DCIT, CHANDIGARH vs. SH. ASHOK JINDAL, CHANDIGARH

आदेश/Order PER BENCH:

The present appeals have been filed by the Assessee and cross appeal has been filed by the Revenue against the separate orders of Ld. CIT(A)(Central) Gurgaon.

2.1 Assessee has raised following modified ground in ITA No. 58/Chd/2014 for A.Y. 2008-09:

2.2 Revenue has raised the following grounds alongwith additional ground in ITA No. 109/Chd/2014 for A.Y. 2009-10:

(i) “Whether on the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 3,94,207/- made by the Assessing Officer on account of deemed income under section 2(22)(e) of the I.T. Act, 1961?” (ii) “Whether on the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 58,86,284/- made by the Assessing Officer on account of seized documents as pages 1 to 48 of A-8 of Delta 3.”

2.3 Additional Ground:

“That on the facts & circumstances of the case the Ld. CIT(A) erred in law while giving relief without giving an opportunity to the Assessing Officer for examination of additional evidence produced before her which were not produced before the Assessing Officer during the course of assessment proceedings and without invoking the provisions of Rule 46A of the Income Tax Rules.”

ITA 57/Chd/2014 for A.Y. 2007-08 3. The Assessing Officer made addition under section 2(22)(e) as the

assessee was shareholder in a number of companies in which he had substantial

interest. The companies given the loan and the shareholding of the assessee are

as under:

Company Substantial interest of the List of Substantial Loan given to the Assessee's Loan Amount Proportionate Share of which is Assessee in the said Interested assessee or to any interest in Given being Deemed Dividend on giving loan company (Minimum 10% shareholders concern in which Said concern Treated as Deemed the basis of required) in the company assessee is Dividend u/s 2(22)(e) shareholding among which is giving substantially the substantially loan Interested. interested shareholders in the company

Himland Agro 1640/ 15800 shares = Gargi Jindal Heera Moti Health 1200 / 5800 359588 359588 Foods India Ltd. 10.38% = 2900 shares, Care Product Ltd. shares = .(Accumulated Urmil Jindal = 20.69% Profits of 2300 shares, 6596859) Ashok Jindal = 1640 Shares 1640/ Gargi Jindal = Mahaprabhu Ram Member 10000 2398 15800 2900 shares, Urmil Mulkh education shares = Jindal = 2300 society 10.38% shares, Ashok Jindal = 1640

Shares Heera Moti 1200 / 5800 shares = R. L. Jindal - 1200 Swami Devi Dayal Member 500000 200000 Health Care 20.69% shares, Amit Hi- tech Education Product Ltd. Jindal = 600 society .(Accumulated shares, Ashok Profits of Jindal = 1200 4393123) shares Ashok Jindal Shareholder 18000 18000 1200 / 5800 shares = Ashok Jindal = 20.69% 1200 shares 4250/33311 shares = Ashok Jindal Ashok Jindal Shareholder 20921 20921 Heeramoti 12.76% = 4250 Spicy shares Pvt. Ltd..(Accumula ted Profits of 3068701) Total 6,00,907 4. The A.O. made the addition by observing as under: A perusal of details mentioned in above para shows that all the conditions enumerated above were fully satisfied in the case of the assessee. Vide this office letter showcause notice dated 06.06.2011, the assessee was showcaused as to why the said amount should not be taxed as deemed dividend in view of provisions of section 2(22)(e) of the Income Tax Act, 1961 In response to the said show cause notice, the counsel of the assessee vide its letter no. Nil dated 06.06.2011 filed a written reply. In the written submission the assessee reiterated that the amounts debited to the firm M/s Heera Moti Agro Products, in the books of the company M/s Heera Moti Health Care product Ltd. & M/s Himland Agro Foods (India) Ltd. were provided out of commercial/ business expediencies and there was no intention of providing a loan or advance. It was further submitted that the amount provided to the firms in which Smt. Urmil Jindal is partner have not been personally withdrawn by Smt Urmil Jindal. No individual benefit has been obtained by Smt Urmil Jindal. The assessee submitted that the entries in the books of accounts need to be examined. The assessee produced the ledger account of the following parties and made the following submissions The reply of the assessee has been duly considered. In order to decide to the issue in hand it would be important to understand meaning of "loan and advances". A plain reading of the same would be that any amount transferred from lender to borrower for the personal needs, business needs or whenever one is facing financial crisis. The term loan and advance has not been defined in Section 2(22)(e) of the l.T.Act, 1961. Therefore, it is to be understood in common commercial parlance. In this regard, the two terms, vis., 'loan' and advances have been defined, by various authors/ authorities, as follows: The ledger accounts (copy enclosed) produced by the assessee in support its contention reveal the following transactions between the companies (in which the assessee is a substantial shareholder) and the concerns in which the assessee is substantial partner. A perusal of ledger account filed by the assessee and admission in her written reply reveals that the transactions between the two concerns are of the following nature: • The funds were transferred from the company to the firm to keep cash credit a/c within limit • The funds were transferred by the away of transfer entries transfer because of common parties in books of account of both the parties. • The funds were transferred to the bank account of the concern by the way of bank transfer or through cheques. The above indicates that the funds have been transferred from the company to the f\rm as there was shortage of funds therefore, these can be only treated as loans and advances. The transactions are not simple transfer entries but though cheque/bank transferred which were issued as funds were short of firm. The transfer of funds has not been done in the ordinary course of business. In this regard the assessee failed to demonstrate that advances were trade advances and were done to the ordinary course of business. A perusal of ledger account shows that there has not been any purchase/sale between the two parties. Mere assertion by the assessee loan were provided out commercial and business expediency is not enough. The onus lies the assessee to provide the necessary proof to this effect As the assessee has contended that the there was no intention of providing of loans and advance can not be accepted. The

