SHRI HEMANT JAIN,INDORE vs. THE DCIT 1(1), INDORE

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आयकर अपील�य अ�धकरण ,इ�दौर �यायपीठ ,इ�दौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE �ी डी.ट�.गरा�सया ,�या�यक सद�य तथा �ी ओ.पी.मीना ,लेखा सद�य के सम�

BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER

आ.अ.सं /.I.T.A. No. 632/Ind/2013 �नधा�रण वष� / Assessment Year:2008-09 Shri Hemant Jain DCIT 1(1), Indore 3 Janki Nagar Indore 452001 Vs. अपीलाथ� /Appellant ��यथ� /Respondent अपीलाथ� / अपीलाथ� / अपीलाथ� / ��यथ� / ��यथ� / ��यथ� / �था.ले.सं./PAN:ABHPJ 1977 H Shri Anil Garg, CA and Shri Arpit अपीलाथ� क� ओर से/Appellant by अपीलाथ� क� ओर से/ अपीलाथ� क� ओर से/ अपीलाथ� क� ओर से/ Gaur CA Shri Rajib Jain JCIT ��यथ� क� ओर से/Respondent by ��यथ� क� ओर से/ ��यथ� क� ओर से/ ��यथ� क� ओर से/ 03.01.2017 सुनवाई क� तारीख/Date of hearing सुनवाई क� तारीख सुनवाई क� तारीख सुनवाई क� तारीख उ�ोषणा क� तारीख/Date of pronouncement 16.01.2017 उ�ोषणा क� तारीख उ�ोषणा क� तारीख उ�ोषणा क� तारीख आदेश /O R D E R आदेश / आदेश / आदेश / PER O.P. MEENA, ACCOUTANT MEMEBR.

Income tax (Appeals)-I, Indore [hereinafter referred to as the CIT (A)] dated

22.08.2013. This appeal pertains to Assessment Year 2008-09 as against

appeal decided in respect of assessment order dated 02.12.2010 passed u/s.

143(3) of Income Tax Act, 1961(herein after referred to as "the Act) by the

DCIT 1(1), Indore [hereinafter referred to as the AO].

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1(i) That, the learned CIT(A) grossly erred both on facts and in law, in

confirming the addition of Rs. 57,75,019/- made by the learned AO in

appellant`s income by invoking provision of section 2(22)(e) of Income Tax

Act,1961.

(ii) That, the learned CIT (A) grossly erred in confirming the addition made by

the AO under section 2(22)(e) of the Act, without appreciating the material

fact that the appellant had not taken any loan or advance from M/s.

Lakhanlal Kantilal Brokers Pvt. Ltd. The learned AO also erred in not

considering the material fact that the impugned sum of Rs. 1,00,00,000/- was

recovered by the Appellant from the above named company on behalf of

one of his debtors only and therefore, the transaction does not fall within the

mischief of provisions of section 2(22)(e) of Income Tax Act,1961.

2(i) That, the learned CIT(A) grossly erred, both on facts and in law, in

confirming addition of Rs.15,57,894/- made by the learned AO in appellant`s

income on account of alleged speculation transactions.

(ii) That, the learned CIT (A) grossly erred, in not considering and appreciating

the material fact that the impugned payments were genuinely made by the

appellant, during the ordinary course of his carrying out delivery based

business and the transaction covered by impugned payments were not

speculative transactions within the definition of clause (5) of section 43 of

Income Tax Act,1961.

(iii) That, Without prejudice to above, the learned CIT(A) grossly in not

appreciating the material fact that if the nature of the subject transaction is

regarded as that of speculative loss transaction than, correspondingly , the

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nature of other transaction, under which the appellant has earned income

by receiving payments from various parties, should also have been regarded

as speculative profit transaction and accordingly, the alleged speculative

loss transaction ought to have been allowed to be set-off against the

speculative profit transaction under the provisions of sub-section (1) of

section 73 of the Act.

(iv) That, Without prejudice to above, even by assuming and not admitting, if

the payments of Rs. 15,57,894/- were regarded as speculation transactions,

not eligible for set-off from gain from other transaction of the similar nature,

than the loss of Rs. 15,57,894/- arising on account of impugned transaction

was ought to have been allowed to be carried forward for set-off under the

provision of sub-section (2) of section 73 of the Act.

