TMI Blog2016 (2) TMI 497X X X X Extracts X X X X X X X X Extracts X X X X ..... g the addition of ₹ 2 crores made by the AO u/s.2(22)(e) of the I.T. Act. 3. Facts of the case, in brief, are that the assessee is an individual and derives income from share of profit in firm, other sources, capital gain, salary etc. He filed his return of income on 31-03-2010 disclosing total income of ₹ 29,64,790/-. During the course of assessment proceedings the AO noted that the assessee Mr. Yogesh Jadhav is a Director of M/s.Pudhari Publications Pvt. Ltd. (PPPL) Kolhapur holding 23.95% share as on 31-03-2010. Similarly, he is also a partner in Shri Chhatrapati Press having 25% share in profit and loss in the said firm. The AO noted that during the year, i.e. on 31-03-2008 Shri Chhatrapati Press has received a sum of ₹ 2 crores by cheque from M/s. PPPL. Further details were called for and on examining the same it came out that Shri Chhatrapati Press received a sum of ₹ 2 crores vide eight cheques each of ₹ 25 lakhs on 31/03/2008. On the same day i.e. on 31/03/2008, Shri Chhatrapati Press transferred ₹ 2 crores to the capital account of its four partners viz. Shri G G Jadhav (HUF) (Rs. 75 lakhs), Mrs. G P Jadhav (Rs. 55 lakhs), Shri P G Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) Such beneficial shareholder should have substantial interest (not less than 20%) in the concern which receives the payment. iv) The payments by the company should be to the extent of accumulated profits possessed by the company. 7. From the various details furnished by the assessee the AO noted that all the conditions mentioned above are satisfied which are as under : i) PPPL, Kolhapur is a private limited company and not a company in which public are substantially interested. ii) The assessee holds 23.95% shares in PPPL, Kolhapur as on the date of the advance, i.e. 31-03-2010. iii) The payment is made to a firm in which the assessee has substantial interest, i.e. his share of profit therein is 25 per cent. iv) The payment is given in the form of advance and as per the entries made in the books of accounts it is classified as advance. v) PPPL, Kolhapur has sufficient accumulated profit which exceeds the advance given. 8. As regards the contention of the assessee that the advance was given by the company to the firm as the firm required the money for expansion of its business, the AO noted that the money received by the firm Shri Chhatrapati Press was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r these transactions. Further, PPL had never made any such advance to Shri Chhatrapati Press in the past and the payments were always made after the amount of labour charges was debited to PPPL by Shri Chhatrapati Press. He accordingly upheld the addition made by the AO. 13. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 14. The Ld. Counsel for the assessee reiterated the same arguments as made before the AO and the CIT(A). Referring to page 49 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the summary of transaction with Shri Chhatrapati Press by Pudhari Publication Pvt. Ltd. for the F.Y. 2005-06 to 2009-10. Referring to thesaid table he submitted that the bills for printing labour charges raised by Shri Chhatrapati Press against PPPL are substantial, i.e. ₹ 3.50 crores for F.Y. 2005-06, ₹ 4.12 crores for A.Y. 2006-07, ₹ 4.38 crores for F.Y. 2007-08, ₹ 4.76 crores for A.Y. 2008-09 and ₹ 5.28 crores for F.Y. 2009-10. He submitted that the payment of ₹ 2 Crore was made on 31-03-2008 by 8 cheques which were encashed on 11-06-2008. There is no repayment of the amount by Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of ACIT Vs. Smt. G. Sreevidya reported in 24 taxmann.com 754 and the decision of Hon ble Calcutta High Court in the case of Pradip Kumar Malhotra Vs. CIT vide ITA No.219/2003 order dated 02-08-2011. 18. The Ld. Counsel for the assessee submitted that the cheques were encashed on 11-06-2008, therefore, deemed dividend, if any, relates to A.Y. 2009-10. He submitted that a cheque constitutes payment when it is encashed. Since the cheques were encashed only in F.Y. 2008-09, therefore, addition, if any, can be made only in A.Y. 2009-10 and not in the impugned assessment year. 19. The Ld. Counsel for the assessee further submitted that the company wanted to increase the share capital as per the direction of the bank for disbursement of the loan of ₹ 10 crores. For the above proposition the Ld. Counsel for the assessee drew the attention of the Bench to pages 278 to 282 of the paper book. He drew the attention of the Bench to schedule 2 of the balance sheet which gives the details of Reserves and Surplus for the year ended 31-30-2008 and submitted that after the profit for the current year amounting to ₹ 2.66 crores the total profit and loss account of PPPL for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decisions relied on by the Ld. Departmental Representation are distinguishable and not applicable to the facts of the present case. 24. