TMI Blog2003 (5) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Ajay Vohra, learned counsel appeared and has been heard. Paper book running into 97 pages including, inter alia, written submissions on the issue made before the AO as well as the CIT(A) along with the accompanying documents has been filed by the learned counsel. On behalf of the Revenue, Shri Naveen Chandra, Departmental Representative appeared and has been heard. 3. Briefly stated, the facts are that the assessee is a private limited company working as buying agent inIndiafor and on behalf of Seneximco Pte. Ltd.,Singapore. The Singapore party purchases garments from India mainly from Shipra International (P) Ltd. (SIPL, in short) and Khandelwal International (P) Ltd. (KIPL, in short) as well as few other exporters in India. As a buying agent, the assessee-company ensures quality and time schedule for the export of garments by its principals. 4. During assessment proceedings, the AO noticed that assessee-company has been receiving money from the two exporters namely, SIPL and KIPL and there were substantial credits appearing in the accounts of these two parties as per books of account of assessee-company. When called upon to explain regarding the nature of these deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation of s. 2(22)(e) of the IT Act (which statutory provision probably you intend to invoke). It is submitted that s. 2(22)(e) of the IT Act does not provide that the credit balances of a company is to be assessed as deemed dividend in the hands of a share holder in which such a shareholder is a member or partner in which he has substantial interest. Even otherwise, too in the instant case the credit balances in the account of the assessee, a company who is neither a shareholder nor a member or partner in which the assessee-company has substantial interests. Further in order to appreciate the facts of the instant case and the nature of credit balances in the aforesaid accounts the assessee submits that, the assessee is a private ltd. company and had been incorporated on28th Nov., 1990. It is mainly acting as a buying agent of M/s Sin Eximco (P) Ltd.,Singaporeon whose behalf it makes purchase of garments inIndiaby placing orders on various suppliers. The assessee-company is also engaged in the business of developing and supplying of designs. This company was incorporated with three shareholders namely, Smt. Suman Gupta, Smt. Gulab Devi and Ms. Shipra Gupta out of the total sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO, however, rejected the explanation furnished by the assessee-company and proceeded to treat the amount of Rs. 18,50,000 received from SIPL and Rs. 22,00,000 from KIPL as deemed divided under s. 2(22)(e) and accordingly made an addition of Rs. 40,50,000. 10. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The assessee made detailed submissions before the CIT(A) and reiterated its stand that amounts received from the two parties by way of security deposits/performance guarantees could not be treated as advance or loan and further that such payments have been received with a view to safeguard the interest of the Singapore party in the matter of adherence to the quality and time schedule as agreed to by the exporters. The assessee further explained that it would only act as intermediatary between its principal, theSingaporeparty and the exporter, namely, SIPL and KIPL. Letters of credit were opened by the buyer in favour of the assessee-company. Such letters of credit were transferable and irrevocable. The assessee endorsed these letters of credits in favour of the exporters and the negotiations of the bills were made by the exporters directly with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee-company pertaining to financial year 1993-94 show Global Agencies (P) Ltd. as the beneficiary, which ratifies the earlier arrangement which the assessee-company had with its foreign principals. However, no such documents has been submitted which could prove that there was a change in the business arrangement and that negotiations were being made with the foreign principals by the exporters concerned. Moreover, the AO has not sought any such evidence from the assessee-company. In these circumstances, the enquiries got conducted by the AO appear to be futile and do not solve any purpose. 