Ludniana v. Shri Amrik Singh

ITA No. 5 of 2014 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Date of Decision: 2.2.2015 ITA No. 5 of 2014 Commissioner of Income Tax-I,Ludniana Ludniana... AppellantVersusShri Amrik Singh... RespondentITA No. 62 of 2014Commissioner of Income Tax-I,Ludhiana... AppellantVersusShri Amrik Singh... RespondentITA No. 64 of 2014Commissioner of Income Tax-I,Ludhiana... AppellantVersusShri Amrik Singh... RespondentITA No. 92 of 2013Commissioner of Income Tax-I,Ludniana... AppellantVersusSh. Amrik Singh... Respondent ITA No. 323 of 2013 Commissioner of Income Tax-I,Ludhiana ... AppellantVersus... Respondent Sh. Amrik Singh ITA No. 5 of 2014 CORAM:- HON BLE MR. JUSTICE RAJIVE BHALLAHON ' BLE MR. JUSTICE B.S. WALIA Present‘Mr. Rajesh Katocn, Advocate,for the appellant. Mr SK Mukhi, Advocate,for the respondent. RAJIVE BHALLA, J. By way of this order, we shall decide ITA Nos. 92,323 of 2013, 5, 62 and 64 of 2014 as they relate to thesame question of law. Counsel for the parties also agree tnatin case, the question of law framed in ITA No.5 of 2014 isanswered against the revenue, ITA Nos.601 and 762 of 2010Snall De rendered infructuous. Facts relevant for adjudicationare Deing taken from ITA No.5 of 2014. Counsel for the appellant submits that Section2(22)(e) of the Income Tax Act, 1961 (hereinafter referredto as the Act) nas to be construed strictly without anyexception or consideration for the nature of the transactionbetween the assessee and the company in whicn theassessee holds a substantial share holding. Counsel for theappellant further submits that as it is admitted that theassessee obtained advances from the company in whicn henolds a substantial share holding, his failure to provebusiness expediency, was rightly considered by _ theAssessing Officer and the CIT to warrant addition of the ITA No. 5 of 2014 amount advanced as deemed dividend, under Section 2(22)(e) of the Act etc. Tne Income Tax Appellate TridDunal hasdeleted this addition without assigning any cogent reasons,Counsel for the appellant submits that the followingsubstantial question of law arises for adjudication:- “Wihether on the facts and circumstances of thcase and in law, the Hon bie ITAT was justified inconfirming the deletion oof addition -Rs.4,87,66,131/- made by the A.O. under Section2(22)(e) of the Act.”| Counsel for the assessee submits that a perusal ofthe material on record particularly facts referred to by theAssessing Officer proves business expediency. The amountadvanced, therefore, could not have been treated asdividend under Section 2(22) (e) of the Act. The findingrecorded by the Income Tax Appellate TridDunal in favour otne assessee after referring to relevant facts is neitherperverse nor arbitrary and therefore, may be affirmed.Counsel! for the appellant further submits that the questioof law is covered against the revenue by the judgment ofDelhi High Court inCommissioner of [ncome TaxYs.Creative Dyeing & Printing (P) Ltd., 318 ITR 4/76 We have heard counsel for the parties and perusedthe impugned order. A perusal of the order passed by the Assessing Officer reveals that the Assessing Officer made additions ofadvances made by M/s Nexo Products (India) to theassessee under Section 2(22)(e) of the Act on the premisetnat the assessee nolds a substantial share nolding in M/sNexo Products (India). Tne ClT(Appeals) affirmed thisaddition. Tne Income Tax Appellate Tribunal after a detailedappraisal of Section 2(22)(e) of the Act held that Section2(22)(e) of the Act comes into play only if the advance orloan paid by the company is for individual benefit of theassessee or the alleged business transaction was a meresmoke screen to cover a benefit obtained by an assesseefrom the company in which he was snarenolder, without anybusiness expediency. We have heard counsel for the parties and perusedthe impugned order. A perusal of the order passed by the Assessing Officer reveals that the Assessing Officer made additions ofadvances made by M/s Nexo Products (India) to theassessee under Section 2(22)(e) of the Act on the premisetnat the assessee nolds a substantial share nolding in M/sNexo Products (India). Tne ClT(Appeals) affirmed thisaddition. Tne Income Tax Appellate Tribunal after a detailedappraisal of Section 2(22)(e) of the Act held that Section2(22)(e) of the Act comes into play only if the advance orloan paid by the company is for