TMI Blog2010 (6) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... emed dividend. This addition was made as the AO noticed that the assessee was Director in M/s. Mertinz Entex Industries Ltd., wherein, the assessee held 2,21,000 shares, out of 2,49,000 being total shares of M/s. Mertinez Entex Industries Ltd. He found that the assessee had made purchase and sales with M/s. Mertinez Entex Industries Ltd., and in the balance sheet of the assessee M/s. Mertinz Entex Industries Ltd., was sundry creditor to the extent of ₹ 3,24,75,522/-. Since the assessee was having shareholding of more than 10% of the voting power, the AO held that the provisions of section 2(22)(e) were attracted in the case of the assessee. After considering all the purchases, sales, opening balances etc, he computed the deemed dividend as under: Opening balance as on 1.4.98 - ₹ 95,89,094/- Add: Purchases from company - ₹ 87,88,461/- Rs.1,83,77,555/- Less: Sales to company - ₹ 33,28,400/- Due to company on account of purchases and sales. Rs.1,50,49,555/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggest that the money so taken by the assessee was towards transactions other than loan. Relying on various judicial pronouncements, the Assessing Officer held that the advance/loan taken from M/s. Mertinez Entex Industries Ltd from Ludhiana Office of ₹ 1,31,12,221/- and from Mumbai office of ₹ 1,26,25,891.20 totalling to ₹ 2,57,38,112.20 was to be treated as deemed dividend of the assessee u/s.2(22)(e). 5. The CIT (A) partly allowed the assessee's appeal, inter alia, confirming the addition to the tune of ₹ 2,45,42,112/- u/s.2(22)(e). The CIT (A) after taking into consideration various letters written by the assessee, called for a Remand Report from the Assessing officer and after considering the contents of the Remand Report and the assessee's comments on the same, decided the assessee's appeal on technical ground as well as on merits. He noted that in the Remand Report, the AO had pointed out that in Form No.35, the assessee had mentioned section 264 in stead of 246A. After detailed discussion on this count from pages 20 to 26 of his order, he held that the appeal filed by the assessee in Form No.35 u/s.264 was not a valid appeal and henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly during A.Y. 2002-03. 69. A careful perusal of these documents also throw light on other remarkable aspect requiring discussion as the same goes to the root of the matter. It is seen that vide purchase order dated 1.3.99, MEIL requested for certain items of garments. There is no evidence filed by the appellant as regards to the actual delivery of goods and hence, it is not know as on what exact date the said goods were delivered. 70. further, it is noted that the appellant filed the stock statement as on 31.3.99 showing the quantity and the value of goods lying in the closing stock. The stock statement shows that the appellant (Chirag Exports) had sufficient stock with it as ordered for vide the above purchase order dtd.1.3.99 by MEIL and that the stock requested for vide the said purchase order was ready for dispatch. Under such circumstances, the appellant failed to explain as to why the appellant made the sale bill as late as on 31.7.2001. When the goods/stock were ready, why their delivery were made after more than 2 years. 71. Similarly, vide purchase order dated 26.2.1999, 3000 track suits were ordered and vide purchase order dated 1.3.99, 1000 pieces were or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the undersigned pertaining to the year under appeal, several discrepancies/deficiencies as noted above were noticed. 77. The appellant has also filed affidavit of one shri Bharat Bhushan Manager of MEIL stating that the transaction with M/s. Chirag Exports and Imports (the appellant) are only business transactions and the company (MEIL) has not advanced any loan to Chirag Exports and Imports. It also mentions that M/s. Chirag Exports has given loan to MEIL, which was repaid back to the company. A reference is also made to the CA's certificate dated 27.12.2004. 78. The appellant also filed CA's certificate dated 27.12.2004 and 4.6.2007 in which the CA at Ludhiana had certified that there was a running account between Chirag Exports and MEIL, and that there were sales by Chirag to MEIL. 79. The evidences were perused through carefully. They only support that there were business transactions between the two entities. However, these documents do not establish that the moneys received, and those specifically added in the assessment order under appeal, wee sales proceeds. These payments by MEIL are isolated ones and no satisfactory explanation has been given b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1013 1023000/31.7.01 1113 612221.00 26.2.99 1016 4.3.99 1015 660000/18/1/02 1119 950000.00 26.2.99 1018 4.3.99 1017 1944000/2.8.01 1114 975000.00 1.3.99 1024 