2(22)(e) of the Act.

assessee is an individual and was a shareholder in a company named M/s.

Lakhanlal Kantilal Brokers Pvt. Ltd. (in short LKBPL). The AO found that there

are several transactions between the assessee and the above company

during the subject year. Ongoing through the accounts of the company, it

was noticed that the company’s account showed credit balance on

08.02.2008 amounting to Rs. 57,75,019/-. Since the assessee is a shareholder of

the previously mentioned company, and therefore provisions of section 2 (22)

(e) are applicable. It was explained by the assessee, that the company

accounts was always having debit balance but on the said date, it shows

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credit balance due to the reasons that the assessee had issued a cheque on

the said date but it could not be cleared on the same day due to the reasons

that next days were Saturday and Sunday. It was further argued that the

company as well as the assessee transacted same amount of Rs. 1,00,00,000/-

payable to each other, one of them by R TGS and the other one by cheque. It

has been further referred that it that the cheque issued was cleared late;

hence, it shows credit balance on 08.02.2008. It was argued that there was no

credit of the Company. However, this submission of the assessee was not

found acceptable on the ground that said amount reflected credit of the

assessee’s account by an amount of Rs. 1,00,00,000/- received on 08.02.2088

whereas payment of Rs. 1,00,00,000/- has been reflected on 12.02.2008 . Thus,

there is a wide gap of four days between the above transaction. It is

noteworthy that the balance of the company after receipt of above sum Rs.

1,00,00,000/- and the credit balance was at Rs. 57,75,019/- which clearly

deemed dividend as the said date. This aspect has been examining the

perspective of the conditions laid down in section 2 (22) (e). The assessee is a

shareholder in the said company. His share holding pattern of the company

more than the specified percentage. The company has sufficient reserve and

surplus as per balance sheet. Accordingly, the amount of Rs. 57,75,019/- was

added as deemed dividend under section 2 (22) (e) of the Income Tax

Act,1961 in the hands of the assessee.

Corporation in Dena Bank, the assessee received Rs. 1 crore from LKBPL on

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08.02.2008. As a result, there was a credit balance of Rs. 1 crore on 08.02.2008.

This amount was returned back on same day but it was received on

12.02.2008 in account of Gurudeo Corporation, a proprietary concern of the

assessee as cheque could not be cleared being Saturday and Sunday. The

AO did not agree with this proposition. However, in appeal the assessee has

taken different stand that the amount was not a loan or advance from LKBPL

but it was recovered from this company on behalf of one of its debtors

namely Kandla Expert Corporation (KEC). If L KBPL has paid Rs. 1 crore to the

appellant on behalf of KEC, then in the ledger account of appellant`s

proprietary concern, i.e. M/s. Gurudev Corporation (GC) ,there should be a

debit entry in books of LKBPL and there has to be a corresponding credit entry

in ledger account of KEC on 08.02.2008. In the books of account of M/s. LKBPL

and M/s. GC does not draw any credit on 08. 02. 2008. Similarly, no entry of Rs.

1 crore is seen in the books of the appellant i.e. GC. In fact no debit or credit

entries there in account of KEC for the whole of February 2008. Not only that

without such transaction of Rs. 1 crore being entered in ledger account of

KEC by the appellant, the balance debit comes to Rs. 5,02,12,141/- in account

of KEC and appellant has shown exactly the same balance in its return of

income in schedule 6 of which did deal sundry debtors. Hence it is very clear

that such transaction of Rs. 1 crore has nothing to move with KEC and that is

why such argument was never taken before AO. Therefore, the new

argument taken by the appellant is disapproved from the ledger account of

the appellant himself and also from the fact that the KEC did not come from

the same. The confirmation or copy on company LKBPL in this regard and their

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affidavit is of no help to the appellant because third party KEC has not

confirmed that they were told LKBPL to pay such amount of Rs. 1 crore to the

appellant on 08.02.2008 and even if such entry is reversed subsequently should

appear in the ledger account of all three parties, namely the appellant,

LKBPL, and KEC, but such entries are not reflected in their ledger accounts.

