ACIT, UDAIPUR v. M/s. Mewar Polytex Ltd., UDAIPUR

ITA 455/JODH/2009 | 2006-2007
Pronouncement Date: 09-12-2011 | Result: Allowed

Appeal Details

RSA Number 45523314 RSA 2009
Assessee PAN AAACM9922A
Bench Jodhpur
Appeal Number ITA 455/JODH/2009
Duration Of Justice 2 year(s) 4 month(s) 10 day(s)
Appellant ACIT, UDAIPUR
Respondent M/s. Mewar Polytex Ltd., UDAIPUR
Appeal Type Income Tax Appeal
Pronouncement Date 09-12-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 09-12-2011
Date Of Final Hearing 28-11-2011
Next Hearing Date 28-11-2011
Assessment Year 2006-2007
Appeal Filed On 30-07-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH JODHPUR (BEFORE SHRI R.K. GUPTA AND SHRI .N.L. KALR A ) ITA NO.455/JU/2009 & 382/JU/2010 ASSESSMENT YEAR : 2006-07 & 2007-8 PAN: AAACM 9922 A THE ACIT VS M/S. MEWAR POLYTEX LTD. CIRCLE-1 207-A INDUSTRIAL AREA UDAIPUR UDAIPUR (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI SUNIL MATHUR ASSESSEE BY : SHRI AMIT KOTHARI DATE OF HEARING: 28-11-2011 DATE OF PRONOUNCEMENT: 09-12-2011 ORDER PER N.L. KALRA AM:- THE REVENUE HAS FILED APPEALS AGAINST RESPECTIVE ORDERS OF THE LD.CIT(A) JODHPUR DATED 29-05-2009 AND 11-03-2010 FOR THE AS SESSMENT YEARS 2006-07 AND 2007- 08. 2.1. THE ISSUE RAISED IN BOTH THE APPEALS IS THE SA ME AND THEREFORE WE ARE REPRODUCING THE GROUNDS OF APPEAL RAISED BY THE REVENUE FOR THE ASSESSMENT YEAR 2006-07 AS UNDER:- ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF THE CASE THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 55.00 LACS MADE ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT WITHOUT APPRECIATING THE FACTS OF THE CASE. 2.2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS T HE AO ASKED THE ASSESSEE TO GIVE THE DETAILS IN RESPECT OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE WITH THE RELATED PARTIES. THE DETAILS WERE FILED AND IT WAS NOTICED THAT THE ASSESSEE HAS RECEIVED LOAN FROM M/S. 2 SUN POLYTEX (P) LTD. ON INTEREST. THE PERCENTAGE SHARE HOLDING OF THE ASSESSEE IN M/S. SUN POLYTEX (P) LTD. WAS 23.67%. THE AO THEREFORE ISSUED SHOW CAUSE NOTICE AND ASKED AS TO WHY A SUM OF RS. 75.00 LACS RECEIVED FR OM M/S. SUN POLYTEX (P) LTD. AS LOAN/ ADVANCE BE NOT TREATED AS DEEMED DIVIDEND U/S 2(22) (E) OF THE ACT. 2.3. BEFORE THE AO THE ASSESSEE FILED THE FOLLOWIN G SUBMISSIONS. THE ASSESSEE COMPANY HAS TAKEN LOAN RS. 55.00 LAC S FROM M/S. SUN POLYTEX (P) LTD. AS INTER CORPORATE LOANS INS TEAD OF RS. 75.00 LACS AND PAID INTEREST RS. 1 05 534/- @ 12% P.A AND ALS O DEDUCTED AT SOURCE RS. 23M682/-. BALANCE OF LOAN AS ON 31-03-2006 IN R S. 57 27 988/-. WE ARE ENCLOSING HEREWITH BOTH REVISED A/C OF M/S. SUN POLYTEX (P) LTD. (TRADER