDUSTRIES LTD. WHICH HAS NOT BEEN CONTROV ERTED BEFORE US NOR ANY OTHER MATERIAL HAS BEEN PRODUCED BEFORE US TO SHOW THAT ITA NO.7247/M/10 A.Y.02-03 21 M/S. ITL INDUSTRIES HAD ADVANCED MONEY IN THE ORDINARY COURSE OF ITS BUSINESS. THE EXCEPTION FROM THE PROVISIONS OF SECTION 2( 22)(E) IS AVAILABLE IF THE MONEY IS ADVANCED IN THE NORMAL COURSE OF BUSINESS OF THE COMPANY ADVANCING THE MONEY. THERE IS NO PROVISION FOR EXEMPTION ON THE GROUND THAT THE MONEY RECEIVED HAS BEEN USED BY THE SHAREHOLDER IN ITS BUSINESS. IN THE PRESENT CASE, THERE IS NO MATERIAL TO SHOW THAT ITL INDUSTRIES LTD. ADVANCED THE MONEY IN THE NORMAL COURSE OF ITS BUSINESS. 3.9 THE LD. AR HAS PLACED RELIANCE ON CERTAIN JUDGMENTS AS MENTIONED IN PARA 3.3 WHICH IN OUR VIEW ARE DISTINGUI SHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN CASE OF CI T VS. CREATIVE DYEING & PRINTING (P) LTD. (SUPRA), THE HIGH COURT N OTED THAT ADVANCE RECEIVED FROM THE ASSOCIATE COMPANY WAS BUSINESS TRANSACTIONS WHICH WOULD BENEFIT BOTH THE ASSESSEE COMPANY AND THE COMPANY G IVING ADVANCE AS THE ASSOCIATE COMPANY HAD 50% SHARE HOLDING IN THE ASSESSEE COMPANY. THUS TRANSACTION IN THAT CASE WAS HELD TO BE A BUSINESS TRANSACTION BY THE COMPANY ADVANCING THE MONEY WHICH IS NOT SO IN THE PRESENT CASE. IN CASE OF SUNIL SETHI VS. DCI T (SUPRA), THE COMPANY HAD PAID RS.30.00 LACS TO THE DIRECTOR UNDER BOA RD RESOLUTION AS IMPREST MONEY TO ENTER INTO TRANSACTION FOR THE BENE FIT OF THE COMPANY WHICH WAS RETURNED WITHIN A WEEK WHEN THE TRAN SACTION DID NOT MATERIALIZE. THUS THE PROVISIONS OF SECTION 2(22)( E) WERE NOT FOUND ITA NO.7247/M/10 A.Y.02-03 22 APPLICABLE. THE CASE IS OBVIOUSLY DIFFERENT AS IN THAT CASE THE COMPANY HAD ADVANCED MONEY TO THE SHARE HOLDER FOR THE PURPOSE OF ITS BUSINESS. IN CASE OF DCIT VS. LAKRA BROTHERS (SUPRA), THE ASSESSEE HAD RECEIVED ADVANCE FROM AEPL WHICH WAS FOUND TO BE PURELY AN ADVANCE DURING ORDINARY COURSE OF BUSINESS OF AEPL AND IT WAS UND ER THESE CIRCUMSTANCES THAT PROVISIONS OF SECTION 2(22)(E) WERE NOT FOUND APPLICABLE. IN THE PRESENT CASE AS HELD EARLIER ITL INDU STRIES LTD. HAD NOT GIVEN LOAN/ADVANCE IN THE ORDINARY COURSE OF BUSINE SS. THEREFORE, WE HOLD THAT PROVISIONS OF SECTION 2(22)(E) ARE APPLICA BLE. 3.10 THE LD. AR HAS ALSO ARGUED THAT EVEN IF PROVISIO NS OF SECTION 2(22)(E) WERE FOUND APPLICABLE, THE COMPUTATION OF DEEMED DIVIDEND HAD NOT BEEN CORRECTLY MADE. IT HAS BEEN ARGU ED THAT ACCUMULATED PROFIT WOULD NOT INCLUDE CURRENT YEAR PROFI T BUT ONLY ACCUMULATED PROFIT TILL THE END OF