department has to look into the actual transaction whatever be the 'intention'. As regards the contention of the assessee that during the year under consideration, the money was advanced to Swami Devi Dyal Hi Tech Education Academy in the Books ofM/s Heera Moti Health Care Products Ltd. & Heera Moti Spices Pvt and payment has been made to Charitable Trust The assessee has not derived any personal benefit. It is also submitted that the assessee is not entitled to 20% or more of the Income of the society. In this regard it may be mentioned that the accounts and the documents seized during the course of search show that he funds of the society have been utilized by the members of the society and their family members. Therefore, the contention of the assessee that no personal benefit has been derived by the assessee is not correct Thus in view of the discussion above and fact that details provided by the assessee fail to establish that the amounts were advanced during the ordinary course of business and that these were for commercial expediency. Rather the assessee has carried out these transactions to circumvent the law. The withdrawals made by the appellant from the company amounted to grant of loan or advance by the company to the shareholder. The legal fiction came into play as soon as the monies who paid by the company to the appellant. The legislature has gone beyond this and even if loan was not outstanding as of the year end, if was still treated as deemed dividend. The loan or advance taken from the advance may have been ultimately repaid or adjusted, but that will not after the advance may have been ultimately repaid or adjusted, but that will not after the fact that the assessee, in eye of law, had received dividend from the company during the relevant accounting year. Therefore in view of the above discussion, the contention of the assessee that such amounts are out of business expediencies and in the ordinary course of business is unacceptable and is also not supported by any evidence and has not been demonstrated by the assessee. Thus, Rs. 4,47,620/- is treated as deemed dividend as per Section 2(22)(e) and is added to the taxable income under section 56 of the Income Tax Act, 1961 for the year under consideration.

that the assessee is a shareholder in a number of companies in which he has

substantial interest and these companies have given loans to the assessee as

well as companies in which he has substantial interest. It is evident that assessee

has holding more than 10% in M/s Heera Moti Health care Products and M/s

Himland Agro Food India Ltd. The companies also have accumulated profits.

They have in turn given loans to other concerns wherein assessee has substantial

interest. The Ld. CIT(A) dismissed the arguments that though each of the

partners/Directors of the group concerns are separate and independent, they

act as a group in order to carry on the business and to achieve the objects of

the business or Trust in a most effective manner. Bank accounts in different

names of the firms/ companies, individual members are opened in Oriental Bank

of Commerce, Manimajra and State Bank of India, Baddi, with the intent that no

cheque drawn on any of the bank account of the group concern, must be

dishonoured. The Ld. CIT(A) has also refuted the arguments that the measure

was for commercial expediency and that as no cheques, as to constitute a

loan, were issued in the name of the assessee by the company/ firm in which he

has substantial interest, the provisions of section 2(22)(e) were not applicable.

authorities. The crux of the written arguments is as under:

As regards, M/s. Heera Moti Healthcare Product Ltd., it is submitted that this

advance was made for the business expediency was not directly paid to the

individual therefore, this advance does not fall in the mischief of section 2(22) (ej

of the Income Tax Act, 1961.