The Ld. CIT (A) further observed that even amount of Rs. 1 crore received on

8.2.2008 and returned back on 12.02.2008 , even then it amounts deemed

dividend u/s. 2(22)(e) of the Act in the light of ratio laid down in the case of

Walchand & Co. Ltd. [1975] 100 ITR 598(Bom) . Hence, temporary loans or

short holding of loan amounts to deemed dividend within the mischief of

section 2(22) (e) of the Act. Further the said company had sufficient surplus

and reserve, hence, conditions of section 2(22) (e) are fulfilled. Accordingly,

CIT (A) had confirmed the addition made by the AO.

brought on record that the assessee was having more than 10% of the Voting

was of the company of LKPBL on the date of transaction and accumulated

profit to the extent of Rs. 57, 75, 019/-on the date of transaction i.e. 08-02-2008

The AO has not discharge his initial onus of proving that the case of the

assessee falls within the provisions of section 2 (22) (e). Therefore, the resultant

action of the AO in making addition deserved to be quashed. Without

prejudice to the above, it was contended that the assessee had never taken

any loan or advance from the subject company i.e. LKBPL to fall within the

provisions of section 2 (22) (e), contrary, it was the assessee who & had given

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loan and advances from time to time to LKBPL. It was submitted that, on the

date of subject transaction, the appellant owed the sum of Rs. 3, 60, 24, 122/-

from KEC against the sale of goods made by him from time to time to KEC. The

learned Counsel for the assessee referred PB Page No 8 to establish that the

assessee was to receive the above amount from KEC on 08.02.2008. The

learned Counsel referred PB page No 7B, to submit that the assessee was

having deposit with LKBPL of Rs. 42, 24, 981/- as on 08.02.2008 i.e. the before

entering the subject transaction of Rs. 1 crore on 08. 02. 2008. Therefore, the

learned Counsel submitted that the assessee`s proprietorship concern M/s.

GC had received the sum of Rs.1 crore from the company LKBPL not on its

own account but on behalf of one of its customer namely KEC. Similarly, on

the same day, the same costumers i.e. KEC owed a sum of Rs. 5, 11, 00,440/-

from the LKBPL in two separate accounts. The LKBPL was showing credit

balance of Rs.1,50,46,318/- and of Rs. 3,60,54,122/- in the name of KEC as

reflected PB Page 10 and PB Pg15 respectively. It was submitted that such

costumers i.e. KEC was dealing with the assessee was also caring on business

of forward trading through the company LKBPL. In addition, during the course

of carrying out day-to-day regular business transactions, KEC owed the above

stated sum from LKBPL. Thus, , in aggregate, a sum of Rs. 5,11,00.440/- [

1,50,46,318+n3,60,54,122] was payable by M/s. LKBPL to M/s. KEC, immediately

before the happening of the impugned transaction. The assessee raised a

demand on 7.2.2008 to KEC to make some payment. On the other hand, KEC

raised demand with LKBPL and verbally asked the LKBPL to make payment of

Rs. 1 crore through RTGS to the assessee against its dues. Accordingly, LKBPL

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had transferred a sum of Rs. 1 Crore through RTGS on 08.02.2008 from its Axis

Bank to the account of GC with Dena Bank (PB-21). Subsequently, their legal

Counsel, advised the KEC that after amendment in the provisions of section

40A, (3) of the Act, the KEC was not entitled to make payment to one creditor

by rotating the funds through one debtor. It was therefore, the KEC

immediately a day after i.e. on 09.02.2008, made verbal request to the

assessee to reverse the earlier instruction for transaction dtd. 08.02.2008.

Accordingly, GC has refunded the same amount of Rs. 1 crore by issuing

cheque no. 293484 dtd. 09.02.2008 in favour of LKBPL. However, as 10th and

11th February 2008 being Saturday and Sunday, LKBPL has presented the

cheque on 11th February with SBI and said cheque was duly realized on

12.02.2008. (PB Pg21].It was further submitted that the above fund remained

with the assessee just for a one day inasmuch as on 08.02.2008, it was

received and on 09.02.2008, it was refunded through cheque by the assessee.