6.3.99 1019 996000/7.3.02 1134 975000.00 1.3.99 1024 6.3.99 1020 963812/9.3.02 1136 975000.00 1.3.99 1024 6.3.99 1021 834124/11.3.02 1137 975000.00 1.3.99 1024 8.3.99 1022 834124/11.3.02 Correct(705600/12.3.02) 1138 975000.00 1.3.99 1024 8.3.99 1023 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Payment received against bill No.73,74,76 83 1088 1090 1092 1102 2000000.00 21.1.99 1044 Payment received against bill No.78 and 79 1094 1096 2000000.00 2.2.99 1045 Payment received against bill No.1038 dt.15.12.98 1105 11985000.00 Total 8. Shri S.P.Goyal also relied on the decision in the case of N.H. Securities v DCIT, 11 SOT 302(Mum) and also the decision of the Hon'ble Bombay High Court in the case of CIT v. Badiani (P.K) 76 ITR 369(Mum). Shri Goyal also submitted that since there was no show cause notice for making the addition, therefore, the order is liable to be set aside. He also relied on the decision of the Hon'ble Delhi High Court in the case of CIT v Raj Kumar (2009) 23 DTR 304 (Del), wherein, it has been held that trade advances which are in the nature of money transacted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s financial years to demonstrate that there were regular course of transactions between the assessee and MEIL and these were normal business transactions. He further raised objection that in the show cause notice, specific amounts should have been mentioned otherwise, it cannot be treated as show cause notice. Shri Goyal further referred to pages to 670 to 677 of PB, wherein, assessee's reply dt.21.11.05 is contained. He referred to the contents of the letter to submit that the assessee had requested to summon the records of the MEIL in order to verify the payments made by them against the supply of goods to them. Shri S.P.goyal referred to letter No.ITO-12(2)-1/ITATHearing/2009-10 dated 15.3.2010 of Income tax Officer 12(2)-1, Mumbai addressed to the CIT (DR), ITAT-VI 'H' Bench, Mumbai, wherein, it was, inter alia, observed as under:- On verification of the assessment records, it is found that the details as submitted by the assessee before the Hon'ITAT, i.e. copy of ledger account of M/s. Mertinez Entex Industries Ltd., as appearing in the books of account of M/s. Chirag Exports and Imports, were submitted at the time of assessment proceedings except some of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibility of the transactions. He submitted that the object clause does not go with the theory that these were business transactions. He submitted that it is the substance which decide the nature of transactions. Ld D.R. further submitted that the supplies were allegedly made after two years which is highly doubtful, particularly in view of the fact that the bills do not contains the details of delivery. He submitted that the onus was on the assessee to prove the business transactions. With reference to page 296 of the written submissions, ld D.R. submitted that it is not clear as to how this has been separately shown. 11. Shri Goyal, in his rejoinder, submitted that the delivery was made locally since the business premises MEIL and Chirag Exports and Imports were in the same vicinity, therefore, this could not be a basis for treating the impugned transaction as non business transaction. He further submitted that as far as the allegation of the department regarding violation of the object clause by the company, the assessee is not concerned of the same. 12. We have heard both the sides and perused the records of the case. The assessee has also filed additional grounds, which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plies made against various purchase orders which have been reproduced earlier in para 7 above. No discrepancy has been pointed out therein. The assessee had stock of more than ₹ 6 crores as on 31.3.99 and was in a position to make the supplies immediately on receipt of purchase order. However, the supplies were made as per the requirements of the purchaser and, therefore, unless the supplies as such are disputed, no adverse inference can be drawn. Nowhere, in the orders of the lower revenue authorities, the position regarding sales made to MEIL has been doubted. The sales have been linked with the purchase order as noted earlier. Under such circumstances, merely because the supplies have been made after a considerable long period, it would not lead to the conclusion that these were not business transactions. It is well settled law that prerogative of the businessman how to conduct his business cannot be interfered with. In our opinion, the nature of transactions between the assessee and MEIL was purely business transactions and could not be branded as loan or advance. We have reproduced the various objections given by the CIT(A) to doubt the veracity of the business transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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