individual benefit of theassessee or the alleged business transaction was a meresmoke screen to cover a benefit obtained by an assesseefrom the company in which he was snarenolder, without anybusiness expediency. After setting out the nature of Section 2(22)(e) oftne Act, the Tribunal proceeded to examine the factualmatrix of the case and held that as a tangible businessexpediency has been established between the assessee andcompany, Section 2(22)(e) of the Act cannot be invoked.Arelevant extract from the order passed by the Income TaxAppellate Tribunal would be appropriate. “Thus, we are of the considered opinion that theseaavances were received by the assessee in thenormal course of business as a matter of fact ofbusiness expediency in which provisions of Section2(22) (e) are not applicable. As per the ratio relied before us, even if the business of the lendercompany is not that of money lending, the amountaavanced by it to ifs snarenolders, otherwise in thecourse of business etc. would go out of the purviewof Section 2(22)(e) of the Act. The decision ofHon ble Delhi High Court rendered in the case ofCIT V Shri Raj Kumar in [ITA No.1130/2007, it habeen held that the word advance wnicn appears Inthe company of the word loan’ for the provisions ofsection 2(22)(e), could only mean such advancewhich carried with it an obligation of repayment.Likewise, the Hon'ble Mumbai High court in the caseof Nagindass. M. Kapadia, similar view has beentaken. The Hon'ble jurisdictional Bench of ITATChandigarh in the case of DCIT V Lakra Brothersreported in 106 TTJ 250, it has been held that theadvance given during the ordinary course ofbusiness for business expediency could not becovered under the provisions of Section 2(22)(e) ofthe Act. From the above narrated facts, the businessexpediency is amply proved on record. It is also afact that the agreement has not been reported ordoubted by the AO but the AO has taken his viewbecause the assessees concern was not pursuingthe business of money lending. The sister-concernhas taken over the entire business of the assesseewhen the assessee failed fo fulfill the terms of theagreement. Thus, the amount of advance receivedby the assessee, under this agreement is a normalbusiness requirement and nothing else. AS we navealready discussed, the fixed assets of the assesseeconcern have increased substantially auring therelevant period.” From the above narrated facts, the businessexpediency is amply proved on record. It is also afact that the agreement has not been reported ordoubted by the AO but the AO has taken his viewbecause the assessees concern was not pursuingthe business of money lending. The sister-concernhas taken over the entire business of the assesseewhen the assessee failed fo fulfill the terms of theagreement. Thus, the amount of advance receivedby the assessee, under this agreement is a normalbusiness requirement and nothing else. AS we navealready discussed, the fixed assets of the assesseeconcern have increased substantially auring therelevant period.” A perusal of the facts and the above extract reveals thatthe revenue failed to adduce any evidence to prove that thetransaction between the assessee and the company was a meresmoke screen to cover a surreptitious payment of money to a shareholder. M/s Nexo Products (India) received certain export orders butwas not in a position to execute the orders as its manufacturingfacility was situated In a remote area and was beset with labourproblems and erratic supply of electricity. The Company, therefore,entered into an agreement, dated 1.8.200/7 with the assessee toinstall plant and machinery at his premises to enable the assessee todo job work for the company, at 10% below the prevailing market rate.The Assessing Officer did not doubt this agreement or these facts.Ine assessee naving proved a tangible business expediencybetween the assessee and the company, the question of Invokingsection 2(22)(e) of the Act does not arise.Tne Income lax AppellateTribunal has after considering these facts rightly held that as theassessee has proved business expediency the advance is notcovered by Section 2(22) (e) of the Act. We find no reason whetherin law or tn fact to interfere with these findings of facts, which areneither perverse nor arbitrary. The question of law Is, therefore,answered against the revenue and the appeal Is dismissed. (RAJIVE BHALLA )JUDGE ( B.S. WALIA)JUDGE