A/C & LOAN A/C). FURTHER LOAN RECEIVED FROM SISARAMA PLASTIC (P) LTD. RS. 80 000/- WAS ADVANCE AGAINST JOB WORK DONE BY THE ASSESSEE . THE ASSESSEE HAS TAKEN LOAN FROM M/S. SUN POLYTEX (P) LTD. IN ORDINARY COURSE OF ITS BUSINESS. SINCE M/S. SUN POL YTEX (P) LTD. IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PP/HDPE FABRIC AS WELL AS FINANCING TO COMPANIES/ FIRM AS INTER CORPORATE LOA N ON INTEREST @ PREVAILING IN THE MARKET AND ALSO ALLOWABLE U/S 80( B)(IV) OF INCOME TAX ACT. M/S. SUN POLYTEX (P) LTD. HAS EARNED RS. 2 9 7 532/- AS INTEREST DURING THE YEAR. FURTHER AS PER MEMORANDUM OF ASSOCIATION OF M/S. SU N POLYTEX (P) LTD. COMPANY IS EMPOWERED TO CARRY ON THE BUS INESS OF FINANCING VIDE OBJECT NO. 18 OF (B) THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS ARE:- 18. SUBJECT TO THE PROVISIONS OF THE COMPANIES ACT 1956 TO LEND ADVANCE MONEY OR OTHERWISE PROVIDE FIN ANCIAL ASSISTANCE EITHER WITH OUR WITHOUT SECURITY TO SUCH PERSON (INCLUDING GOVERNMENT HAVING DEALING WITH THE COMPA NY ENGAGE IN ANY SUCH BUSINESS AS MAYBE CONSIDERED LIKELY DIREC TLY TO FURTHER THE MAIN OBJECTS OF THE COMPANY OR INTEREST OF ITS SHAREHOLDERS ON SUCH TERMS AND CONDITIONS AS MAY BE DEEMED IN THE I NTEREST OF THE COMPANY. 3 COPY OF OBJECT CLAUSE OF MEMORANDUM OF ASSOCIATI ON IS ENCLOSED. THUS IN THE LIGHT OF PARA (II) OF SECTION 2(22)(E) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER (OR THE SAID CONCERN) A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS IS EXCLUDED FROM TH E DIVIDEND. 2.4. ACCORDING TO THE AO THE OBJECT CLAUSE NO. 18 OF THE MEMORANDUM OF ASSOCIATION IS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF TH E MAIN OBJECTS AND IS NOT A SUBSTANTIAL PART OF THE BUSINESS OF THE ASSESSEE OF THE ASSESSEE. M/ S. SUN POLYTEX (P) LTD. IS NOT A COMPANY WHERE MONEY LENDING IS PRIMARY/ MAIN OBJEC T OF THE COMPANY. THE MAIN OBJECT OF M/S. SUN POLYTEX (P) LTD. IS MANUFACTURING OF P P/HDPE FABRIC AND NOT FINANCING/ MONEY LENDING. THE AO HAS REFERRED TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF SEKSARIA BISWAN SUGAR FACTORY LTD. VS CIT 18 ITR 139 IN WHICH THE HON'BLE HIGH COURT HELD THAT ON THE BASIS OF SOLITA RY TRANSACTIONS OF ANY ADVANCE IT CANNOT BE SAID THAT COMPANY WAS PURSUING ONE OF ITS OBJECT AND CARRYING ON THAT BUSINESS. ACCORDING TO THE AO THE HON'BLE KERALA H IGH COURT IN THE CASE OF CIT VS P.V. JOHN (1990) 181 ITR 1 HELD THAT THE PROVISIONS OF S ECTION 2(22)(E) OF THE ACT MUST BE STRICTLY CONSTRUED. THE AO ACCORDINGLY TAXED A SUM OF RS. 55.00 LACS AS DEEMED DIVIDEND IN VIEW OF THE PROVISIONS OF SECTION 2(22)(E) OF TH E ACT. 2.5. BEFORE THE LD.CIT(A) THE ASSESSEE FILED THE S UBMISSIONS WHICH ARE SUMMARIZED AS UNDER:- 1. RESOLUTION WAS PASSED IN THE MEETING OF BOARD OF DIRECTORS FOR ACCEPTING THE LOANS FROM ASSOCIATED FIRMS AND COMPA NIES. THE LOAN OF RS. 45.00 LACS WAS RECEIVED FROM M/S. SUN POLYTEX (P) LTD. ON 30-01-2006 AND FURTHER A SUM OF RS. 10.00 LACS WAS RECEIVED ON 11-03-06. THE LOAN HAS BEEN TAKEN IN ORDINARY COURSE OF BUSINESS. 