Apart from it, it is further submitted;

i) The assessee group consists of partnership concerns and companies

engaged in the business of production and sale of spices and food products

and besides, they are having two educational Institution, namely Swami Devi

Dyal Hi Tech Education Academy and Maha Prabhu Ram Mulakh Hi Tech

Education Society.

ii) These concerns are managed by four brothers alongwith wives, who are

partners/directors or trustees in different concerns of the group. Though, each

individual entity is separate and independent, but for the purposes of carrying

on the business and otherwise, they act as a group in order to carry on the

business and to achieve the objects of the business or Trust in a most effective

manner.

iii) Because of the various business entities and in order to maintain the

goodwill and reputation, the group as a whole have opened bank accounts in

different names of the firms/companies, individual members in one bank,

namely Oriental Bank of Commerce, Manimajra and State Bank of India, Baddi

and all the bank accounts are as per regular books of accounts.

iv) For the purpose of carrying on the business and in order to maintain the

good/will and reputation of each entity of the group, it has been decided and

communicated to the bankers that, if any, cheque is drawn on any of the bank

account of the group concern, then that cheque must be honoured and for

that purpose, at times, where there is lesser balance in the account of one

group concern, based on our instruction to the bank, the same cheque is

cleared debiting to some other account and due to this, there are certain debit

and credit balances, within the group concerns, during the year under

consideration.

v) Thus, from the above, it is clear that the amount is not in the nature of any

advance or loan given to any individual, shareholder or partner in the firm or

shareholder in the company.

vi) Thus, the instructions have been given so that there is no loss of goodwill or

reputation on account of dishonour of cheques. Thus, this act of inter firm and

companies transactions is on account of commercial expediency only.

vii) Your honour would find that there is no cheque issue in the name

ofassessee by the company or firm, which can be termed in the nature of

advance or loan and tliis is undisputed fact. Therefore, the provisions of section

2(22)(e) cannot be attracted. Had there been any cheque having been issued

in the name ofassessee, then it may have been difficult for the assessee to

come out of the mischief of section 2(22J(e). Therefore, it is a case where, the

provisions of section 2 (22) (e) are not attracted at all.

viii) The reliance is being placed in the judgment of Chandigarh Bench of the

Income Tax Appellate Tribunal in the case ofDCIT Vs Lakra Bros. (2007) 106 TTJ

250, in which, it has been held by the Tribunal, that legitimate transactions

carried oat in the ordinary course of business, where the intention is neither to

give a loan or advance to confer individual benefit to shareholder, are outside

the purview of section 2 (22) (e).

ix) The business transactions are inbuilt in the sense that due to the insufficient

balance in one account, the cheque had been cleared from the account of

some other concern to save the goodwill and reputation of the group as a

whole and, therefore, the contention of the Assessing Officer that it is not in the

course of carrying on any business transaction is not correct observation.

Reliance is being placed on the following judgments.-(a). CIT Vs Raj Kumar

(2009) 23 DTR 304 (Del.)

(b). CIT Vs Creative Dying & Printing PvL Ltd. (2009) 30 DTR (Del.) 143

(c). CIT Vs Smt Savithiri Sam (1998) 144 CTR (Mad) 17

(d). G.R. Govindrajulu Naidu&Anrs. Vs CIT (1973) 90ITR13 (Mad.)

x) The Assessing Officer has tried to distinguish the above said judgment by

merely stating that these are not business transactions. In this regard, it is

submitted that the amount having not been given directly to the shareholder in

the nature of loan or advance and, therefore, these provisions of section 2 (22)

(e) are not attracted.

xi) We are also inviting to your kind honour to the latest judgment of Delhi High

Court as reported in 318 ITR 462 and in whicli, it has been held as under:-

"The word 'advance' has to be read in conjunction with the word 'loan'. Usually

attributes of a loan are that it involves positive act of lending coupled with

acceptance by the other side of the money as loan : it generally carries an

interest and there is an obligation of repayment. On the other hand, in its widest

meaning the term 'advance' may or may not include lending. The word

'advance' if not found in the company of or in conjunction with a word 'loan'

may or may not include the obligation of repayment.

