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2016 (6) TMI 882 - ITAT DELHI

2016 (6) TMI 882 - ITAT DELHI - TMI - Deemed dividend u/s 2(22)(e) - whether the amount advanced by the company M/s Cosmo Tribology (I) Private Limited was a trade advance or not? - Held that:- AR during the hearing of the case, also produced original bill books of the proprietary concern of the assessee, i.e., M/s Flair Impex. On examination of the bill books, we found that the assessee has maintained separate bill books for paraffin wax and slack wax and due to that bills of the same date are .....

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ove facts, we are of the opinion that the transaction between the assessee and company was a commercial transaction and the payments advanced were in the nature of trade advance and in such a case respectfully following the findings of the Hon’ble Jurisdictional High Court in the case of Commissioner of Income Tax Vs. Rajkumar (2009 (5) TMI 17 - DELHI HIGH COURT ), we hold that the money advanced to give effect to a commercial transaction would not fall within the ambit of the provision of secti .....

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. The Ld. CIT(A) has erred in law and on facts in upholding the addition made by the AO of ₹ 26,71,222/-, as deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961. The addition made by the assessing officer and upheld by the CIT(A) is on assumptions without any basis, without understanding the nature of the transactions and hence should be deleted. 2. The appellant submits that sum of ₹ 26,71,222/- is neither loan nor advance but it is the payment received against supply of materi .....

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terest at a fixed percentage, obligation of repayment, tenure of the amount advanced or loaned etc. No such features exit in the present transaction. Hence, the provisions of sec. 2(22)(e) would not apply. 4. The Ld. CIT(A) has relied upon irrelevant material, incorrect appreciation of facts and has drawn adverse conclusion on genuineness of trade advance which was accepted by the AO. Thus the order of the CIT(A) is perverse, wrong and bad in law. 5. The above grounds are independent and without .....

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t liabilities - advance received an advance of ₹ 28,52,941/- was received by the assessee from M/s Cosmo Tribology (I) Private Limited, in which the assessee was having substantial interest, i.e., having shareholding more than 10% of shares eligible for voting. It was also observed by the AO that the company M/s Cosmo Tribology (I) Private Limited, was having reserve and surplus in the books of ₹ 26,71,222/- at relevant period of time. According to the Assessing Officer, the advance .....

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Act. Before the learned Commissioner of Income-tax(Appeals), the assessee reiterated the submission that amount of ₹ 28,52,941/- received from M/s Cosmo Tribology (I) Private Limited was a trade advance against supply of goods, namely, waxes. In support of the proposition that trade advances do not fall within the ambit of section 2(22)(e) of the Act, the assessee relied on the Jurisdictional High Court decision in the case of CIT Vs. Rajkumar reported in (2009) 318 ITR 462 (Del). The lear .....

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grievance of the assessee in ground No. 1 to 4 is against confirming the addition of deemed dividend of ₹ 26,71,222/- by the learned Commissioner of Income-tax(Appeals). 4.1. Before us, the learned Authorized Representative of the assessee addressing the grounds submitted that the proprietary concern of the assessee M/s. Flair Impex, was having a running account with the company M/s Cosmo Tribology (I) Private Limited and the assessee received payment against supply of materials on contin .....

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ssee and, therefore, the provisions of section 2(22)(e) of the Act were not applicable in the case of the assessee. The learned Authorised Representative further rebutting the findings of the learned Commissioner of Income-tax(Appeals) that modus operandi adopted by the assessee was to record transactions in such a manner as to confuse the authorities to make-believe that these transactions were made against the trade advances, submitted that transaction of purchase of wax by the company from th .....

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arned Commissioner of Income-tax (Appeals) that supplies rendered by the assessee were not date wise on the serial number provided in the bill books, was based on incorrect appreciation of the facts. In respect of the observation of the learned Commissioner of Income Tax(Appeals) on cheques issued by the company, the learned. AR submitted that all the cheques received were deposited in the bank account of the proprietary concern M/s. Flair Impex and in fact six cheques were issued and not the th .....

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e observation of the learned Commissioner of Income Tax(Appeals) that the assessee did not furnish any VAT registration number, the ld. AR submitted that in the bills submitted to the learned Commissioner of Income Tax(Appeals), the VAT registration number was clearly mentioned as TIN 07910136693. In view of above, the learned AR submitted that learned Commissioner of Income Tax(Appeals) arrived at wrong conclusion that the transaction between the assessee and the company was not a commercial tr .....

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advance or not. The learned Commissioner of Income-tax(Appeals) has decided the issue as under : The above three situations in the section 2(22)(e) have to be seen separately. On perusal of the details, it is seen, that the appellant is a shareholder in M/s. Cosmo Tribology (l)Pvt. Ltd. having more than 10% voting rights. The other two shareholders are also apparently the family members of the appellant. The appellant is a proprietor of two concerns namely M/s. Flair Impex and M/s. D.K. Traders. .....