4 2. THE OBJECT CLAUSE NO. 18 (B) OF THE MEMORANDUM O F ASSOCIATION OF M/S. SUN POLYTEX (P) LTD. EMPOWERED THAT THE CO MPANY TO CARRY ON THE BUSINESS OF FINANCING. 3. THE LD. AR SUBMITTED THAT BALANCE OF UNSECURED L OANS INCLUDING THE LOAN TAKEN DURING THE YEAR TO THE EXTENT OF RS. 1 1 2 31 579/- WERE OF S 1 68 92 348/-. THE POSITION OF LOAN GIVEN DURING TH E YEAR BY M/S. SUN POLYTEX (P) LTD. IS AS UNDER:- NAME OP. BAL LOAN GIVEN RECEIVED BACK CL. BALANE HARMONEH PLASTICS (P) LTD. 900 000 NIL 900 000 NIL MEWAR POLYTEX LTD. NIL 5 500 000 NIL NIL SISARAMA PLASTICS (P) LTD.* NIL 9 249 038 9 249 038 NIL MAPLE INDUSTRIES * NIL 9 761 884 9 761 884 NIL *LOANS WERE GIVEN AND RECEIVED BACK ON CURRENT A/C BASIS AD INCLUDES INTEREST EARNED 4. BEFORE THE LD.CIT(A) LD. AR OF THE ASSESSEE FU RNISHED THE SOURCE OF FUNDS IN THE HANDS OF M/S. SUN POLYTEX (P) LTD. AS UNDER (A) ON 30-01-2006 RS. 45 00 000/- (SOURCE) DATE NAME CHEQUENO.` AMOUNT 19-01-2006 SHRI VINOD BAFNA 323440 RS. 5 00 000 19-01-2006 SISARAAMA PLASTICS (P) LTD. 868283 RS. 7 00 000 21-01-2006 PLASTIC WEAVE INDUSTRIES 871045 RS. 2 0 0 000 30-01-2006 SISARAMA PLASTIC (P) LTD. 868293 RS. 1 5 00 000 30-01-2006 MAPLE INDUSTRIES 87119 RS. 22 00 000 RS. 51 00 000 (B) ON 11-03-2006 RS. 10 00 000/- SOURCE DATE NAME CHEQUENO.` AMOUNT 5 7-03-2006 HASTIMAL BAFNA (HUF) 718573 RS. 9 75 000 8-03-2006 EXCEL INDUSTRIES 132990 RS. 4 00 000 8-03-2006 MAPLE INDUSTRIES 871184 RS. 2 11 233/- 9-03-2006 KAMLA BAFNA 418234 RS. 3 50 000/- RS. 19 36 233/- 5. BEFORE THE LD.CIT(A) LD. AR RELIED ON THE FOL LOWING DECISIONS :- 1. BAIDYANATH PLASTIC INDUSTRIES (P) LTD. VS K.L. ANAND ITO (1998) 230 ITR 522 (DEL.) 2. BOMBAY OIL INDUSTRIES VS DCIT (ITAT MUMBAI) 3. K.M. MOHD ABDUL KAHIR WAWTHER VS MUTHIA CHETTIAR (1960) 2 MAD. LJ 13 4. UTKARSH FINCAP (P) LTD. VS ITO (2006) 99 ITD 259 5. DCIT VS MAIPO INDIA LTD. 9 DTR 55 (ITAT DEL) 6. IN ONE OF THE CASE CITED BY THE LD. AR IT WAS HELD THAT SHARE PREMIUM RESERVE CANNOT BE UTILIZED FOR DISTRIBUTION OF THE DIVIDEND AND HENCE THE PROVISIONS OF SECTION 2(22)(E) WILL NOT BE APPLICABLE. 