The learned Counsel submitted that due to inadvertent mistake on the part of

accountant of GC, the receipt of Rs. 1 crore was wrongly credited in the

account of LKBPL on 08.02.2008 and consequently, the debit entry regarding

repayment was made on 12.02.2008 in the name of LKBPL. However, both

these entries ought to have been made in the account of KEC as the assessee

because of KEC carried out these transactions only. With regard to CIT (A) is

observation that the transaction made on behalf of KEC is not reflected in the

books of accounts of LKBPL , it was submitted that as be PB Page No 12 ,

which is copy of KEC in the books of LKBPL clearly showed that the company

has duly debited the account of KEC only and not that of the assessee while

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giving a sum of Rs. 1 crore on 08.02.2008 and the due credit was given to the

account of KEC only and not the account of the assessee. These facts speaks

that the LKBPL has never given any loan or advance to the assessee.

Consequently, question of deemed dividend u/s. 2(22) (e) does not arise.

Further the payment vouchers and receipt vouchers prepared by LKBPL

placed at PB Page No 22 & 23 and affidavit of director of LKBPL placed at PB

Page No 24 & 25 also showed that the assessee has not taken any loan and

advance from LKBPL. The learned Counsel also filed an affidavit of CA Sachin

Bhaiji who was representing the assessee before the AO stating that the

submission were made by him before the AO without consulting the assessee

and he was not fully aware about actual facts. Therefore, it was contended

that the transaction were entered in to during normal course of business of

trading of the assessee and therefore, such transaction cannot be held as

falling within the ambit of section 2(22)(e) of the Act. The learned Counsel also

placed reliance on following decision in support of his proposition. i) CIT vs.

Creative Dyeing and Printing (P) Ltd. [2009] 318 ITR 476(Del), ii) CIT vs.

Ambassador Travels (P) Ltd. (2009) 318 ITR 476(Del),iii) CIT vs. Vikram Ved

(2014) 367 ITR 365(Bom), iv) Mukundray K shah vs. CIT (2005) 277 ITR 128(Kol), v)

CIT vs. Ankitech Pvt. Ltd. & ors (2011) 242 CTR 1029(Del). , vi) Jamu V Sungand

vs. DCIT (2006) 100 TTJ (Mum) 1034 vii) DCIT vs. Lakra Brothers (2007) 106 TTJ

(Chd) 250. It was also submitted that the assessee has not derived any

material benefit from this transaction as during the intervening period the

assessee has utilized only a sum of Rs. 4 Lakh and odd and remaining balance

was lying in his bank account. Without prejudice to above, it was submitted

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that accumulated balance in Profit & Loss Account at the beginning of the

year was at Rs. 37,19,911/- only and the AO without bringing on record any

material that the accumulated profit as on the date of impugned transaction

raised an amount of Rs. 57,75,019/- equivalent to subject addition was

computed, hence, the AO is not justified.

contention of the assessee is not acceptable as the assessee is not able to

justify that the transaction entered in to with LKBPL, is rotated through KEC for

purpose normal business transactions. Therefore, the finding as given by the

lower authorities be upheld.

material available on record. It is seen that the KEC owed the assessee an

amount of Rs. 3.60 crore because of business transaction with the assessee.

Similarly, LKBPL owed an amount of Rs. 5.11 crore to KEC because of business

transactions. We also find that the assessee has raised a demand against KEC

on 07.02.2008. Accordingly, on verbal instruction of KEC, M/s. LKBPL has

transferred a sum of Rs. 1 crore on 08.02.2008 by RTGS to the assessee.

Therefore, this amount was received from LKBPL on behalf of M/s. KEC is in the

nature of business receipts of the assessee routed through LKBPL , hence, it

cannot be regarded as loan and advance from LKBPL. We also find that

when the KEC was advised by its legal counsel that such transfer is not

allowable as per amended provisions of section 40A (3) of the Act.

Consequently, the KEC has requested the assessee to refund the said

amount to LKBPL. However, the assessee could not refund the same

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immediately as 10th and 11th of February there being Saturday and Sunday,

hence, the said amount could be refunded by cheque issued on 11.02.2008

to LKBPL, which was cleared on 12.02.2008. The learned Counsel has relied in

the case of CIT vs. Ambassador Travels (P) Ltd. (2009) 318 ITR 476(Del), wherein

it was held that where assessee, a travel agency, booking resorts for

customers of the companies, they were normal business transactions and

could not be treated as deemed dividend u/s. 2(22)(e) because of share

holding pattern. Similar in the case of both the assessee as well as LKBPL and

KEC were dealing in same line of business and amount was received from

LKBPL on account of business transactions on behalf of KEC as LKBPL had to

pay a sum of Rs. 5.11 Crores to KEC and in turn the assessee was to receive Rs.