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re recorded in an irregular manner spreading the transactions to be covered in all the six bills books. For instance, book no.1 consists of 200 invoices. However, it is seen on 30.4.2007 supplies were made to the company vide an invoice no.TI/008 from book no.-1 and again on the same date another invoice no. TI/053 the supplies were booked from the bill book no.-2 instead of the same book no.-1. In fact the supplies should have been rendered date-wise on the serial numbers provided in the bill b .....

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8/9/2007 vide invoice no.TI/069 material was supplied to the company. Similarly, from book no.-2 on 4/2/2008, 12/2/2008 and 1.3.2008 against the invoice numbers TI/092, 094, 097 goods were supplied and from bill book no.-6 on 8.2.2008 16.2.2008 against the invoice no. TI/251 and 253 goods were supplied. On perusal of the bills for the year under consideration and also for the subsequent years, it is seen that this modus operandi adopted by the appellant was to record transactions in such a manne .....

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.2007 221617 17.7.2007 221620 5.11.2007 221627 etc. From the above it is seen that the company is maintaining only one single cheque book exclusively to issue the cheques to the appellant as they are in serial number almost throughout the year. There are no cheques issued for months together to any other person as only three cheque leaves were issued between 17.7.2007 and 5.11.2007. The AR of the appellant has not provided the bank statement to substantiate whether the above cheques were actuall .....

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nd the company M/s. Cosmo Tribology (I) Pvt. Ltd. is strictly a commercial transaction where the trade advances were extended by the company to the appellant. Since the appellant is a proprietor of a concern who benefitted to the extent of the accumulated profits in the garb of trade advances, the Assessing Officer has rightly held it to be a deemed dividend under section 2(22)(e). In view of this, the addition made by the Assessing Officer is upheld and is confirmed. 4.4 In respect of the obser .....

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uce the same as under: At page no.12 of your Honour s order in the 2nd paragraph at line no.8 it is stated that: the AR of the appellant furnished the bills for supplying the material to M/s Cosmo Tribology (I) Pvt. Ltd. A perusal of the same showed the appellant maintain 6 bill books which are serially numbered but the transactions were recorded in an irregular manner spreading the transactions to be covered in all the 6 Bill books . Reply:- The fact of assessee maintaining 6 Bill books is corr .....

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8 from Book No.1 and again on the same date another Invoice No.TI/053 the supplies were booked from Bill Book No.2 instead of bill book no.1. In fact the supplies should have been rendered datewise on the serial no. provided in the bill books rather than one supply recorded on one bill book number and the second one is on the another book no. on the same date". Reply:- Your Honour s attention is drawn to the same bills again. Please note that Bill Book No.1 is for paraffin wax and Bill book .....

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nd arranged in such a manner as if they are in continuity in ledger account. Similarly, on 17.9.2007 goods were supplied vide Invoice No. TI/165 from the Bill Book No.4 on the very next day i.e. 18.9.2007 vide invoice No. TI/069 material was supplied to the company. Similarly, from Bill Book No.2 on 4.2.2008, 12.2.2008 and 1.3.2008 against the voice No. TI/092, 094, 097 goods were supplied and from Bill book no.6 on 8.2.2008, 16.2.2008 against the invoice no. TI/251 and 253 goods were supplied. .....

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t quality of wax material as stated below:- 17.9.2007 T1/165 Book No. 4 Paraffin wax 18.9.2007 T1/069 Book No.2 slack wax 4.2.2008 T1/92 Book No.2 slack was 12.2.2008 94 -do- 1.3.2008 97 -do- 8.2.2008 T1/251 Book No. 6 Paraffin wax 16.2.2008 T1/253 Book No. 6 Paraffin wax It may please be noted that the Assessing Officer has meticulously seen our books of accounts including the bill books and was satisfied. The AO did not doubt that the supplies were made against trade advances. At page 12, last .....

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ost throughout the year. There are no cheques issued for months together to any other person as only 3 cheque leaves were issued between 17.7.2007 and 5.11.2007. The AR of the appellant has not provided the bank statement to substantiate whether the above cheques were actually encashed and recorded in the respective accounts . Reply:- The Bank account of Flair Impex i.e. the proprietorship of the assessee wherein the cheques are deposited and cleared are enclosed. Further, it is clarified that f .....

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nt bill." As rightly pointed out in the bill it is clearly mentioned as the party own transport that means the goods are lifted from the appellant s premises by the company by using its own transport. The assessee does not incur any transport costs. In the Bills the VAT registration number is clearly stated as Tl No.07910136693, copy of the sales tax department allotment of TIN is enclosed for your ready reference. Therefore, the assessee is having proper VAT registration which is evident f .....

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