11. The CIT(A) proceeded to consider the facts and circumstances of the case as well as the submissions made by the assessee-company as well as the AO and came to the conclusion that the amounts received by the assessee-company from the two exporters, SIPL and KIPL, were during the course of business transactions and such amounts have been received by the assessee as buying agent and not by way of advance or loan. In support of his conclusion, the CIT(A) placed reliance on the decision of the Supreme Court reported in CIT vs. Bazpur Co-operative Sugar Factory Ltd. (1988) 70 CTR (SC) 94 : (1988 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the learned CIT(A) and argued that the allegation that the arrangement made by the assessee is not genuine are being raised for the first time at the appellate stage and no such allegation has been made by the AO. He further added that even in the grounds of appeal raised by the Revenue, no such claim that the arrangement was non-genuine has been made. Learned counsel referred to the submissions made at the assessment stage by the assessee vide letter dt.25th March, 1996and submitted that the facts and circumstances under which security deposits or performance guarantees have to be obtained from the exporters have been duly explained. He submitted that security deposits obtained during the course of business operations by the assessee acting as buying agent for and on behalf of its principal cannot be treated as advance or loan for the purposes of s. 2(22)(e). Learned counsel submitted that the word advance mean something which is due to a person but which is paid to him ahead of time when it is due to be paid. In support of his contention, reliance is placed on the decision of Delhi Bench of the Tribunal in the case of Ardee Finvest (P) Ltd. vs. Dy. CIT (2001) 70 TTJ (Del) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel, to which our attention has been drawn during the course of hearing have also been carefully perused by us. Various judicial authorities cited by the learned representatives on both sides have also been gone through. After giving our thoughtful consideration to the matter, we have come to the conclusion that credit balances in the accounts of the two exporters, SIPL KIPL, represent security deposit or performance guarantees received during the course of business by the assessee in its capacity as a buying agent for the Singapore party and such balances cannot be treated as advances or loan for the purposes of s. 2(22)(e). The addition of Rs. 40,50,000 made as deemed dividend under s. 2(22)(e) by the AO has, therefore, been rightly deleted by the learned CIT(A). From the facts on record, it is clear that the assessee-company in its capacity as buying agent has obtained security deposit from the exporters so as to ensure that quality of goods exported to the Singapore party are to the satisfaction of the latter. Such guarantees have been realised by the assessee-company after securing clearance from its principal, i.e., theSingaporeparty. During the course of hearing before us, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponsible for any losses to us arising out of late delivery/non delivery or bad quality of goods. For the payment of export invoices, we open transferable LCs in favour of Global Agencies (P) Ltd. They are authorized to negotiate themselves/or sub-distribute the transferable LCs to different exporters by endorsing the LCs in parts, which authorizes them to negotiate the bills directly with their respective bankers and get the payment in their respective accounts. They are sole buying agents and we do all business transactions of readymade garments inIndiathrough them and do not entertain any exporter to negotiate or deal directly with us. Accordingly, all date, all LCs have been opened to Global agencies (P) Ltd. and we have not opened any LC directly to any exporter since 1990." 19. At this stage, we may point out that there are certain additional evidences which have been furnished by the assessee before the CIT(A) for the first time and the same have been considered while deciding the issue. We feel that even though CIT(A) has not specifically referred to r. 46A of IT Rules, 1962, while considering such additional evidence, he has duly confronted the AO with the evidence so fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of s. 2(22)(e). A loan is granted for temporary use of money or temporary accommodation. In the instant case, such basic features which characteristics, a loan transaction are conspicuous by their absence. Therefore, the security deposit, in the instant case, cannot be construed as a loan. Reliance is placed on the decision of Delhi High Court in (2000) 161 CTR (Del) 432 : (2000) 244 ITR 358 (Del) cited by the learned counsel before us. Similarly, with regard to advance, the word connotes something that precedes, something paid in advance before it is due. The second important feature of advance is that it does not connote any idea of repayment. Both these features are missing in this case of security deposit received by the assessee. In support of the view taken by us, reliance is placed on the decisions of Delhi High Court in (2000) 161 CTR (Del) 432 : (2000) 244 ITR 358 (Del) and (1998) 146 CTR (Del) 421 : (1998) 230 ITR 522 (Del) relied upon by the learned counsel. 22. Further reference will be made to the decision of Supreme Court in the case of CIT vs. Bazpur Co-operative Sugar Factory Ltd. The Supreme Court, construing the word deposit held that the essence of a depo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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