TMI Blog2006 (4) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... , be given a strict interpretation. The learned CIT(A) concluded that the AO stretched the definition of s. 2(22)(e) to include even legitimate transactions carried out in the ordinary course of business where the intention is neither to give a loan or advance or to confer some individual benefit on the shareholders. The important words in the section are loan or advance and for the individual benefit of such shareholders. The loan is something different from debt. For a loan there must be a lender, borrower as well as a contract/agreement between the parties for the return of the loan amount. Every sale of goods on credit does not amount to a transaction of loan. One important point pertinent to mention here is that the learned AO has never doubted the sequence of market service, exhibition at Taj Palace and execution of orders in pursuance of the advance. We agree with the conclusion of the learned CIT(A) that it would have been a different story if M/s Ariel Exports (P) Ltd. would have made the payment by way of loan or advance to the partners of the assessee not for the purpose of business, but for their individual benefit. No specific defect has been pointed out in the conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18-12-2000 To Bill No. 1226 dt. 18-12-2000 Wt. 147000 2,37,975 Cr. 3,10,721 7-2-2001 By Cheque No. 873038 Of Super Woollen 2,00,000 Cr. 6,10,721 14-2~2001 By Cheque No. 017549 Of Super Woollen 1,60,000 Cr. 6,70,721 15-2-2001 By Cheque No. 873039 Of Super Woollen 3,40,000 Cr.10,10,721 16-2-2001 To Bill No. 1535 dt. 16-2-2001 Wt. 32,000 53,550 Cr. 9,57,171 8-3-2001 To Bill No. 1632 dt. 8-3-2001 Wt. 285,000 3,19,200 Cr. 6,37,971 9-3-2001 To Bill No. 1643 dt. 9-3-2001 Wt. 308,000 3,44,960 Cr. 2,93,011 17-3-2001 To Bill No. 1701 dt. 17-3-2001 Wt. 2,08,000 1,92,135 Cr. 1,00,876 21-3-2001 To Bill No. 1711 dt. 21-3-2001 Wt. 101,000 8,080 Cr. 92,796 24-3-2001 To Bill No. 1728 dt. 24-3-2001 Wt. 167,000 3,79,569 Dr. 2,86,773 24-3-2001 To Bill No. 1729 dt. 24-3-2001 Wt. 192,000 5,12,610 Dr. 7,99,383 26-3-2001 By Cheque No. 103869 dt. 26-3-2001 27,47,383 19,48,000 Dr. 7,99,383 2,00,000 Dr. 5,99,383 27,47,383 21,48,000 4. As per the AO, the amount of Rs. 19,48,000 advanced by M/s Ariel Exports (P) Ltd. is for the benefit of the assessee-firm in which shareholder is holding substantial interest. The two among the five partners of the firm are holding more than 10 per cent holdings in the said com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-concern, M/s Ariel Exports (P) Ltd. The said firm advanced money to the assessee from time-to-time and there was a credit balance of the said firm in the books of the assessee for substantial period, the details of which have been given by us in para 3. The assessee-firm incurred certain expenses on behalf of M/s Ariel Exports (P) Ltd. from April to middle September, 2000 and also agreed for the purpose of exhibition and on completion of the exhibition, the company intimated the assessee that goods will have to be despatched to the dealers simultaneously. The manufacturing of reverie product was started and all goods were to be supplied through M/s Ariel Exports (P) Ltd. There is no dispute to the fact that the exhibition was held and certain photographs were also produced before the AO claiming the successful exhibition of the items. During arguments, learned counsel for the assessee also invited our attention to the fact that the key person of M/s Madhav Mktg. (P) Ltd., Shri Ashok Singhania died in a tragic accident in November, 2001 and all the plans of the company for supplying the goods to various dealers came to standstill and despatches, etc., could be started from March, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shareholder. 9. The Hon'ble Bombay High Court in the case of Sadhna Textile Mills (P) Ltd. vs. CIT (1991) 188 ITRR 318 (Bom) concluded that the provisions of s. 2(22)(e) are applicable also to the advances or loans made to corporate entity. The Hon'ble High Court of Delhi in the Case of R. Dalmia vs. CIT (1981) 24 CTR (Del) 16 : (1982) 133 ITR 169 (Del) held that payments made by way of loan or advance to shareholder or any payment made on behalf or for the benefit of shareholders are to be treated as dividend in either case to the extent to which the company possesses accumulated profit, the emphasis in this connection must be on the word possesses . If the company does not possess the amount, it cannot pay the same. A company can be said to have profits or to be possessed of profit when it actually possesses the amount or is in its control. 10. At p. 11 of the paper book filed by the assessee, there is a letter addressed to the Dy. CIT dt. 8th Feb., 2004 wherein it has been mentioned that the assessee appointed M/s Ariel Exports (P) Ltd. for marketing new products namely reverie and for that purpose M/s Ariel Exports (P) Ltd. was authorised to appoint the dealers for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of closely held companies of the assessee, the assessee withdrawing sums from his capital accounts and making investment, the sums debited in the assessee's capital account with respective firms and included any balance sheet, P L a/c of assessee in his return in regular course of assessment, it was held that transaction not satisfying test of s. 2(22)(e) and the provision is not applicable. 13. The Hon'ble apex Court in the case of Smt. Tarulata Shyam Ors. vs. CIT 1977 CTR (SC) 275 : (1977) 108 ITR 345 (SC) held that the assessee was taxable on the sum of Rs. 2,72,708 received by him as loan or advance during the calendar year 1956, related to the asst. yr. 1957-58 from a profit company to which he was a shareholder, even though at the end of 1956 no advance or loan was due to the company by the assessee, as a result of credits made in his favour in his accounts in excess of that amount. The Hon'ble Court further observed that once it is shown that the case of the assessee comes within the ambit of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. While coming to this conclusion, the Hon'ble apex Court affirmed the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
