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Income Tax Appellate Tribunal, ‘’ C’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
सुनवाई क� तारीख/Date of Hearing : 01/06/2021 घोषणा क� तारीख /Date of Pronouncement: 25/06/2021 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax(Appeals)-4, Vadodara, dated 05/06/2015 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2011-2012.
The Revenue has raised the following grounds of appeal:
1. Whether on the facts and circumstances of the case and in law the Ld. C.I.T. (A) was justified in holding that " the assessee having proved a tangible business expediency between M/s. Artee Roadways Pvt. Ltd. and M/s Artee Roadways Pvt. Ltd. and having established that it was an ordinary commercial transaction, carried out in the normal course of the business, which cannot be termed as 'loan or advance' within the meaning of section 2(22)(e) of the Act for appropriation of Rs. 5.25 crores by the assessee front the money received by his proprietory concern in ordinary course of business does not arise", without appreciating that neither the assessee submitted work order given by M/s. Artee Roadways Pvt. Ltd., nor furnished the break-up of cost of raw materials, direct & indirect cost/expenses, profit element in respect of sale proceeds received of Rs. 12.50 crores, nor furnished the details called for by the A.O. during the assessment proceedings and that a sum of Rs. 5.25 crores was not in the nature of trading advance, or had it been trading advance, the assessee should have utilised it for trading/business activities and not for personal consideration as has been resorted to by the assessee & that on perusal of Balance Sheet of C.R. Transport System, it is noticed that the said sum of Rs. 5.25 crores withdrawn by the assessee was not reflected as drawing from Capital A/c., since there was neither opening balance of capital and net profit as per P fk L A/c. transferred to capital A/c. to the extent of Rs. 5.25 crores
2. Whether on the facts and circumstances of the case and in law the Ld. C.I.T. (A) was justified in holding that the sum of Rs. 12.50 crores was received by assessee's proprietory concern M/s. CRS Transport System as part of trade dealing and not as a loan or advance and* once the sum was received by the entity, the assessee appropriated a sum of Rs. 5.25 crores out of it, for his personal purposes, without appreciating that a sum of Rs. 8,878,32,500/- out of Rs. 11.67 crores received from Artee Roadways Pvt. Ltd. was credited on 23-07-2010 in his bank A/c. with Indian Bank ( Current) A/c. No. 89433789 ), and said sum of Rs. 5.25 crores, withdrawn from his current A/c. with Indian Bank was credited on 23-07-2010, in his saving bank account No. 73014908 with Indian Bank, which clearly indicate that appropriation of Rs. 5.25 crores by the assessee in his capacity as proprietor of M/s. C.R. Transport System was not a part of trade dealing and the A.O. in the assessment order clearly recording his finding on assessee's utilisation of Rs. 5.25 crores for personal use.
3. Whether on the facts and circumstances of the case and in law the Ld. C.I.T. (A) was justified in holding that , the assessee having proved a tangible business expediency between M/s. Artee Roadways Pvt. Ltd. and M/s Artee Roadways Pvt. Ltd. and having established that it was an ordinary commercial transaction, carried out in the normal course of the business, which cannot be termed as 'loan or advance' within the meaning of section 2(22)(e) of the Act for appropriation of Rs. 5.25 crores by the assessee from the money received by his proprietory concern in ordinary course of business does not arise Without appreciating that the assessee by virtue of his being a Managing Director and share holder holding 94% of shares of M/s. Artee Roadways had all the resources available with him, for including said sum of Rs. 5.25 crores in trade advance of Rs. 1.67 crores to be disbursed as loan from the Bank to the assessee 's proprietory concern M/s. C..R. Transport System, to enable him to withdraw Rs. 5.25 crores for his individual benefit of personal consideration
4. Whether on the facts and circumstances of the case and in law the Ld. C.I.T. (A), erred in not commenting on judicial decisions relied upon by the A.O., but by relying on judicial decisions referred to in appellate order , without appreciating that the said judicial decisions relied upon by the C.I.T. (A) are distinguishable from the facts of the present case in as much in those cases, the assessee did not appropriate for personal use out of trade advance/loan received for business consideration.