3.60 Crores from KEC. Therefore, this being not in the nature of loan and

advance , hence, does not falls under the provision of section 2(22)(e) of the

Act. We also note that the assessee had debit balance with LKBPL and never

received any loan and advance from LKBPL. This view of us is also supported

by decision ACIT vs. C. Rajini (Smt) ( 2011) 9 ITR ( Trib) 487 (Chennai)( Trib) and

Dy. CIT vs. C. Subba Reddy (HUF) ( 2011 ) 9 ITR (Trib) 487 ( Chennai) (Trib)

wherein the assessee was a director in two companies holding substantial

shareholding in both. Certain sum was transferred from one company to

another at instance of assessee. Assessee having substantial credit balance

with company, cannot held as loan or deposit nor can be assessed as

deemed dividend. Further the case laws relied by the A.R. also supports his

view. Thus, the circumstantial evidences shows that the assessee had

received the sum of Rs. 1 crore on 08.02.2008 on account of business receipts

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on behalf of KEC who in turn to receive the said sum from LKBPL. We also find

from the copy of bank account that the entries of this transaction are duly

reflected in respective accounts. We also find that the assessee has not

availed any benefit because of this transaction as only a sum of Rs. 4 Lakh

was only paid and balance amount was lying in bank account of the LKBPL.

Thus, it appears to be genuine business transaction carried out in the normal

course of business. We also find that the director of LKBPL has furnished an

affidavit in this regard. Further, the CA Shri Sachin Bhaiji also give an affidavit

stating that he has not consulted the assessee regarding facts and could not

bring before the AO proper facts. Therefore, this was inadvertent mistake took

place due to negligence of employee of KEC. In view of these facts and

circumstances, we are of the considered opinion that the AO was not justified

in treating such a single entry of receipts as deemed dividend u/s. 2(22)(e) of

the Act. Accordingly, ground no. 1 of the appeal of the assessee is allowed.

speculation transaction without considering material facts.

credit notes given to various parties. According to the AO, the assessee

entered in to supply of goods at future date but did not deliver the goods and

paid the difference of amount of agreed rate with current rate current,

hence, this was in the nature of speculation transaction. It was also found that

there was no reference of purchase and sale of goods with respect of three

parties with whom settlement was made. Hence, the AO treated the

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aggregate sum of Rs. 15,57,894/- as speculation transaction and

consequently, same were added to total income.

CIT (A) noted that parties in respect of which credit notes issued , the

assessee has not carried out any transaction other than settlement , hence,

the assessee was not eligible for claim of set-off in respect of speculation loss

against other transaction.

the learned Counsel for the assessee submitted the assessee has entered in to

contracts in normal course of business but in some cases due to unforeseen

circumstances normal and business, compulsion actual delivery does not take

place. In such case contract between parties gets rescind but in order to

avoid legal suits and protracted litigation, some mutual settlement is made.

The Ld. A.R. argued that the assessee had received credit of Rs. 1,15,84,725/-

from various parties and likewise he also compelled to make payment to

various parties of Rs. 17,55,161/- by way of settlement and earned profit of Rs.

98,29,564/- which duly included in grounds profit of Rs. 2,02,75,422/- shown in

audited accounts and such fact was not disbelieved by the AO. Therefore,

the AO should have considered the same allowed the deduction even on

account of speculation transaction loss.

material available on record. We find that the assessee had carried out

certain transaction, which are not delivery based hence; the AO has rightly

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treated the same as speculation transaction. However, we find from the

contention of the ld. A.R. that the assessee has also received a sum of similar

in nature from various parties, which has been duly claimed to have been

reflected in Profit & Loss Account and included in gross profit shown by the

assessee. We therefore, consider it appropriate to restored this issue to the file

of the AO to verify whether the assessee has also shown profit on account of

speculation transaction , and if found correct , the AO may allow set-off of

loss on account of speculation transaction or balance may allowed to be

carried forward . This ground of appeal is therefore, set-aside to the file of the

AO.

Sd/- Sd/- (डी.टी.गरािसया) (ओ.पी.मीना) �याियक सद�य लेखा सद�य (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

�दनांक /Dated : 16th January, 2016.