TMI Blog2018 (10) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... rough which it gave away all its manufacturing capacity, was nothing but a commercial transaction. Transactions between assessee and ISML had started much earlier to 20.12.2011 and we have already pointed a large number of instances when the balance in the name of the assessee was negative. In our opinion, ld. Assessing Officer fell in error in taking an isolated view and considering only a part of the transactions ignoring the transactions prior to 23.01.2012, which together clearly indicated that account was in the nature of a running trade account. Coming to the addition of D2,69,89,513/- sustained by the ld. Commissioner of Income Tax (Appeals), there is a clear finding by the ld. Commissioner of Income Tax (Appeals) that M/s.ISML had paid such sum towards statutory duties, TDS and wages of the assessee. Nevertheless, in our opinion, such payments would not take the transaction out of preview of a commercial transaction. Assessee had given its entire capacity to M/s.ISML and if M/s.ISML paid part of the statutory duties, TDS and wages of the assessee directly, in our opinion, such payments cannot be considered as loans or advances coming within the ambit of Section 2(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act ) should not be applied and why the advances received by it from M/s.ISML should not be treated as deemed dividend in its hands. Assessee thereupon submitted to the ld. Assessing Officer that the money received from M/s.ISML was in the nature of trade advance could not be treated as deemed dividend u/s.2(22) (e) of the Act. Assessee also relied on an agreement entered by it with M/s.ISML on 10.12.2011, by virtue of which it was obliged to supply the enter raw castings produced by it to M/s.ISML, which in turn, after further refinement, supplied it to its ultimate customers, who were predominantly vehicle manufacturers. According to the assessee, M/s.ISML had provided it an advance of D20 Crores based on this agreement. 3. However, the ld. Assessing Officer was not impressed with the above reply. As per the ld. Assessing Officer, advances received by the assessee from M/s.ISML, subsequent to 18.01.2012 stood covered by Section 2(22) (e) of the Act. According to him, this was a deeming provision and had to be construed strictly. As per the ld. Assessing Officer, by virtue of the judgment of Hon ble Apex Court in the case of Kantilal Manilal vs. CIT (1961) 41 ITR 275 and Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies made to M/s.ISML. 5. In support of its contention that trading advances were outside the preview of Section 2(22) (e) of the Act, assessee relied on a number of judgments of various High Courts, interalia including that of Hon ble Delhi High Court in the case of CIT vs. Rajkumar (2009) 318 ITR 462 and that of Hon ble Jurisdictional High Court in the case of CIT vs. F. Praveen (2008) 16 DTR 80. 6. Ld. Commissioner of Income Tax (Appeals) after considering the submissions and verifying records came to a conclusion that assessee had become a beneficial share holder of M/s.ISML only on 23.01.2012, when it acquired 13,10,000 shares of the said company. Ld. Commissioner of Income Tax (Appeals) observed that prior to the said date assessee was not beneficial owner of equity shares in M/s.ISML. Further, as per the ld. Commissioner of Income Tax (Appeals) agreements entered by the assessee with M/s.ISML on 10.12.2011 clearly indicated that assessee, since its very incorporation was catering to the needs of M/s.ISML and its entire production capacity was made available to the M/s.ISML. As per the ld. Commissioner of Income Tax (Appeals), assessee having underwritten its entire cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Appeals) found that a sum of D2,69,89,513/- represented money paid by M/s.ISML on behalf of the assessee towards latter s statutory duties, TDS and wages. Thus, according to him, out of the aggregate amount received by the assessee from M/s. ISML, benefit taken by the assessee company which could be brought within the preview of Section 2(22) (e) of the Act was only D2,69,89,513/-. He thus restricted the addition made u/s.2(22) (e) of the Act to D2,69,89,513/- and deleted the balance. 