3. The only issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for an amount of ₹5.25 crores on account of deemed dividend under the provisions of section 2(22)(e) of the Act.
The facts in brief are that the assessee in the present case is an individual and is a proprietor of 2 concerns as well as the chairman/managing director in a company namely Aartee Roadways private Ltd in which he is holding shares to the extent of 94.15%. The details of the business of the assessee stand as under: i. Proprietor of M/s CRS logistics and Mega carriers which carries on the business of road transportation. ii. Proprietor of M/s CRS transport system which carries on the business of fabrication work for trucks and containers. iii. Chairman/managing director of Aartee Roadways private Ltd in which the assessee holds shares to the extent of 94.15%. 4.1 The assessee during the assessment proceedings claimed that he is carrying on specialized business for building the refrigerated trucks bodies for the last many years. As per the assessee such business of building the refrigerated trucks bodies was very technical and it acquired specialization in this line. It was also contended that it has received the sum of ₹ 12,50,63,193.00 from M/s Aartee Roadways private Ltd for building the refrigerated truck bodies. Out of the said sum, it received a sum of ₹11.67 crores directly from the bank namely Central Bank of India which was disbursed as loan to Aartee Roadways private Ltd. However, the entire sum received from Aartee Roadways private Ltd was representing the business transaction for building the specialized trucks. Accordingly, the assessee argued that such amount cannot be treated as deemed dividend under the provisions of section 2(22)(e) of the Act as it does not represent any loans and advances to the assessee.
4.2 However, the AO found that the assessee out of the total amount received from M/s Aartee Roadways private Ltd has transferred a sum of ₹5.25 crores to his personal saving bank account which was used for his personal purposes such as money paid to Paul Heritage developers, share application money to Aartee Roadways private Ltd. 4.3 The assessee has supplied only few refrigerated truck bodies to Aartee Roadways private Ltd in the year under consideration. Furthermore, the assessee has not furnished the details of supplying the refrigerated truck bodies to Aartee Roadways private Ltd in the subsequent years.
4.4 In view of the above the AO concluded that the assessee by adopting the colourable device has received a sum of ₹5.25 crores from Aartee Roadways private Ltd which is nothing but the deemed dividend as provided under section 2(22)(e) of the Act. Accordingly the AO added the same to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT (A).
The assessee before the learned CIT (A) contended that the provisions of section 2(22)(e) of the Act are attracted with respect to the loans and advances given to the shareholder. The word advance used under the provisions of section 2(22)(e) of the Act is akin to the loans. In other words the money received by the shareholder in the course of the business is outside the purview of the provision of section 2(22)(e) of the Act. The fact of receiving the money by the assessee as trading advance was also acknowledged by the AO in his order. Furthermore, the amount borrowed by M/s Aartee Roadways private Ltd from the bank was directly disbursed to the assessee for providing refrigerated truck bodies. Accordingly the amount received by the assessee represents the trading receives and not the loan and advances as alleged by the AO.
6.1 Once the assessee has received the money from M/s Aartee Roadways private Ltd in the course of the business, the same is available at its disposal and therefore it cannot be alleged that such receipts is subject to deemed dividend in the event the assessee utilizes such funds for his personal purposes.