If………………………………………………….. it does then it would be a loan. Thus,

arises the conundrum as ftp what meaning one would attribute to the term

'advance'. The rule of construction to our minds which answers this conundrum is

noscitur a sociis. The said rule has been explained both by the Privy Council in

the case of Angus Robertson vs. George Day (1879) 5 AC 63 (PC) by observing

"it is a legitimate rule of construction to construe words in an Act of Parliament

with reference to words found in immediate connection with them" and our

Supreme Court in the cases ofRohit Pulp & Paper Mills Ltd. vs. CCEA1R 1991 SC

754 and State of Bombay vs. Hospital Mazdoor Sabha AIR 1960 SC 610.The

principles with regard to the applicability of the rule of construction are briefly as

follows: (i) does the term in issue have more than one meaning attributed to it

i.e., based on the setting or the context one could apply the narrower or wider

meaning; (ii) are words or terms used found in a group totally 'dissimilar' or is

there a 'common thread' running through them; (Hi) the purpose behind

insertion of the term, (i) the term 'advance' has undoubtedly more than one

meaning depending on the context in which it is used; (ii) both the terms, that is,

advance or loan are related to the 'accumulated profits' of the company; (Hi)

and last but not the least the purpose behind insertion of the term advance was

to bring within the tax net payments made in guise of loan to shareholders by

companies in which they have a substantial interest so as to avoid payment of

tax by the shareholders. The word 'advance' which appears in the company of

the word 'loan' could only mean such advance which carries with it an

obligation of repayment 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 provisions ofs. 2(22)(e)."

xii). In our case, since it is neither loan or advance and, therefore, such amount

being neither given in advance or loan, the provisions of section 2 (22) (e) are

not applicable.

held that the modus operandi of clearing the cheques from an account to

another account on transferring the amounts cannot be termed as a measure

of commercial expediency. It is clearly to circumvent the law. It was argued that

the payments are being routed in a roundabout fashion wherein the assessee is

a ultimate beneficiary. The modus adopted by the assessee is a clear

circumventing of provisions of Section 2(22)(e).

clearly mentioned on perusal of the record that the funds were transferred from

the Company to the Firm to keep the cash credit accounts within limits, the

funds were transferred by the way of transfer entries and the funds were

transferred to the bank account of the concern by the way of bank transfer or

through cheques. Thus there was no dispute that the amounts were transferred

to meet the commercial expediency of various business entities managed by

the assessee. There was no personal benefit gained by the assessee in these

transactions. The commercial expediency could be demonstrated by the

assessee and hence the amounts cannot be taxed under section 2(22)(e) as

there was no gain by the assessee as individual and there was no intention of

utilization of reserves and surplus for their benefit circumventing the dividend

distribution tax. Hence, we hereby direct that the addition made under section

2(22)(e) be deleted for both the years of the assessee’s appeal.

on account of seized material the Ld. CIT(A) confirmed the addition made by

the Assessing Officer on account of notings on the seized material.

unaccounted transactions even though they were rough entries. It was argued

that the assessee is neither a partner nor a proprietor of any business concern

and hence these transactions cannot be attributed to the assessee.

at the premises of the assessee and hence the onus is on the assessee to explain

and in the absence of any explanation the deeming provisions ought to have

been applied to the documents found and seized from the premises of the

assessee.

as Daliya, Namak, Zeera, Chalan Numbers have been mentioned alongwith a

b/f balance of Rs. 9,10,028/- and calculations totaling to Rs. 10,49,765/- and

further deduction of Rs. 3,61,170/- and addition of Rs. 5,68,065/- to this amount

totaling to Rs. 12,54,660/-. Keeping in view the specific figures mentioned it

cannot be said to be a rough or dumb document. It can be easily decipherable

that it pertains to business transactions and the onus is on the assessee to

demonstrate the accountability of these transactions in their regular books of

account of business concerns. Since the assessee failed to do so it can be

conveniently held that these are the business transactions and the only way to

estimate the profits or the gains derived from such transactions is to determined

the GP earned in this type of business which can be determined @ 10%

amounting to Rs. 1,25,400/- on the amounts mentioned in the seized material.

