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Income Tax Appellate Tribunal, “C” BENCH, CHENNAI
Before: SHRI A. MOHAN ALANKAMONY & SHRI S.S. GODARA
आदेश /O R D E R
PER BENCH:
These Revenue’s appeals for assessment years 2006-07 and 2008-09 arise from common order of the Commissioner of Income Tax (Appeals)-II, Chennai, dated 18.03.2014 passed in & 1217/2013-14 deleting deemed dividend additions of ` 12,30,510/- and ` 48,04,000/- respectively, in proceedings under Section 143(3) read with Section 147 of the Income-tax Act, 1961 (in short 'the Act').
A perusal of the case file reveals that the issue involved is identical in these appeals, i.e. deemed dividend addition of `12,30,510/- and `48,04,000/- respectively. Therefore, we take up as the ‘lead’ case.
The assessee company had filed its return of income on 31.01.2007 admitting income of `7,50,000/-. The Assessing Officer took up ‘scrutiny’. He found the assessee to have taken unsecured loans of `2,95,35,000/- from its sister concern M/s Evershine Wood Packaging Pvt. Ltd. It is an undisputed fact that both these entities have some common shareholders, i.e. Shri Shanthilal K. Patel, Shri Dharam C.K. Patel and Shri Karam C.K.
Patel. The former two stakeholders have 5000 shares each in the two companies. The third one holds 2500 shares in the assessee company and 5000 in the other entity. The A.O. viewed that these shareholders had been having substantial interest in the two companies which would attract deemed dividend under Section 2(22)(e) of the Act. He noticed from Profit & Loss account, balance sheet, etc. of M/s Evershine Wood Packaging Limited that the said loans as on 31.03.2006 read `12,30,510/- only. This amount stood added as deemed dividend under Section 2(22)(e) of the Act.
The assessee filed appeal. It would, inter alia, seek to prove in lower appellate proceedings that this amount ` 12,30,510/- was only in the shape of business advances. The CIT(Appeals) accepted its contentions as follows:-
“4.2.3 Further, from the above details filed by the assessee it is seen that there are common share holders between the assessee company and M/s. Evershine Wood Packaging Ltd. Shri Shanthilal K. Patel, Shri Dharam C.K. Patel and Shri Karam C.K. Patel three common shares holders between these two companies. The share holding pattern of these persons in the assessee company are 5000 shares (25%), 5000 shares (25%) and 2500 shares (12.5%), respectively. Similarly, the share holding pattern of these persons in Mis. Evershine Wood Packaging Ltd are 5000 shares (33.33%), 5000 shares (33.33%) and 5000 shares' (33.33%), respectively. Therefore, the assessee company is to be considered as a 'concern in which the share holders of M/s. Evershine Wood Packaging Ltd are substantially interested', for the purpose of invoking the provisions of section 2(22)(e) of the Act.
4.2.4 As per the provisions of section 2(22)(e) of the Act, any amount received by way of loans / advances during the year, is to be considered as deemed dividends. In the instant case, the amounts received from M/s.. Evershine Wood Packaging Ltd are not pure loans or advances. They are received during the course of regular business sanctions of supplying timber by the assessee to M/s. Evershine Wood Packaging Ltd. The assessee has been regularly buying timber from various parties and supplying to M/s. Evershine Wood Packaging Ltd. These supplies are of two types, i.e. some of the supplies are the direct sales to M/s.. Evershine Wood Packaging Ltd. In some cases, the assessee receives money in advance from M/s Evershine Wood Packaging Ltd and the same is, in turn, advanced to various persons for supply of timber. These persons directly make the supplies to M/s. Evershine Wood Packaging Ltd. Since the assessee company and M/s. Evershine Wood Packaging Ltd are under the same management and to have better control over the transactions, the assessee company is assigned the work of coordinating the supplies and, controlling the payments. These facts can be clearly visualized from the details of monies received from M/s.. Evershine Wood Packaging Ltd, the supplies of timber made to M/s.. Evershine Wood Packaging Ltd, etc. in various years, the details of which are as under:
Particulars Account-1 Account-2 Net Opening Bal.as on 0 0 0 01.04.2005 Closing Bal. as on 1,74,324 (Dr) 2,61,00,000(Cr) 2,59,25,676 (Cr) 31.03.2006 Closing Bal. as on 96,22,872 - 96,22,872 (Dr) (Dr) 31.03.2007 Closing bal. as on - 1,94,21,439 (Cr) 1,94,21,439(Cr) 31.03.2008
Sales made by the assessee company to M/s. Evershine Wood Packaging Ltd are as under:
Financial Year Sales (` ) 2005-06 51,83,301.84 2006-07 4,65,17,191.80 2007-08 Nil 4.2.5 The total monies received from M/s. Evershine Wood Packaging Ltd during the financial year 2005- 06 is Rs.3,11,08,978/-, as against which the assessee made sales (supplies) of timber for Rs.51,83,302/- during the year, leaving a closing credit balance (net) of Rs.2,59,25,676 (Cr] as on 31.03.2006. During the financial year 2006-07, the assessee further received an amount of Rs.1,09,68,643/-. As against these receipts, the assessee made timber sales of Rs.4,65,17,191/- to M/s. Evershine Wood Packaging Ltd during the financial year 2006-07. This has resulted in the net debit balance of Rs.96,22,872/- as on 31.03.2007. As against the said debit balance of Rs.96,22,872/- at the beginning of the year, the assessee during the financial year 2007-08, received an amount of Rs.2,90,44,311/-. As there were no sales made by the assessee during the year, an amount of Rs.19,421,439/- was outstanding as credit balance as on 31.03.2008. The assessee supplied timber to M/s. Evershine Wood Packaging Ltd in the following periods. In fact the amounts received in F.Y.2007- 08 are in turn advances to various suppliers for supply of timber. The details of the advances received, supplies (sales) of timber and the closing balances during the financial years 2005-06, 2006- 07 and 2007-08 are as under:
Fin. Year Opening Bal Receipts Sales made Closing Balance 31st during the during the as on year year March 2005-06 0 3,11,08,978 51,83,302 2,59,25,676 2006-07 2,59,25,676 1,09,68,643 4,65,17,191 (-)96,22,872 2007-08 (-) 96,22,872 2,90,44,311 0 1,94,21,439 (-) are the debit balances.
4.2.6 Thus, from the above details it is clear that the assessee's receipt of money from M/s. Evershine Wood Packaging Ltd is a clear business advance for the purpose of supply of timber. Therefore, the amounts are totally outside the purview of sec.2(22)(e) of the Act and hence, cannot be considered as "deemed dividend". 4.2.7 In view of the above, the Assessing Officer's action of treating the above loans / advances received of Rs.12,30,510/- and Rs.48,04,000/-, respectively in A.Ys.2006-07 and 2008-09, as 'deemed dividends' u/s.2(22)(e), is not justified. Consequently the additions of Rs.12,30,510/- and Rs.48,04,000/-, respectively in A.Ys.2006-07 and 2008-09, made by the Assessing Officer u/s.2(22)(e) of the Act are deleted.”
This leaves the Revenue aggrieved.
We have heard the Revenue and perused the case file.
Nobody has appeared at the assessee’s behest. An RPAD dated 26.11.2014 stands issued. Therefore, it is proceeded ex parte. We find from the case file that the assessment order is completely silent on the nature of the impugned loans in the shape of business advances. The CIT(Appeals) had examined all material on record for concluding that loans in question in the shape of business transactions / advances could not be treated as deemed dividends. The Revenue neither challenges the CIT(Appeals)’s order on the ground of admitting any additional evidence nor does it refer to any material rebutting the said factual conclusion. Therefore, the lower appellate findings categorizing the impugned loans as business advances have to be sustained. It has been held in case law CIT v. Creative Dyeing and Printing Private Ltd. (2009) 318 ITR 476 (Del), that business advances cannot be treated as deemed dividends u/s 2(22)(e) of the Act. The Revenue does not quote any case laws to the contrary. This makes us to affirm the findings under challenge. The Revenue’s ground is rejected. is dismissed.
Same order to follow in appeal.
The Revenue’s appeals and I.T.A. No. 2139/Mds/2014 are dismissed.
Order pronounced on Thursday, the 5th of March, 2015 at Chennai.