Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. Shri Krishna Behari Goyal, 1

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH, JAIPUR JUDGEMENT D.B. Income Tax Appeal No.137/2016. Commissioner of Income Tax, Jaipur-II, Jaipur. Vs.Shri Krishna Behari Goyal, 1-28, F-78, Lal Bahadur Nagar, Durgapura, Jaipur. PAN Date of order : 19.10.2016. HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE MAHENDRA MAHESHWARI Mr. R.B. Mathur for the appellant. 1.By way of this appeal, the department has challenged thejudgment and order of the Tribunal whereby the Tribunal has upheld theorder of the CIT (Appeals) which has reversed the order of theAssessing Officer. 2.Counsel for the appellant has framed following substantial question of law in appeal: “Whether in the facts and circumstances of the case,and in law, the learned ITAT has erred in deleting theadditions of Rs.1,17,89,159/- made by the AssessingOfficer on account of deemed dividend u/s 2(22)(e)of the I.T. Act, 1961.” 3.Counsel for the appellant, Mr. R.B. Mathur, has taken us to the order of the CIT (Appeals) and contended that the interest freeadvances given by the company has been assessed only with a view toreduce the profit of the company and to make it available to HUF which had made losses. In that view of the matter, he has placed reliance onthe decision of the Supreme Court in Commissioner of Income Tax VsMukundray K. Shah (2007) 290 ITR 433 (SC) wherein it has been observed at page 448 as under: “The above two judgments indicate that the questionas to whether payment made by the company is forthe benefit of the assessee is a question of fact. Inthis case, the Tribunal has concluded that thepayment routed through MKF and MKI was for thebenefit of the assessee. This was a finding of fact. Itwas not perverse. Therefore, the High Court shouldnot have interfered with the said finding. Further, theabove two judgments lay down that the concept ofdeemed dividend under Section 2(22)(e) of the Actpostulates two factors, namely, whether payment isa loan and whether on the date of payment thereexisted "accumulated profits". These two factorshave to be correlated. This correlation has beendone by the Tribunal coupled with the fact that allwithdrawals were debited in the capital account ofthe firm leading to the debit balance of Rs.8.18crores. The High Court has erred in disturbing thefindings of fact.” 4.The tribunal has seriously committed an error in rejecting theappeal preferred by the department by holding the income or theadvance which has been made by the Managing Director of theCompany as deemed dividend under section 22(2)(e) of the Act. 5.We have heard Mr. Mathur, learned counsel for the appellant. 6.The Tribunal while considering in para 4.1 at page 16 whichreads as under has considered two decisions of the Supreme Court andthe judgments of two High Courts, namely Delhi High Court and Calcutta High Court. “4.1. Apropos ground no.1, it emerges from therecord the factual submissions about theadvantages derived by company M/s DwarkaGems from the mortgage of assessee and hisfamily members properties have not been properlyappreciated. Beside it has been demonstrativelyexplained that assessee being MD and pioneer ofthe company had to carry on bulk of businesstransactions like, purchases, sales, overseasoperations, the impugned account was the meansrecord the factual submissions about theadvantages derived by company M/s DwarkaGems from the mortgage of assessee and hisfamily members properties have not been properlyappreciated. Beside it has been demonstrativelyexplained that assessee being MD and pioneer ofthe company had to carry on bulk of businesstransactions like, purchases, sales, overseasoperations, the impugned account was the means to carry out such operations. To be fair, assesseepaid interest on the remaining amount which hasbeen taxed in the hands of the company. All thesejustifications have not been effectively controvertedby ld. AO and have been duly considered by ld.CIT (A). A series of earlier years litigation reflectsthat the issue of addition u/s 2(22)(e) was notagitated in earlier years, consequently assessee'sreliance on Hon'ble Supreme Court judgment in thecase of Radha Soami Satsang (supra) and plea ofconsistency also carries suitable force. Hon'bleDelhi High Court in the case of Rajkumar (supra)has considered the legislative intent and otherjudgments on the issue and held that keeping theaforesaid rule in mind we are of the opinion that theword 'advance' which appears in the company ofthe word 'loan' could only mean such advancewhich carries with it an obligation of repayment.Trade advance which are in the nature of moneytransacted to give effect to a commercialtransactions would not, in our view, fall within theambit of the provisions of Section 2(22)(e) of theAct. This interpretation would alloy the rule ofpurposive construction with noscitur a sociis, aswas done by the Supreme Court in the case of LICof India Vs. Retd. LIC Officers Assn. (2008)3 SCC321. Hon'ble Calcutta High Court also in the caseof Pradeep Kumar Malhotra held that if the loan oradvance is given to substantial shareholder as aconsequence of any further consideration which isbeneficial to the company received from such ashare-holder, in such case, such advance or loancannot be said to be deemed dividend within themeaning of the Act. Thus, cases where the loan oradvance is given in return to an advantageconferred upon the company by such shareholderwould not come within the purview of section 2(22)(e). Assessee reliance on the analogy of Hon'bleSupreme Court judgment in the case of SABuilders (supra) also throws light on the purposeand legislative intent of such deeming provisions todeter entities from siphoning off the funds to avoidtaxes. Considering the judgment also the advancesbeing for trade and business considerations,assessee having not derived any benefit out of itand rather having acquired disadvantage for thebetterment of the company's business cannot besaddled with additions u/s 2(22)(e). Inconsideration of entirety of facts, circumstancesand judicial precedents cited above, we observe noinfirmity in the order of ld. CIT(A) on this issue,which is upheld, this ground of revenue is dismissed. 7.We are of the opinion that no error has been committed bythe Tribunal and even there is concurrent finding where no substantial question of law can be entertained. 8.The appeal stands dismisssed. (MAHENDRA MAHESHWARI), J. (K.S. JHAVERI), J. bblm