The Assessing Officer is directed to restrict the amount accordingly.

ITA 58/Chd/2014 for A.Y. 2008-09

made by the Assessing Officer on account of Cash deposits in the bank

account which the Ld.AR demonstrated that there was no such entry in the

bank account number 2442010002540 (OBC) hence this addition is being

deleted with the liberty to the department to approach this Tribunal if the

amount is found deposited in the F.Y. 2007-08 by their documents.

ITA 109-CHD-2014 for A.Y. 2009-10

categorically held that the addition of deemed dividend is in respect of the

amount of ‘Swami Devi Dayal Hi tech Education Academy’ which is ‘Society’

engaged in the providing education which was incorporated on 20/08/2000.

The concern is a society/trust granted registration under section 12AA of the

Income Tax Act,1961 by the CIT, Panchkula. Hence the case would be outside

the scope of section 2(22)(e). Since the decision of the Ld.CIT(A) is in

consonance with the facts and the legal position on this issue undisputedly, the

ground taken up by the Revenue is hereby dismissed.

income by the Assessing Officer based on the seized material marked as A-

8/Delta-3.

amount wise receipts and payments from 07/05/2008 to 05/07/2008 have been

tabulated based on the seized documents pages 1-48 of Delta 3 A-8. The seizure

is basically a notepad, maintained by the assessee for recording of day to day

cash receipts and payments. The total receipts was worked out to Rs. 72,30,369/-

and payments to Rs. 97,36,284/-. Against this note-pad, the assessee had

surrendered an amount of Rs. 38,50,000/- for the AY concerned on the basis of

‘theory of peak credit’. This declaration was however found not acceptable by

the Assessing Officer as it was maintained that the transactions was not a case

wherein money was rotated by the assessee in his normal course of business. The

Assessing Officer therefore concluded that expenditures were made out of

assessee’s unaccounted cash and so added the expenditure incurred over and

above the receipts (i.e; Rs. 25,05,915/-) as well as the total receipts depicted less

the surrendered amount (i.e; 33,80,369/-). Accordingly a sum of Rs. 58,86,284/-

was added back to the income of the assessee.

the transactions are mainly with regard to deposits in the regular bank accounts

of the group. The Ld.CIT(A) determined the unexplained/outside transactions

conducted outside the regular books to Rs.34,27429/-. And found that the said

amount was covered by the surrender made in the return. The balance amount

of Rs.14,76,717/- pertaining to purchases out of the books as evidenced from the

seized note pad is stated to be part of rotation of undisclosed funds, the profits

of which was also covered in the surrender. The chart prepared showing the

source of entries as per the impugned order based on the seizure has been

found to be explained. In no case, it was held that the total of both the receipts

and payments be added when it is quite apparent that some of the entries

pertained to purchases of noodles, expenses towards Photostat apart from

names of persons.

and on Rs.14,76,717/-, applied a GP rate of 20% which is the normal accepted

rate for this line of business which works out to about Rs. 3,00,000/- as profits.

Consequently, it was seen that the surrender of Rs.38,50,000/- found to cover

the sum of the transactions appearing in the seized documents.

chart describing every entry with reference to the photocopy of the seized

material, bank account statements and relevant narrations. It was argued that

the entries were also part of the seized material with the department and

reflected in the books of accounts, whereas the Ld. DR relied on the order of the

Assessing Officer. We find that the Ld. CIT(A) has calculated the unexplained

transactions cogently as mentioned in the para above and determined the

unaccounted income Rs. 34,27,428/- which has been covered by the surrender

made and offered to tax. Regarding the amount of Rs. 14,76,717/- the Ld. CIT(A)

has determined the GP @ 20%. Since no infirmity could be observed in the order

of the Ld. CIT(A), we hereby decline to interfere in the order of the Ld. CIT(A).

in A.Y. 2009-10 are hereby dismissed

Order pronounced in the open Court. Sd/- Sd/- �दवा �संह डा. बी.आर.आर. कुमार, (DIVA SINGH) (Dr. B.R.R. KUMAR) �या�यक सद�य/ Judicial Member लेखा सद�य/ Accountant Member AG Date: 29/11/2018

आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File