9. Now before us, grounds taken by the Revenue assails the relief given to the assessee, whereas assessee is aggrieved on sustenance of the addition of D2,69,89,513/- u/s.2(22) (e) of the Act. 10. Ld. Counsel for the assessee starting his arguments submitted that paper book pages No. 35 to 136 reflected the accounts of the assessee in the books of M/s.ISML. According to him, this account clearly established that the amounts paid by M/s.ISML to the assessee, were being adjusted against continuing supply of materials by the assessee. Contention of the ld. Authorised Representative was that it was purely a running account. According to him, a reading of the ledger pages clearly indicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, submitted that advances received by the assessee from M/s.ISML were much more than the value of raw materials supplied by the assessee to M/s.ISML. According to him, advances received were not commensurate with the supply of raw materials and this clearly indicated that at least a part of the advances were not in the nature of trading transactions. According to him, for a supply of raw material worth D10/-, nobody would have given an advance of D20/-. As per the ld. Departmental Representative, assessee could not take refuge under CBDT Circular No.19/2017, since it could not establish that the advances received were purely in the nature of trading advance. Thus according to him, ld. Commissioner of Income Tax (Appeals) fell in error when he held that substantial portion of the advances received by the assessee did not come within the ambit of Section 2(22)(e) of the Act. 12. We have considered the rival contentions and perused the orders of the authorities below. The question raised in this case involve interpretation of Section 2(22) (e) of the Act, in so for as it concerns the term loan and advance used therein. Section 2(22) (e) of the Act is reproduced hereunder:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there is a reduction of capital in the demerged company) . 13. Meaning of term advance as it appear in the above Section was a matter of interpretation considered by Hon ble Delhi High Court in the case of Raj Kumar(supra). Their lordships applied the principle of noscitur a sociis and held that for an advance to come within the purview of Section 2(22) (e) of the Act, it should have the trappings of a loan. According to their lordships, unless advances received by an assessee carried with it an obligation of repayment, it would not come within the preview of Section 2(22) (e) of the Act. In other words, as per Hon ble Delhi High Court, trade advances which was to give effect to a commercial transaction would not fall within the ambit of Section 2(22) (e) of the Act. Their lordships had considered the judgment of Hon ble Apex Court in the case of Kantilal Manilal (supra) as well as Tarulata Shyam (supra) while reaching the above conclusion. 14. Law as elucidated by Hon ble Delhi High Court with regard to interpretation of Section 2(22) (e) of the Act found acceptance of the Revenue though CBDT Circular No.19/2017, dated 12.06.2017. The said Circular is reproduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormal course of business between two concerns and the transaction did not attract section 2(22) (e) of the Act. (CIT, Agra vs Atul Engineering Udyog, 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 . The Board has observed clearly that trading advances which were in the nature of commercial transactions would not come within the preview of Section of 2(22) (e) of the Act and such view had attained finality. 15. In the above backdrop of law, we have to examine the transactions between M/s.ISML and assessee, in so far as application of Section2(22) ( e) of the Act is concerned. There is no dispute that a sum of D20 Crores was received by the assessee from M/s.ISML by virtue of its agreement entered by the assessee with M/s.ISML on 10.12.2011. It is also not disputed that assessee had made available its entire cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our opinion, ld. Assessing Officer fell in error in taking an isolated view and considering only a part of the transactions ignoring the transactions prior to 23.01.2012, which together clearly indicated that account was in the nature of a running trade account. 17. Coming to the addition of D2,69,89,513/- sustained by the ld. Commissioner of Income Tax (Appeals), there is a clear finding by the ld. Commissioner of Income Tax (Appeals) that M/s.ISML had paid such sum towards statutory duties, TDS and wages of the assessee. Nevertheless, in our opinion, such payments would not take the transaction out of preview of a commercial transaction. Assessee had given its entire capacity to M/s.ISML and if M/s.ISML paid part of the statutory duties, TDS and wages of the assessee directly, in our opinion, such payments cannot be considered as loans or advances coming within the ambit of Section 2(22) (e) of the Act. We cannot say that assessee received any benefit since there was a quid-pro-quo in the nature of surrendering its entire production capacity to M/s. ISML. Thus in our opinion sums received by the assessee from M/s. ISML would not come within the preview of advances/ loans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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