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Taurian Engineering Pvt. Ltd Versus Jt. Commissioner of Income Tax (OSD) -4 (3) , Mubai

2016 (4) TMI 382 - ITAT MUMBAI

Deemed dividend u/s 2(22) - whether the advances received by the assessee after 11.8.2008 were towards purchases of plant and machinery or could be treated as deemed dividend? - Held that:- During the year the assessee received amounts on various dates aggregating to ₹ 1,09,75,000/- and supplies could not be made as the purchase orders were changed and replaced with fresh proposal of 200 TPH feeding Mobile Crushing and Screening machineries. The fact is also corroborated that during the ye .....

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he manufacturing and sale of machinery and more particularly when in the earlier and subsequent years the sale of machineries were made to the said concern by the assessee from whom the money towards the supply of machinery were taken could not fall within the meaning of section 2(22)(e) of the Act. In the catena of decisions relied on by the assessee the ratio laid down is that the advances taken against the supply are not covered by the provisions of section 2(22)(e) of the Act. We, therefore, .....

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T(A)) for assessment year 2009-10. 2. The only issue raised in the grounds of appeal by the assessee is against the upholding of the provisions of section 2(22)(e) of the Income Tax Act, 1961 and against the confirmation of addition of ₹ 1,09,75,000/- under section 2(22)(e) of the Act. 3. The facts of the case in brief are that the assessee filed its return of income on 29.9.2009 declaring a total income of ₹ 1,04,61,860/-. The case of the assessee was selected for scrutiny and notic .....

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ction 2(22)(e) of the Act. It was replied by the assessee that a sum of ₹ 10,26,20,000/- was received up to 11.8.2008 on which date the shareholdings by the assessee in TISCPL was 8.59% which was below the limits specified under section 2(22)(e) of the Act itself. The assessee also submitted a copy of ledger account of TISCPL for the financial year 2008-09, a copy of Bank account of State Bank of India of TISCPL, a copy of Demat account of the assessee on 14.10.2008 passed by TISCPL for ap .....

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O that the provisions of section 2(22)(e) of the Act were not applicable in respect of ₹ 10,26,20,000/- which were outstanding as on 11.8.2008 as on that date the percentage of shareholding was less than 10%. The said fact was corroborated by the demat statement of Mrs.Arpita Bajla testifying that the shareholding were transferred on 12.8.2008. The total credits after 12.8.2008 were ₹ 1,66,60,046/- which were given on various dates as under : 8.9.2009 Rs.75 lakhs 6.11.2008 Rs.3 lakhs .....

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ion of the assessee that the advances by TISCPL to the assessee were on account of trade advances for the supply of machinery given in the ordinary course of business. The AO also disbelieved the contention of the assessee that the similar machinery was purchased in the financial years 2006-07 and 2007-08 and also in subsequent years. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A) who also confirmed the action of the AO by upholding the observations of th .....

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the company M/s Taurian Iron and Steel Pvt Ltd. (TISPL) upto 11.8.2008, the appellant was holding 8.59% shares of this company up to 11.8.2008, the appellant received loans/ advances of ₹ 10,26,20,000 from this company. However, since the percentage of share holding was less than 10%, therefore, the provisions of section 2(22)(e) of the Act were not applicable in respect of the above stated amount/loans/ advance received by the appellant from TISPL 2.5 Thereafter, the appellant further pur .....

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aid advances were received by the appellant from the said company towards purchase of machineries. It was also argued that the said associate concern has also purchased similar kind of machineries from the appellant during earlier years for business purposes. 2.6 In respect of amount received totalling to ₹ 1,09,75,000/- from the above said company, the appellant claimed that the same was received as advance for sale/supply of machineries to the said company. The AO made enquiries as to wh .....

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concern to give colour to advance received a by the appellant from the said associate concern as loan without any backing of supply order from the said company. In the facts and circumstances, the provisions of section 2(22)(e) of the Act were clearly applicable on this amount of Rs.l,09,75;000/- received by the appellant. 2.7. Without prejudice to the above facts and findings, if the appellant's argument appears to be genuine that the above said amount was received as advance for supply of .....

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" 11/8/2008, the appellant had already received huge amount of ₹ 10.26 crores from the above said associate. In view of the facts that the appellant had already received a huge amount from the associate concern, such associate concern could have placed order for supply of machineries against the amount already advanced to the appellant, There was no need-for the appellant to receive further amount from the associate concern for supply of machineries. The facts .and circumstances show .....

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tion of the same to the income of the appellant. This ground of appeal is, therefore, dismissed. 4. The ld. AR submitted before us that these advances aggregating to ₹ 1,09,75,000/- were received on various dates during the year in the ordinary course of business against the sale and supplies to be made to M/S TISCPL against the supply orders dated 12.08.2008 for 200 TPH Primary Module and 07.12.2008 for 200 TPH VSI Module and were in the nature of trade advances and therefore the conclusi .....

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ovisions of section 2(22)(e) of the Act the primary condition is of holding of more than 10% in equity capital of the of the company advancing the money on or before the date of advance and the deeming provisions of section 2(22)(e) of the Act are not applicable to the advances given in the ordinary course of business. In the present case the assessee was a regular supplier of machines and materials to M/S TISCP and the assessee had sold machinery and other materials items to M/S TISCPL in the f .....

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that the orders placed in financial year 2008-09 could not mature and ultimately replaced with fresh orders fulfilled in the next financial year. The ld vehemently submitted that trading advances wrongly treated as deemed dividend. In support of his arguments the ld. AR placed reliance on the following decisions : a) CIT V/s Nagindas M Kapadia (1989) 177 ITR 393 (Bom); b) Bombay Oil Industries Ltd V/s DCIT (2009) 28 SOT 383(Mum); c) CIT V/s Ambassador Travells (P) Ltd ((2009) 318 ITR 376) (Del) .....

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the assessee had in fact taken advances from TISPCL and contention of the assessee that these were taken for supply of machinery to the said company was nothing but after thought to circumvent the provisions of law and finally prayed that the order of the CIT be upheld. 6. We have considered the rival contentions and perused the materials available before us and find from the records that the assessee was holding 8.59% of the total shareholding of the company as on 11.8.2008 and on 12.8.2008, t .....

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ed its holding to more than 10%. We also note from the record before us that the assessee had sold the machinery to TISCPL during the financial years 2006-07 and 2007-08 which is also apparent from the copies of ledger accounts, sale bills filed in the paper books as pages 54 to 59 and 65-A. The assessee sold machines worth ₹ 52,06,477/- during FY 2006-07 as per page no 54 of PB and ₹ 1,64,84,748.27 during FY 2007-08 page no 62 of PB . Even during the current financial year 2008-09 t .....

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