7. IT WAS STATED THAT THE ADVANCE MADE DURING ORDIN ARY COURSE OF BUSINESS EXPEDIENCY DID NOT CONSTITUTE LOANS FOR TH E PURPOSE OF SECTION 2(22)(E) OF THE ACT. 8. IT WAS SUBMITTED THAT THE AMOUNT OF THE ICD/ LOA N GIVEN BY M/S. SPL AS COMPARED TO THEIR CAPITAL AND RESERVES IS QU ITE SUBSTANTIAL AND INTEREST INCOME HAS BEEN ASSESSED IN THE HANDS OF M/S. SUN POLYTEX (P) LTD. AS INCOME FROM BUSINESS. . THE BURDEN OF PROOF LIES ON THE DEPARTMENT TO PROVE THAT PRE-CONDITIONS FOR INVOKING THE PROVI SIONS OF SECTION 2(22)(3) ARE FULFILLED. THE REVENUE HAS NOT DISCHAR GED SUCH BURDEN. 2.6. THE LD.CIT(A) OBSERVED THAT INTER CORPORATE LO AN IS OUT OF UNSECURED LOAN TAKEN BY M/S. SUN POLYTEX (P) LTD. THE LOAN WAS GIVEN IN A CCORDANCE WITH THE MEMORANDUM OF ASSOCIATION PASSED BY THE BOARD OF DIRECTORS. THE L D.CIT(A) OBSERVED THAT NET CURRENT 6 ASSETS AFTER EXCLUDING THE CURRENT LIABILITIES COME S TO RS. 3 60 27 689/-. THE AMOUNT OF INTER CORPORATE DEPOSITS LOANS AND ADVANCES GIVEN TO VARIOUS COMPANIES AMOUNTED TO RS. 2 02 09 379/- WHICH SHOWS THAT 56.11% OF THE NET CU RRENT ASSETS WAS EMPLOYED BY M/S. SUN POLYTEX (P) LTD. IN THEIR BUSINESS OF MONEY LE NDING. IT WAS THEREFORE INFERRED BY THE LD.CIT(A) THAT M/S. SUN POLYTEX (P) LTD. IS ENGAGE D IN MONEY LENDING TO ASSOCIATED CONCERNS ON INTEREST OUT OF UNSECURED LOANS AND NOT FROM ACCUMULATED PROFIT. THE REVENUE HAS NOT DISCHARGED THE BURDEN TO PROVE THAT THE CONDITIONS MENTIONED IN SECTION 2(22)(E) HAVE BEEN FULFILLED. SECTIONS 2(22) (E) AR E NOT APPLICABLE IN RELATION TO PAYMENTS SUCH AS ICDS SECURITIES DEPOSITS TRADE DEBT ETC. THE AO SHOULD HAVE ALSO PROVED THAT SUCH PAYMENT WAS MADE TO THE SHARE HOLDER WITH A VI EW TO GIVE SOME KIND OF BENEFIT OF GAIN. THE AO HAS ALSO FAILED TO PROVE THAT SUCH LOA N OR ADVANCE WAS NOT MADE IN THE ORDINARY COURSE OF BUSINESS BY M/S. SUN POLYTEX ( P) LTD.. THE LD.CIT(A) HELD THAT PAYMENT GIVEN BY THE ASSESSEE WAS INCORPORATE DEPOS ITS AND PROVISIONS OF SECTION 2(22)(E) WILL NOT BE APPLICABLE. ACCORDINGLY THE LD .CIT(A) DELETED THE ADDITION. 2.7. DURING THE COURSE OF PROCEEDINGS BEFORE US TH E LD. DR REFERRED TO THE PAPER BOOK FILED BY THE REVENUE. IT WAS STATED BY THE LD. DR T HAT INITIALLY THE AO WANTED TO TAX THE SUM OF RS. 75.00 LAS AS DEEMED DIVIDEND UU2 (22)(E) OF THE ACT.THERE WAS TRADING TRANSACTION ALSO AND THEREFORE THE SUM OF RS. 20.0 0 LACS WAS EXPLAINED BY THE ASSESSEE TO HAVE BEEN RECEIVED AGAINST THE BUSINESS TRANSACTION S AND THEREFORE A SUM OF RS. 55.00 LACS WAS ADDED U/S 2(22)(E) OF THE ACT . THEREAFTER THE LD. DR DREW OUR ATTENTION TO PAGE 53 OF THE PAPER BOOK FILED BY THE ASSESSEE. SALES A RE TO THE EXTENT OF RS. 12 18 44 765/- . THE NET PROFIT BEFORE TAX IS RS. 1 31 15 398/- AND THE NET PROFIT AFTER THE TAX AS PER PROFIT AND LOSS ACCOUNT IS RS. 96 48 545/-. THE OTHER INCO ME IS TO THE EXTENT OF RS. 9 15 156/- 7 AND THE DETAILS ARE AVAILABLE