THE IMMEDIATE PRECE DING YEAR. RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF HON'BLE SUP REME COURT IN THE CASE OF CIT VS. V. DAMODARAN, (SUPRA) AND ON THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF M.V. ST OCK HOLDING P. LTD. VS. ACIT (84 ITD 542). IN VIEW OF THESE DECISIONS, ACCUMULATED PROFIT FOR THE PURPOSE OF COMPUTATION OF DIVIDEND HAS TO BE CONSIDERED ONLY TILL 31.3.2001. TILL 31.3.2001, THE ACCUMULATED PROFIT WERE TO THE TUNE OF RS.97,91,884/-. THE LD. AR HAS FURTHER ARGUED THAT OPENING BALANCE OF LOAN/ADVANCE COULD NOT BE CONSIDERED FOR ADDI TION IN THE ITA NO.7247/M/10 A.Y.02-03 23 CURRENT YEAR EVEN IF IN RELATION TO OPENING BALANCE, NO ADDITION HAD BEEN MADE UNDER SECTION 2(22)(E) IN THE EARLIER YEAR. RELIANCE HAS BEEN PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. GOVARDHANDAS KHIMJI (SUPRA). NO CONTRARY DECISION OF ANY HIGH COURT OR APEX COURT HAS BEEN BROUGHT TO OUR NOTICE BY THE L D. DEPARTMENTAL REPRESENTATIVE. THEREFORE, FOLLOWING THE SAID DECISIO N, WE HOLD THAT SECTION 2.(22)(E) HAS TO BE APPLIED ONLY TO LOAN/ADVA NCES RECEIVED DURING THE YEAR WHICH WAS RS.1,04,31,062/-. THE OPENIN G BALANCE OF RS.95,68,938/- WAS IN FACT NOT LOAN/ADVANCE BUT DEPOSIT GIVEN IN CONNECTION WITH LETTING OUT OF THE PROPERTIES IN FINAN CIAL YEAR 2000-01 AND THEREFORE, IN THE EARLIER YEAR, NO ADDITION WAS REQUIRED TO BE MADE UNDER SECTION 2(22)(E). THEREFORE, THE ACCUMULATED PROF IT OF RS.97,91,884/- TILL 31.3.2001 COULD NOT BE ADJUSTED A GAINST THE SAID DEPOSIT IN ASSESSMENT YEAR 2001-02. THE SAID ACCUMULATED P ROFIT WILL, THEREFORE, BE AVAILABLE FOR ADDITION UNDER SECTION 2( 22)(E) IN RESPECT OF LOAN/ADVANCES OF RS.1,04,31,062/- RECEIVED DURING THE A SSESSMENT YEAR 2002-03. THE ARGUMENT OF THE LD. AR THAT OUT O F THE ACCUMULATED PROFIT OF RS.97,91,884/-, SUM OF RS.95,68,938/- HAS T O BE ADJUSTED AGAINST DEEMED DIVIDEND IN ASSESSMENT YEAR 2001-02 CAN N OT BE ACCEPTED AS THE SAID AMOUNT WAS DEPOSIT AND PROVISIONS OF SECTION 2(22)(E) COULD NOT BE APPLIED IN ASSESSMENT YEAR 2001-0 2. THEREFORE, IN OUR VIEW, IN ASSESSMENT YEAR 2002-03 ADDITION HAS TO BE MADE UP ITA NO.7247/M/10 A.Y.02-03 24 TO ACCUMULATED PROFIT TILL 31.3.2001 WHICH WAS RS.97,91, 884/-. WE, THEREFORE CONFIRM THE DEEMED DIVIDEND OF RS.97,91,88 4/- AND DELETE THE BALANCE ADDITION MADE BY AO. 4. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 21.9.2012 SD/- SD/- (VIJAY PAL RAO) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 21.9. 2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.