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2015 (11) TMI 585 - ITAT CHENNAI

2015 (11) TMI 585 - ITAT CHENNAI - TMI - Deemed dividend under section 2(22)(e) - whether payments made by the company to the assessee firm represent trade advance? - CIT(A) deleted the addition - Held that:- No infirmity in the order of the Commissioner of Income Tax (Appeals) in holding that transactions between the lender company and assessee firm are in the course of business and the amounts received by the assessee are only trade advances and thus provisions of section 2(22)(e) have no appl .....

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NT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER For The Appellant : Mr. A.V.Sreekanth, JCIT For The Respondent : Mr. S.Sridhar, Advocate ORDER Per Challa Nagendra Prasad, JM: This appeal is filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-3, Madurai dated 30.04.2015 for the assessment year 2009-10. 2. The appeal of the Revenue is barred by limitation of one day. The Revenue filed a petition explaining the reason that there was a postal delay in receiv .....

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lding that payments made by the company to the assessee firm represent trade advance and provisions of deemed dividend under section 2(22)(e) of the Act are not attracted. 4. Brief facts are that assessee is a firm filed its return of income on 29.09.2009 admitting total income of ₹ 69,55,019/-. Assessment was completed under section 143(3) of the Act on 21.12.2011 determining the income of the firm at ₹ 1,73,72,590/-. While completing the assessment Assessing Officer made addition o .....

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firm on credit by raising invoices, against these invoices payments were made by the assessee firm, therefore transactions between the assessee and the company are only trading transactions in the course of business and thus advance received by the assessee firm are not loan or deposit within the meaning of provisions of section 2(22)(e) of the Act. However, Assessing Officer rejected the contentions of the assessee and brought to tax advances received by the assessee firm to the extent of S .....

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oner of Income Tax (Appeals) further held that details furnished by the assessee and the remand report establish that the amounts received are commercial transactions and adjusted then and there and also against subsequent payments/receipts for yarn purchase bills and cotton and waste cotton sales from the company. The Commissioner of Income Tax (Appeals) further held that assessee firm is not a shareholder of the lender company. 6. The Commissioner of Income Tax (Appeals) also held that deemed .....

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re us. 7. Departmental Representative vehemently supports the order of the Assessing Officer in treating the receipts from the company by the assessee as deemed dividend under section 2(22)(e) of the Act. 8. Counsel for the assessee supports the order of the Commissioner of Income Tax (Appeals) in concluding that transactions between the company and assessee firm are trade transactions and advances received by the assessee firm are only in the course of business of the assessee and thus the rece .....

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ssioner of Income Tax (Appeals). 9. Heard both sides. Perused orders of lower authorities. The Assessing Officer while completing the assessment made addition of ₹ 85,78,000/- representing amounts received by the assessee as deemed dividend under section 2(22)(e) of the Act and assessed as income from other sources, rejecting the contentions of the assessee that receipts are only trade advances received in the course of carrying on the business with the company. The Commissioner of Income .....

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in the remand report that there are business transactions between the two entities for cotton yarn purchase and that major part of the receipts are for this cotton yarn. The total amount due on account of cotton yarn purchased during the year from the company is ₹ 4,73,33,173/-. As against this appellant paid ₹ 4,13,91,397/-. Appellant also received amount of ₹ 85,78,000/- for business needs which was explained as discussed. The reasoning given by the AO (reproduced earlier) fo .....

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ed by the Appellant, many of which are recent ones including a jurisdictional High court decision, have held that where there is business connection the advance cannot be taxed as deemed dividend. An analysis of the same shows that these decisions are applicable to the facts in the instant case. The case laws relied by the AO in the remand report are very old and also not on the identical facts. Appellant in its reply dated 24th April 2015 ( discussed earlier) argued that these are not applicabl .....

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er company and not in the hands of a person other than the shareholder in view of the Mumbai Special Bench decision in the case of ACIT Vs. Bhaumik Colour P.Ltd.,(supra). We also considered the decision of Delhi High Court in the case of CIT Vs.Ankitech Pvt. Ltd. (2011) 11 Taxman.com 100. On considering the various decisions of the High Courts and the decision of Mumbai Special Bench in the case of ACIT Vs. Bhaumik Colour P. Ltd. (supra) the Commissioner of Income Tax (Appeals) held that provisi .....

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