TMI Blog2018 (11) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... and pays the same subsequently. In the given case, no such things were noticed. Therefore, in our considered view, assessee is having business connection and in that process, assessee may have received certain advances which can be treated as ‘trade advances’. Therefore, we cannot cherry pick certain transactions and term them as ‘loans and advances’ in order to invoke the provisions of Section 2(22)(e) of the Act. Therefore, the ground raised by assessee is allowed. - I.T.A. No. 2029/HYD/2017 - - - Dated:- 9-11-2018 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For The Assessee : Shri T.S. Ajai, AR For The Revenue : Smt. M. Narmada, DR ORDER PER S. RIFAUR RAHMAN, A.M. : This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals) 5, Hyderabad, dated 30-10-2017, for the AY. 2014-15. 2. Brief facts of the case are that the assessee filed her return of income for the AY. 2014-15 on 30-10-2014, declaring total income of ₹ 16,65,230/-. The return was processed u/s. 143(1) of the Income Tax Act [Act]. Subsequently, the case was taken up for scrutiny under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f business are in the nature of loan or advance falling within the purview of the definition of Deemed Dividend per Section 2(22)(e) and therefore it was sought to bring such transactions to tax in the hands of the assessee. In this connection, it is submitted that the parties are carrying on business with each other on a regular basis and the transactions entered into by them are nothing but pure business transactions as are generally entered into as per the established trade practices and norms: It is a well -known fact that it a normal practice for entities dealing with each other to make payment for goods/services either before/after or on the purchase/furnishing of services based on the needs of the business and commercial expediency demanded by the circumstances and entire transactions by both the concerns inter se trading / business transactions and the same is evidenced by books of accounts and other records and the same is reflected in the returns filed before various authorities. Section 34 of Evidence Act give a great degree of authenticity to the entries made in the regular books of accounts. This is a settled position by the Apex Court. It is submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a credit or debit balance at a particular point of time in a current account, which is always bound to be there, would convert a business / trading transaction into a loan or advance. In the present case, a perusal of the ledger account shows that the assessee made advance payments for purchase of cotton seed in certain instances and in some other instances the company made advance payments for the purchase of cotton seed oil. This in fact has led to a situation where the account of the company in the books of the assessee is not always in credit but also in considerable amount of debit during the year. It is clearly evident that the transactions in the account are running, mutual and solely for the purpose of giving effect to the business transacted between the parties. It is not the case that there are no business dealings between the parties and the assessee has simply obtained advances from the company. The purpose of enacting Section 2(22)(e) is ensure that closely held companies do not resort to distribution of accumulated profits in the form of loans and advances with the intention of evading dividend distribution tax. If the intention of the assessee was to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of construction of buildings and the said transaction being in the nature of a simple business transaction, we do not find any justifiable ground to bring the case of the assessee within the definition of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. 4. In the case of Mr. Purushottam Das Mimani Vs Dy. Commissioner in ITA # IT(SS)A Nos.60-62/Kol/2011, ITAT, Kolkata in its decision dated 17.10.2014, while dealing with the issue of flow of funds between the appellant and the closely held company observed that On perusal of the ledger account of the assessee in the books of M/s.Mima Flour Mills (P) Ltd. it is seen that on several dates there were shifting balances. On many occasions the balance was in favour of the assessee and on some other occasions the balance was in favour of Ganesh Wheat Products (P) Ltd. It is thus evident that there were reciprocal demands between the parties and thus mutual in characteristic. The account so maintained in respect of such mutual transfer of amount by way of giving and taking financial assistance is, therefore, a current account and this current account is different from a loan account for the sole reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the proposal to treat the transaction under the head of deemed dividend may kindly be dropped . 3. Assessing Officer did not accept the submissions of the assessee and observed as below: 3.2.1. The assessee is having 12.42% of the shareholding in M/s. Malpani Cottons Pvt. Ltd., Adilabad and the company is not being a company in which the public are substantially interested. The assessee is a registered shareholder. 3.2.2. M/s. Malpani Cottons Pvt. Ltd., Adilabad has accumulated profit of ₹ 2,84,32,901/- as on 31.03.2014 . 3.1. Further he observed that the assessee is a proprietor in Sri Vinayaka Industries, Mukutban, Adilabad. Assessee sold cotton seed oil to Malpani Cottons Pvt. Ltd., and Malpani Cottons Pvt. Ltd., sold cotton seed to the assessee. The company, Malpani Cottons Pvt. Ltd., maintained two books of account separately for the above transactions. Assessing Officer felt that to determine the exact position of credit/debit balance and to ascertain whether any loan or advance is paid. Accordingly, he consolidated both the accounts. Assessing Officer further observed that the above consolidated accounts maintained by the assessee are not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at page no. 17 of the appellate order, and hence the provisions of deemed dividend u/s 2(22)(e) are not at all attracted to these payments. 4. The learned CIT (Appeals) has failed to take Into account the grounds of appeal filed by the appellate namely that even if the payments between the parties are treated as non-business and as loans, the advances to the extent of ₹ 2,70,00,000 were made first by the appellate to the company and then returned back by the company and hence the provisions of deemed dividend u/s 2(22)(e) are not at all attracted to these payments. 5. The learned CIT (Appeals) ought to have appreciated the contention of the assessee that both the assessee and the company have continuous business transactions relating to cotton business being carried out by both of them, in the process of which various amounts are received or paid as per the business requirements, all of which are trade advances in the nature of commercial transactions which would not fall within the ambit of the word 'advance' in section 2(22)(e) of the Act and hence are not to be treated as deemed dividend as instructed by the CBDT vide Circular No. 19/2017 dated 12.06.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount Rs. 05.04.2013 10,301 06.04.2013 14,09,450 23.04.2013 1,535 25.07.2013 65,00,000 26.04.2013 4,390 14.08.2013 45,00,000 29.04.2013 38,340 29.08.2013 1,00,00,000 06.05.2013 13,484 10.09.2013 50,00,000 17.05.2013 12,825 19.09.2013 25,000 16.07.2013 1,213 26.09.2013 10,00,000 23.07.2013 750 31.01.2014 1,33,121 31.08.2013 65,00,000 13.09.2013 25,000 04.10.2013 13,483 17.10.2013 16,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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