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2016 (5) TMI 542 - ITAT AHMEDABAD

2016 (5) TMI 542 - ITAT AHMEDABAD - TMI - Deemed dividend addition u/s 2(22((e) - Held that:- The Assessing officer has invoked section 2(22)(e) only because the account contain transactions of payment and repayment between the said Company OIL and firms OC and OBA. Further, he has nowhere ascertained that the payment received and the payments made are towards payment by way of loans or advances. Therefore, simply because there were transactions of cheques received and cheques paid in the mutual .....

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Dishman Bio-tech Pvt Ltd (supra), the transactions is required to be held in the nature of mutual current accommodation entries and therefore outside the purview of provisions of Section 2(22)(e) of the Act. - Decided against revenue - IT(SS)A Nos. 407 to 409/Ahd/2011, ITA Nos. 1648 & 1649/Ahd/2011, ITA No. 1692/Ahd/2011, IT(SS)A Nos. 410 to 412/Ahd/2011, ITA Nos. 1650/Ahd/2011, ITA Nos. 1690 & 1691/Ahd/2011 - Dated:- 5-4-2016 - SHRI SHAILENDRA K. YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, AC .....

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A Nos. 1690 to 1692/Ahd/2011 are the cross-appeals filed by the Revenue for Assessment Years 2005-06 in the case of Dinesh Jain and Assessment Years 2005-06 & 2006-07 in the case of Kavita Jain. All these appeals involve common issues, these were heard together and are being disposed of by this consolidated order for the sake of convenience. For the facility of reference, we take the lead case as IT(SS)A No.407/Ahd/2011 for AY 2005-06. 2. In this appeal, the assessee has taken following grou .....

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ts of the present case. 3 Both the lower authorities have erred in law and on facts of the case by not appreciating the facts that the transactions entered into are in the nature of current accommodation adjustments accounts and are not in the nature of loan or advance and therefore the very provisions of S. 2(22)e of the Act would not apply. 4. Both the lower authorities have erred in law and on the facts of the case in not appreciating the facts that the Appellant shareholder has not received .....

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and on the facts of the case in holding that the Company, in which the Appellant is shareholder, has made payment to the Partnership Firm, wherein the Appellant is a partner, is on behalf of or for the individual benefit of the Appellant and accordingly the CIT(A) has erred in invoking third limb of S.2(22)(e) of the Act without bringing on record any material to prove that the payment to Partnership Firms had been made on behalf of or for the individual benefit of the Appellant. 7. In any case .....

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submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of both the authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 9. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s 234B/C of the Act. 10. The learned CIT(A) has erred in law and on facts of the case .....

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of survey, it was noticed that the said company had given advances to M/s. OBA Speciality Chemicals (M/s OBA in short), a partnership firm in which Shri Dinesh Jain was a partner having 30% share. For the period relevant to Assessment Year 2007-2008 onwards the shareholding of Shri Dinesh Jain was 85.30% in the company M/s Ornet Intermediates Ltd. Similarly, this company had also given loans and advances to another firm namely M/s Ornet Corporation (OC in short) in which Mrs.Kavita Dinesh Jain .....

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ented the deemed dividend in the hands of Shri Dinesh Jain. He accordingly made the addition of peak balances as the deemed dividend in the hands of Shri Dinesh Jain and Mrs K'avita Dinesh Jain as under: STATEMENT SHOWING PEAK VALUE CONSIDERED BY ASSESSING OFFICER FOR DEEMED DIVIDEND PARTICULARS / F.Y 2004-05 2005-06 2006-07 2007-08 2008-09 TOTAL M/S ORNET CORPORATIONMRS KAVITA JAIN 33,800,000 31,875,000 3,162,618 850,000 - 69,687,618 M/S OBA SPECILITY CHM -DINESH JAIN 18,200,000 2,200,000 5 .....

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ment Years 2006-07 and 2008-09, for the reasons stated by the CIT(A) in the appellate order. 3.2 Similarly, in the case of Mrs. Kavita Jain, the CIT(A) granted partial relief for Assessment Years 2005-06 to 2007- 08, whereas the income has been enhanced by the CIT(A) for Assessment Year 2008-09. 3.3 Against the aforesaid order of the CIT(A), the assessee is in appeal before us for all assessment years as indicated above, i.e. AYs 2005-06 to 2009-10 in case of Dinesh Jain and AYs 2005-06 to 2008- .....

