TMI Blog2023 (3) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of accounts of M/s.IEIL. At best transactions between the assessee and M/s.IEIL can be treated as a running current account between the shareholder and company, but said transaction cannot be considered as loan or advance within the meaning of provisions of Sec.2(22)(e) of the Act. In this case, facts are entirely different, because, at no point of time, M/s.IEIL has given any loan or advance to the assessee either by way of cash payment or through account transfer - the company has given some payments to the third party on behalf of the assessee, but said payments have been subsequently re-paid by the assessee or his family members either on the same day or within a short period i.e. less than one month without there being any outstanding balance in the books of accounts of the company. Therefore, transactions between the assessee and company cannot be treated as loan or advance within the meaning of provisions of Sec.2(22)(e) - AO as well as the Ld.CIT(A) are completely erred in invoking provisions of Sec.2(22)(e) of the Act, and making additions u/s.2(22)(e) of the Act. Hence, we direct the AO to delete the additions made towards deemed dividend u/s.2(22)(e) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny and during the course of assessment proceedings, the AO noticed that the assessee along with Smt.V.Padma (mother of assessee), purchased a flat in Chennai for a total consideration of Rs.7,19,44,048/-, including Service Tax and other charges. It was further noticed that the assessee s share of investment works out to Rs.3,59,72,024/-. The assessee was called upon to explain source for investment in the property, for which, the assessee submitted that he along with his mother Smt.V.Padma, purchased a flat and source for purchase of property was sale of 5,00,000 equity shares of M/s.City Union Bank Ltd., (in short M/s.CUBL ) by his mother amounting to Rs.3,69,84,352/-. The AO called upon the assessee to file necessary details, including bank statement from where amount has been paid to M/s.Chaitanya Builders. The AO on the basis of information furnished by the assessee noticed that a sum of Rs.2.75 Crs. has been paid out of sale proceeds of M/s.CUBL shares by Smt.V.Padma. The AO further noted that a sum of Rs.3,64,45,648/- has been paid to M/s.Chaitanya Builders by M/s.Integrated Enterprise India Ltd. (in short M/s.IEIL ), where the assessee is one of the shareholders having 29. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed detailed written submissions on the issue which has been reproduced at Para Nos.5.2 5.3 of Ld.CIT(A) s Order. The sum and substance of the arguments of the assessee before the Ld.CIT(A) are that amount paid by M/s.IEIL, has been subsequently re-paid within a short period of time from the bank account of Smt.V.Padma others maintained with City Union Bank for equal amount of funds transferred to M/s.Chaitanya Builders. Therefore, provisions of Sec.2(22)(e) of the Act, cannot be applied. The Ld.CIT(A) after considering relevant submissions of the assessee and also taken note of reasons given by the AO, opined that the assessee couldn t explain how amount received from M/s.IEIL, does not come under the provisions of Sec.2(22)(e) of the Act, when the company is having accumulated profit more than the amount of loan given to the assessee, where he is having more than 10% ownership in share capital of the company. Therefore, rejected the arguments of the assessee, and sustained the additions made by the AO u/s.2(22)(e) of the Act. The relevant findings of the Ld.CIT(A) are as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough no specific date was mentioned for compliance. There is thus an urgency shown in passing the order on 29th December even though time was available to consider the full facts till 31st December. Adjudication : This ground is dismissed for the reason that the appellant is bringing on extraneous facts not relevant to the issue on hand . 6.5 Ground No.5 . The officer has deliberately refused to understand the spirit of application of section 2(22)(e) and also the explanations and examples given in the circular no. 19 and has bluntly stated that this circular is not applicable to the facts of this case ignoring the particulars given. Adjudication : CBDT in para 3 of the impugned circular explained as under: 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. The appellant failed to prove that how the impugned transaction would meet the test of trade advance. Therefore, this ground is dismissed. In the result, the AO has brought on record all the relevant facts attendant to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has rightly concluded that provisions of Sec.2(22)(e) of the Act, is applicable and thus, their orders should be upheld. 7. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The fact with regard to impugned dispute are that the assessee along with Smt.V.Padma has purchased a property at Chennai for a consideration of Rs.7,19,44,048/-. During the Financial Year relevant to the AY 2015-16, a sum of Rs.2.75 lakhs has been paid by Smt.V.Padma from her bank account and to this extent, there is no dispute. The AO further noticed that a sum of Rs.3,10,22,424/- has been paid by M/s.IEIL, a company in which, the assessee is having 29.17% shareholding. According to the AO, the moment loan or advance has been given to shareholder having more than specified percentage of share capital, then, provisions of Sec.2(22)(e) of the Act, would come into play, even if such advance has been subsequently re-paid or adjusted. The AO has analyzed the issue in light of payments made by M/s.IEIL to M/s.Chaitanya Builders and subsequent repayment of said amount to company by family members of the assessee and concluded that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently re-paid by the assessee and his mother out of their source of income. Therefore, we are of the considered view that the amount paid by M/s.IEIL to M/s.Chaitanya Builders on behalf of the assessee, cannot be considered as loan or advance which can be treated as deemed dividend u/s.2(22)(e) of the Act, because, at no point of time, there is no outstanding loan or advance in the name of the assessee in the books of accounts of M/s.IEIL. Further, at best transactions between the assessee and M/s.IEIL can be treated as a running current account between the shareholder and company, but said transaction cannot be considered as loan or advance within the meaning of provisions of Sec.2(22)(e) of the Act. 9. In so far as case law relied upon by the AO in the case of P.Sarada (supra), we find that in the said case, the assessee has taken loan or advance from the company right from the beginning of the Financial Year at the end of the Financial Year, the same has been ultimately re-paid or adjusted through a journal entry to square off of the loan or advance in the name of the shareholder. Under those facts, the Hon ble Supreme Court came to the conclusion that loan or advan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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