The learned CIT (A) after considering the submission of the assessee deleted the addition made by the AO by observing as under: 5.8 It is clear from the material available on the records that the sum advanced by M/s Artee Roadways Pvt. Ltd. to M/s CRS Transport System was a trade advance. Even the Assessing Officer has noted this point in para 3.1 of the assessment order. M/s Artee Roadways Pvt. Ltd. had procured a loan of Rs. 11.67 crores from M/s Central Bank of India, for expansion of their business, which included inducting refrigerated trucks in their fleet. These refrigerated trucks were to be fabricated by M/s CRS Transport System, for which, the loaned amount was directly disbursed by the bank, on behalf of M/s Artee Roadways Pvt. Ltd. to M/s CRS Transport System. It is also obvious that M/s CRS Transport System has been doing this kind of job for M/s Artee Roadways Pvt. Ltd. for quite some time and this was a regular business transaction between the concerned parties. Therefore, it transpires that the amount advanced by M/s Artee Roadways Pvt. Ltd. to M/s CRS Transport System was neither in the nature of "loan" nor( "advance", rather, it was in the nature of trade advance, with no obligation of repayment attached to it. The word "advance", which appears in the company of the word "loan", in section 2(22)(e) can only mean such advance which carries with it an obligation of repayment. Hon'ble Delhi High Court in CIT vs Raj Kumar [2009] 181 Taxman 155 (Delhi) has held that trade advance, which is in the nature of money transacted to give effect to a commercial transaction, would not fall within the ambit of the provision of section 2(22)(e). 5.9 Hon'ble Delhi High Court has held in CIT vs Creative Dyeing & Printing (P.) Ltd. [2009] (Delhi) that in a case where the assessee was engaged in the business of dyeing and printing of cloth and was acting as an ancillary unit of company 'P' for last several years and both the assessee company and 'P' had common share holders/directors and 'P' had 50% share holding in assessee company and where 'P' had suggested modernization of plant and machinery of the assessee company and to that purpose, advanced funds to the assessee, which was to be adjusted in future against assessee's entitlement of money from 'P1 in subsequent years, the amount advanced for business transaction between the assessee and LP' was not to be treated as 'deemed dividend7 u/s 2{22)(e) of the Act. Hon'ble Court further explained that the provision of section 2(22)(e)(ii) is basically in the nature of an Explanation that cannot have bearing on interpretation of main provisions of section 2{22)(e) and once it is held that business transactions do not fall within section 2(22)(e), there is no need to go further to section 2(22)(e)(ii). 5.10 Hon'ble Karnataka High Court in the case of Bagmane Constructions (P.) Ltd. vs CIT [2015] 57 taxmann.com 120 (Karnataka), has held that if any sum is paid to a shareholder as a trade advance, as a consideration for goods received or for purchase of a capita! asset which indirectly would benefit company advancing loan, such advance would not fall within ambit of provisions of section 2(22}(e) of the Act. 5.11 Hon'bie Punjab and Haryana High Court in the case of CIT vs Amrik Singh [2015] 56 taxmann.com 460 (Punjab & Haryana) has held that advances received by assessee shareholder under an agreement to do job work for company advancing money, could not be treated as deemed dividend u/s 2(22)(e) of the Act.
5.12 In view of the above discussion, it is clear that the sum advanced by M/s Artee Roadways Pvt. Ltd. to M/s CRS Transport System was a trade advance made for purchase of capital goods i.e. refrigerated body for trucks owned by M/s Artee Roadways Pvt. Ltd. It was not a one off transaction since M/s CRS Transport System was in the business of fabricating bodies for the trucks owned by M/s Artee Roadways Pvt. Ltd. for quite some time. It was an ordinary commercial transaction, carried out in the normal course of the business and it cannot be termed as 'loan or advance' in terms of section 2(22)(e) of the Act, as the assessee or M/s CRS Transport System have no attendant obligation, to repay the amount, as in the case of 'loan or advance'. Further, the Assessing Officer has, though alleged, but failed to bring any evidence on record to establish that the transaction between M/s Artee Roadways Pvt. Ltd. and M/s CRS Transport System was a smoke screen to cover a surreptitious payment of money to the assessee. I also tend to agree with the argument of the assessee that merely because the assessee had withdrawn a sum of Rs. 5.25 crores from his proprietory concern, out of the total sum of Rs. 12.50 crores received by it as a trade advance in the course of its regular business with M/s Artee Roadways Pvt. Ltd., it cannot be termed as deemed dividend u/s 2(22)(e) of the Act. Withdrawal of the sum by the assessee was merely appropriation of money received by his proprietory concern viz. M/s Artee Roadways Pvt. Ltd.. Therefore, the assessee having proved a tangible business expediency between M/s Artee Roadways Pvt. Ltd. and M/s Artee Roadways Pvt. Ltd. and having established that it was an ordinary commercial transaction, carried out in the normal course of the business, which cannot be termed as loan or advance' within the meaning of section 2(22)(e) of the Act, the question of invoking section 2(22)(e) of the Act for appropriation of Rs. 5.25 crores by the assessee from the money received by his proprietory concern in ordinary course of business, does not arise. In view of this, the action of the Assessing Officer in treating Rs. 5.25 crores as 'deemed dividend1 u/s 2(22)(e) of the Act, cannot be sustained. Hence, the impugned addition is directed to be deleted. The assessee succeeds on this ground of appeal.
