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Circular of CBDT on trade advances not to be deemed dividend under s. 2.22.e. Clear and mandatory instructions to withdraw appeals, not to file appeals, not to make addition, and to rectify orders in accordance with accepted legal position will go a long way in reducing litigation

Circular of CBDT on trade advances not to be deemed dividend under s. 2.22.e. Clear and mandatory instructions to withdraw appeals, not to file appeals, not to make addition, and to rectify orders in accordance with accepted legal position will go a long way in reducing litigation - Income Tax - By: - CA DEV KUMAR KOTHARI - Dated:- 19-6-2017 - Relevant provisions: Section 2 (22) ( e) Circular No. 19/2017 vide F.No. 279/Misc./140/2015/ITJ Dated 12th June, 2017 Earlier article: Section 2(22)(e) ca .....

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COURT Deputy Commissioner Of Income-Tax. Versus Lakra Brothers. - 2006 (4) TMI 190 - ITAT CHANDIGARH-A Recent circular: Recent circular no. 19/2017 vide F.No. 279/Misc./140/2015/ITJ, Dated 12th June, 2017 issued by CBDT is reproduced below with highlights added for analysis: Sub: Settled View on section 2(22)(e) of the Income Tax Act, trade advances -reg. Section 2(22) clause (e) of the Income Tax Act, 1961 (the Act) provides that dividend includes any payment by a company, not being a company .....

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any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits. 2. The Board has observed that some Courts in the recent past have held that trade advances in the nature of commercial transactions would not fall within the ambit of the provisions of section 2(22) (e) (of the) (sic. and) such views have attained finality. 2.1 Some illustrations/examples of trade advances/commercial .....

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vance was made by a company to its shareholder to install plant and machinery at the shareholder s premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the (CIT vs Amrik Singh, P&H High Court - [NJRS] 2015-LL-0429-5, ITA No. 3470[2013 = 2015 (4) TMI 1174 - PUNJAB AND HARYANA HIGH COURT) (iii) A floating security deposit was given b .....

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g Udyog, Allahabad High Court - [NJRS] 2014-LL-0926-121, ITA No. 223 0[2011 = 2014 (10) TMI 41 - ALLAHABAD HIGH COURT) 3. In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word advance in section 2(22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts /Tribunals may be withdrawn/not pressed upon. .....

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ver, revenue has been disputing the same for long time. In fact matter has been settled by the Supreme Court. The Circular has been issued thereafter only. However, there is no reference to the judgments of the Supreme Court, in which some of judgments referred to in the Circular have been upheld. For example case of Amrik Singh (supra.) Circular must have been issued long ago: It is desirable that CBDT must issue circulars to convey acceptable legal position as soon as possible to avoid un-nece .....

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hould be withdrawn. Circular must also cover future course of action: It is desirable that the Circulars must clearly state what is accepted legal position and administrative decision on such issues. It is desirable that the Circulars must also cover future course of action like no further addition or disallowance should be made, no further appeal should be filed, appeals already filed must be withdrawn. Rectification based on accepted legal position should be directed: The Circular should also .....

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ground by Officers of the Department Appeals already filed, in Courts /Tribunals may be withdrawn/not pressed upon. The Circular to be fully effective must have a. used word shall instead of may b. Directed to withdraw appeals on such issues so that pending cases are reduced, legal costs of revenue and assessee are reduced. c. Provided for rectification of orders in accordance with accepted legal position. d. Provided that on such issues further action adverse to assessee shouldnot be taken by t .....

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