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d, accordingly, same is dismissed as not pressed. 5. Ground Nos. 2 & 3 in IT(SS)A Nos. 407 to 412/Ahd/201 1 and Ground Nos. 1 & 2 in ITA Nos. 1648 to 1650/Ahd/2011 are with respect to challenging addition u/s 2(22)(e) of the Act on the ground that the provisions of Section 2(22)(e) of the Act are not at all applicable to the assessees in the facts of the present case as the transactions entered into are in the nature of current accommodation adjustments accounts and are not in the nature .....

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nd, i.e., any loan or advance by a company to any concern in which its shareholder is a member partner and has substantial interest; and made addition in respect of funds advanced by OIL to OC and OBA by adopting the peak theory. Aggrieved by the assessment order, assessees preferred appeal before CIT(A) who held that amount advanced by OIL to OC and OBA cannot be treated as deemed dividend within the meaning of Section 2(22)(e) of the Act. He therefore deleted additions made by the Assessing Of .....

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ll in the nature of current accommodation adjustment entries which are different from loans and advances. The distinction of loan, mutual, open and current account has been defined in the Limitation Act, 1963, which is different in the case of loan & advance as compared to the mutual, open and current account. There was never any interest charged on the outstanding balances itself was testimony to the fact that such account was not in the nature of "loans and advances". Moreover, c .....

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efore, there was no intention of advancing any loan to the said partnership concerns out of accumulated profits by the said company-OIL. The said amount was in the nature of open, current accommodation account and not as a loan or advance by the company-OIL. As per ledger accounts, the transactions between OIL and OC reveals that for the period under consideration there were as many as 62 debit transactions amounting to ₹ 16,32,75,000 and 60 credits transactions amounting to ₹ 14,94, .....

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se such transactions were large in numbers and both ways, indicating that such transactions are in the form of current accommodation adjustment entries. 5.4 Such mutual, open, current, running & trade account transactions made in normal course of business can by no stretch of imagination partake the character of a payment by way of loans or advances. The deeming provisions of law contained in section 2(22)(e) being very much confined and limited to the particular purpose for which it has bee .....

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tment entries. However, for entering into current account transactions, a party need not be in the business of money lending. Simple frequent movement of funds between two or more parties on need basis without charging of interest is current accommodation adjustment entries. For entering into such transactions, assessee need not carry on money lending business. In fact, under identical facts and nature of transactions, the Hon ble Jurisdictional High Court in the case of CIT vs. Schutz Dishman B .....

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Act also does not arise. For both the years under consideration, I have perused the copies of the ledger accounts placed on record. It can be seen that there are large number of debit and credit transactions. Meaning thereby, the appellant has given and received funds as and when required to and from its associate concern. It is not an account whereby loans and advances have been given to the associate concern. It is an account which is in the nature of current adjustment accommodation account .....

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and therefore, the same is not a transaction in the nature of loans and advances. In the absence of any loans and advances, the provisions of section 2(22)(e) of the Act in respect of deemed divided are not attracted and therefore, the question of deduction of tax at source also would not arise. This view is supported by the following direct decisions : CIT vs. Creative Dyeing & Printing (P) ltd. 318 ITR 476 (Del) CIT vs. Raj Kumar318 ITR 462 (Del) NH Securities Ltd v. DCIT (2007) 11 SOT 302 .....

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urview of section 2(22)(e) of the Act. This view supported by ihe following direct binding decisions of the ITATs. M/s. Utkarsh Fincap (P) Ltd., vs. ITO 7288 ITR 38 (Tri. Ahmedabad) M/s. Bombay Oil Industries Ltd, v. DCIT, Central Circle 35 Mumbai 128 SOT 383 (Mum.) 4. It can thus be seen that the Commissioner as a matter of fact found that the payments were not in the nature of current adjustment. There was movement of fund both ways on need basis. The transactions in the nature of loans and ad .....

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n section 2(22)(e) of the Act. 5. The issue is substantially one of appreciation of facts. When the CIT(Appeals) as well as Tribunal concurrently held that looking to large number of adjustment entries in the accounts between two entities, the amounts were not in the nature of loan or deposit, but merely adjustments, application of section 2(22)(e) of the Act would not arise. Consequently, no question of law arises. Tax appeals are dismissed." 5.6 The Assessing officer has invoked section 2 .....

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