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2015 (12) TMI 763 - ITAT DELHI

2015 (12) TMI 763 - ITAT DELHI - TMI - Deemed dividend u/s 2(22)(e) - the advances had not been made in the ordinary course of business expediency and the assessee had been regularly repaying the amount received from the company - CIT(A) deleted the addition - Held that:- On perusal of the copy of ledger account of the assessee with M/s A.K.J. Industries Ltd. extracted in the assessment order, it is clear that there were continuous transactions of receipt and payment of money to the assessee by .....

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moreover, the salary payable is also credited in this account and wherever there are payments in excess of the salary, it was submitted that it was an advance salary received from the company. Therefore, in our considered opinion, these transactions one in ordinary course of business of the said company, cannot be treated as deemed dividend. - Decided in favour of assessee. - ITA No. 2917/Del/2013 - Dated:- 23-9-2015 - SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL ME .....

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e advances had not been made in the ordinary course of business expediency and the assessee had been regularly repaying the amount received from the company. ii. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 2. Brief facts of the case are that the respondent assessee is an individual deriving income from salary from the company, namely, M/s A.K.G. Industries Ltd. The retur .....

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h is a substantial shareholders and director. Therefore, the Assessing Officer was of the opinion that the said amount was in the nature of deemed dividend and therefore brought to tax in the hands of the assessee under the provisions of Section 2(22)(e) of the Act. Being aggrieved by this addition, the assessee preferred an appeal before the learned CIT(A)-IV, New Delhi, who vide order dated 27th February, 2013, deleted the addition vide para 5.3, which reads as under: "5.3 I have carefull .....

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ng through the facts, I notice that it is an admitted position that the appellant was director of M/s A.K.G. Industries Ltd. The appellant is also drawing salary of ₹ 30 lac per annum from the company. The appellant was a full time employee of this company and he being such an employee in the preceding year and continues to be an employee in the subsequent year. On the opening day of the accounting year, the appellant was to receive a sum of ₹ 24,15,610/- from the company. It is also .....

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a case where the loan or advance was taken and it has been later on returned by the shareholder. 5.3.1 As regards the contention of the Assessing Officer that the account has been named as 'A.K. Garg Loan Account', it is a settled position that the account in substance has to be seen and not the name. On going through the account it is quite clear that this account is a salary account of the appellant. The issue before me is an appreciation offacts and on going through the account and th .....

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inting Pvt. Ltd., 318 ITR 476 (Del.) whereby the Delhi High Court has held that the amount received by the assessee as an advance against future supply was a trade advance and not a deemed dividend under Section 2(22)(e) of the Income Tax Act. Accordingly, I hold that the amount received by the appellant is advance against future salaries was in the normal course of business and not a deemed dividend under Section 2(22)(e) of the Income Tax Act. Being aggrieved by the above order, the Revenue is .....

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J. Industries Ltd. This salary is credited to current account maintained in the name of assessee in the books of account of the said Company. He submitted that there were continuous transactions between the respondent assessee and the said company on account of salary and advance salary and the assessee also paid money to the company as and when required for business purposes of the said company. Therefore, the said account is in the nature of current account and the transactions have been done .....

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he order passed by the CIT(A) does not suffer from any legal infirmity therefore should be sustained. 5. We heard the rival submission and perused the material on record. On perusal of the copy of ledger account of the assessee with M/s A.K.J. Industries Ltd. extracted in the assessment order, it is clear that there were continuous transactions of receipt and payment of money to the assessee by the said company. There are some debit balance and after some time it was converted into credit balanc .....

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lary, it was submitted that it was an advance salary received from the company. Therefore, in our considered opinion, these transactions one in ordinary course of business of the said company, cannot be treated as deemed dividend. The reliance is placed on the following judgments: i. CIT Vs. Raj Kumar, 318 ITR 462 (Del.) ii. CIT Vs. Ambassador Travels (P.) Ltd., 318 ITR 376 (Del.) iii. CIT Vs. Creative Dyeing and Printing (P.) Ltd., 318 ITR 476 (Del) iv. Pradip Kumar Malhotra Vs. CIT, 38 ITR 538 .....

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ven point of time is not in the nature of loan or advance. But, it is a running account wherein the assessee had taken the amount as adjustable against future salaries which were being credited to his account monthly. Therefore, following various judicial pronouncements as relied upon by Ld. AR, we are of the view that advance was not in the nature of loan and hence cannot be treated as deemed dividend u/s 2(22)(e) of the Act. In view of the above, the appeal filed by the assessee is allowed.&qu .....

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er of the Assessing Officer was correct. 7. It is trite law that mere nomenclature of entry in the books of accounts is not determinative of the true nature of transaction. See Commissioner of Income Tax vs. India Discount Co. Ltd. 75 ITR 191 (SC), Commissioner of Income Tax vs. Provincial Farmers (P) Ltd. 108 ITR 219 (Cal) and KCP Ltd. vs. CIT 245 ITR 421. In the present case after going through the relevant evidence as well as current account maintained between the parties, it has been establi .....

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ombay High Court in the case of Nagindas M. Kapadia (supra) would show that the Court excluded from the ambit of 'dividend', monies which the assessee had received towards purchases. In our view both the CIT(A) and the Tribunal have correctly appreciated this aspect of the matter in the said judgment of the Bombay High Court. The relevant portion of the judgment of the Bombay High Court which sets out this aspect of the matter is already extracted by us http://www.itatonline.org ITA No.4 .....

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In the instant case, however, a discussion with respect to which has been made hereinabove, the issue is whether the payment received by the shareholder would at all fall within the four corners of provisions of Section 2(22)(e) of the Act. Having held otherwise, the said judgments of the Supreme Court, in our view, will have no applicability to the facts of the instant case. 12. In view of the above, the question of law as framed by us is answered in favour of the assessee and against the Reven .....

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d dividend under Section 2(22)(e) which states that deemed dividend does not include an advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the company [Section 2(22)(e)(ii)] i.e. there is no deemed dividend only if the lending of moneys is by a company which is engaged in the business of money lending. Dilating further the counsel for the appellant contended that since M/s. Pee Empro Export .....

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2(22)(e) and once it is held that the business transactions does not fall within Section 2(22)(e), we need not to go further to Section 2(22)(e)(ii). The provision of Section 2(22)(e)(ii) gives an example only of one of the situations where the loan/advance will not be treated as a deemed dividend, but that's all. The same cannot be expanded further to take away the basic meaning, intent and purport of the main part of Section 2(22)(e). We feel that this interpretation of ours is in accorda .....

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nd the Speech of the then Finance Minister would show that the purpose of insertion of clause (e) to section 2(6A) in the 1922 Act was to bring within the tax net monies paid by closely held companies to their principal shareholders in the guise of loans and advances to avoid payment of tax. 10.4 Therefore, if the said background is kept in mind, it is clear that sub-clause (e) of section 2(22) of the Act, which is pari material with clause (e) of section 2(6A) of the 1922 Act, plainly seeks to .....

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t in mind then, in our view, 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 conjunct .....

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