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case Shri Chhatrapati Press has received a sum of ₹ 2 crores on 31-03-2008 by 8 cheques from Pudhari Publication Pvt. Ltd. The assessee Shri Yogesh Jadhav is a director of Pudhari Publication Pvt. Ltd. (PPPL) holding 23.92% of the shares. Similarly, the assessee is also a partner in the firm Shri Chhatrapati Press with 25% share of profit or loss. Since the amount of ₹ 2 crores was received by Shri Chhatrapati Press from the company PPPL and in turn has been transferred to the capital account of the partners on the same day, therefore, the AO, applying the provisions of section 2(22)(e) of the Act made addition of ₹ 2 croees in the hands of the assessee. The arguments of the assessee that it is a commercial transaction and therefore the provisions of section 2(22)(e) are not applicable and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Printing Pvt. Ltd.(Supra) In that case the assessee company was engaged in the business of dyeing and printing of cloth and was an ancillary unit of P. Both the assessee company and P had common shareholders and directors, two of whom held more than 20% of the shares in both companies and P held 50% of the shares in the assessee company. P, in order to increase its export business and to compete with the international standards in garments exports proposed modernization and expansion of the plant and machinery of the assessee company. The assessee company being unable to invest such a large amount, P agreed to invest 50 per cent of the project cost, the rest of the 50 per cent to be arranged by the shareholders/directors of the company. The funds advanced were to be adjusted against the dues payable by P to the assessee-company in subsequent years for the job work of printing and dyeing to be done by the assessee for P. The Assessing Officer held that the amount paid to the assessee-company was a deemed dividend u/s.2(22)(e) of the I.T. Act, 1961. The Tribunal held that it was an advance for a commercial purpose to the assessee company by its sister concern P and not a deemed div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied on the shareholders on the basis that the accumulated profits will be deemed to have been distributed amongst them. Similarly, section 12(1B) provides that if a controlled company adopts the device of making a loan or advance to one of its shareholders, such shareholders will be deemed to have received the said amount out of the accumulated profits and would be liable to pay tax on the basis that he has received the said loan by way of dividend. It is clear that, when such a device is adopted by a controlled company, the controlling group consisting of shareholders have deliberately, decided to adopt the device of making a loan or advance. Such an arrangement is intended to evade the application of section 23A. The loan may carry interest and the said interest may be received by the company ; but the main object underlying the loan is to avoid payment of tax . The Tribunal has also referred to the judgment of the Bombay High Court in the case of CIT v. Nagin Das M. Kapadia [1989] 177 ITR 393 (Bom) in which it was held that business transactions are outside the purview of section 2(22)(e) of the Act. In the said case, the company in which Kapadia was having substantial in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company payable by M/s. Pee Empro Exports Pvt. Ltd. in the subsequent years. The counsel for the appellant has very strenuously urged that neither the Tribunal nor the judgment of this court in Rajkumar' s case [2009] 318 ITR 462 (Delhi) ; [2009] 181 Taxman 155 deals with that part of the definition of deemed 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 moneylending. Dilating further the counsel for the appellant contended that since M/s. Pee Empro Exports Pvt. Ltd. is not into the business of lending of money, the payments made by it to the assessee-company would, therefore, be covered by section 2(22)(e)(ii) and consequently payments even for the business transactions would be a deemed dividend. We do not agree. The Tribunal has dealt with this aspect as reproduced in para (9) above. The provision of section 2(22)(e)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conjunction with a word ` loan' may or may not include the obligation of repayment. If it does, then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term ` advance' . The rule of construction to our minds which answers this conundrum is noscitur a sociis. The said rule has been explained both by the Privy Council in the case of Angus Robertson v. George Day [1879] 5 AC 63 by observing ` it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them' and our Supreme Court in the case of Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise, AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610. Therefore, we hold that the Tribunal was correct in holding that the amounts advanced for business transaction between the parties, namely, the assessee-c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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