Being aggrieved by the order of the learned CIT (A) the Revenue is in appeal before us.
Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. It is the settled position of law that the trading advance, received by the assessee from a company in which he holds the substantial interest, does not constitute the loans and advances as provided under section 2(22)(e) of the Act for holding such loans and advances as deemed dividend.
10.1 The Hon’ble Delhi High Court in the case of CIT v. Raj Kumar [2009] 181 Taxman 155/318 ITR 462 held that "the word 'advance', which appears in company of word 'loan' in section 2(22)(e), can only mean such advance which carries with it an obligation of repayment and that trade advance, which is in nature of money transacted to give effect to a commercial transaction, cannot be treated as 'deemed dividend' falling within ambit of provisions of section 2(22)(e) of the Act.
10.2 The Allahabad High Court in the case of CIT v. Atul Engineering Udyog [2014] 51 taxmann.com 569/228 Taxman 295 held that security deposit made by affiliates in normal course of business won't constitute loan/advance under section 2(22)(e) of the Act.
10.3 The Bombay High Court in the case of CIT v. Nagindas M. Kapadia [1989] 42 Taxman 128 (Bom.) held that advances made by a company to the assessee towards purchases to be made by the said company from the assessee could not be treated as "deemed dividends.
10.4 The CBDT vide Circular No. 19 of 2017, dated 12th June,2017 under the subject "Settled view on section 2(22)(e) of the Income-tax Act, 1961, trade advances" after noting at para.2 that "the Board has observed that some Courts in the recent past have held that trade advances in the nature of commercial transactions would not fall within the ambit of the provisions of section 2(22)(e) of the Act. Such views have attained finality" and referring to some of the High Court decisions on this issue clarified at para.3 as under-
"In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word "advance" in section 2(22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon".
10.5 In the case on hand, the assessee has received a trading advance from M/s Aartee Roadways private Ltd in which he held shares 94.15%. Out of such trading advance, an amount of ₹5.25 crores was treated as deemed dividend under the provisions of section 2(22)(e) of the Act on the reasoning that such amount was transferred to the saving account of the assessee and used for the personal purposes. In other words the Revenue out of the total amount of 12,50,63,193.00 received by the assessee has accepted as trading advance to the tune of Rs. 7,25,63,193.00 and the balance amount of ₹5.25 crores has been treated as deemed dividend on the reasoning that it was transferred to the personal account of the assessee. The question arises whether the trading advance received by the assessee which was used for his personal purposes can constitute deemed dividend as provided under section 12,50,63,193.00 of the Act. In our view, the Revenue cannot put a bar upon the assessee on the usage of the trading received by the assessee. In other words once it has been established that the amount received by the assessee represents the trading receipt i.e. in the course of the business, the usage of the same whether for commercial or personal purposes cannot change the character such receipt. As such the trading receipt is available at the disposal of the assessee and the revenue cannot direct to him for the usage of such trading receipts in a particular manner. In the given case, the assessee was to supply 150 refrigerated truck bodies and against such supply the assessee inter-alia received a sum of ₹11.67 crores which was directly disbursed by the bank on behalf of M/s Aartee Roadways private Ltd. 10.6 There may be several reasons for transferring the sum of ₹5.25 crores to the personal saving account of the assessee such as the fund was not immediately required for use in the business or there was sufficient capital of the assessee in his business which has been withdrawn or for any other reason. But such withdrawal cannot be a basis to draw an inference that such trading receipts represents the loans and advances in the nature of deemed dividend as provided under section 2(22)(e) of the Act. Accordingly we hold that, there was no colourable device adopted by the assessee in the given facts and circumstances as alleged by the AO by holding that the transfer of a sum of ₹5.25 crores represents the deemed dividend in the hands of the assessee. Hence we do not find any infirmity in the order of the learned CIT (A). Thus the ground of appeal of the Revenue is hereby dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 25/06/2021 at Ahmedabad.