AT PAGE 53 OF THE PAP ER BOOK FILED BY THE ASSESSEE OUT OF TOTAL AMOUNT SHOWN UNDER THE HEAD OTHER INCOME TO THE EXT ENT OF RS. 9 15 156/- THE ASSESSEE HAS SHOWN RECEIPT OF INTEREST OF ONLY RS. 2 79 540/ -. THE LOAN OR ADVANCE IS NOT TO BE CONSIDERED AS DEEMED DIVIDEND IN CASE THE LENDING O F MONEY IS SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. LOOKING TO THE QUANTUM OF THE INCOME SHOWN AS INTEREST THE LD. DR SUBMITTED THAT LENDING OF MONEY IS NOT SUBSTANTI AL PART OF THE BUSINESS OF THE COMPANY. IT WAS THEREFORE SUBMITTED THAT THE AO WA S JUSTIFIED IN HOLDING THAT THE ADVANCE RECEIVED BY THE ASSESSEE IS TO BE TAXED AS DEEMED DIVIDEND. IT WAS FURTHER SUBMITTED THAT IT IS MENTIONED IN SECTION 2(22)(E) OF THE ACT THAT LOAN AND ADVANCE IS TO BE TREATED AS DEEMED DIVIDEND AND IT WILL NOT BE TR EATED AS DEEMED DIVIDEND IN CASE SUCH LOANS AND ADVANCES ARE COVERED BY NON-INCLUSION PAR T OF SECTION 2(22)(E) OF THE ACT . THUS THE ONUS WAS ON THE ASSESSEE TO SHOW THAT IT I S COVERED FROM THE NON-INCLUSION PORTION OF SECTION 2(22)(E) OF THE ACT. THE LD. DR HAS REFERRED TO CIRCULAR NO.495 DATED 22-09-1987. THE CIRCULAR WAS ISSUED TO EXPLAIN THE NOTES ON THE PROVISIONS OF FINANCE ACT 1987. OUR ATTENTION WAS DRAWN TO THE FOLLOWIN G CLAUSES FROM THAT CIRCULAR. 10.1 SECTION 104 TO SECTION 109 RELATES TO LEVY O F ADDITIONAL TAX ON CERTAIN CLOSELY HELD COMPANIES (OTHER THAN THOSE IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED) IF THEY FALL TO DISTRIBUT E A SPECIFIED PERCENTAGE OF THEIR DISTRIBUTABLE PROFITS AS DIVIDENDS. THESE PRO VISIONS HAD LOST MUCH OF THEIR RELEVANCE WITH THE REDUCTION OF THE MAXIMUM M ARGINAL RATE OF PERSONAL TAX TO 50 PER CENT WHICH IS LOWER THAN THE RATE OF CORPORATION TAX ON CLOSELY HELD COMPANIES SECTION. 104 TO 109 HAVE THEREFORE BEEN OMITTED BY THE FINANCE ACT 1987 10.2 WITH THE DELETION OF SS 104 TO 109 THERE WAS L IKEHOOD OF CLOSELY HELD COMPANIES NOT DISTURBING THEIR PROFITS TO SHAREHOLDERS BY WAY OF DIVIDENDS BUT BY WAY OF LOANS OR ADVANCES SO THA T THESE ARE NOT TAXED IN 8 THE HANDS OF THE SHAREHOLDERS. TO FORESTALL HIS MAN IPULATION SUB-CL(E) OF CL (22) OF SECTION 2 HAS BEEN SUITABLY AMENDED. UNDER THE EXISTING PROVISIONS PAYMENTS BY WAY OF LOANS OR ADVANCES TO THE SHAREHOLDERS HAVING SUBSTANTIAL INTEREST IN A COMPANY TO THE EXT ENT TO WHICH THE COMPANY POSSESSES ACCUMULATED PROFITS IS TREATED AS DIVIDEND. THE SHAREHOLDERS HAVING SUBSTANTIAL INTEREST ARE THOSE WHO HAVE A SHAREHOLDING CARRYING NOT LESS THAN 20 PER CENT VOTING POWER AS PER THE PROVISIONS OF CL (32) OF SECTION 2. THE AMENDMENT OF THE DEFINITION EXTENDS ITS APPLICATION TO PAYMENTS MADE (I) TO A SHAREHOLDERS HOLDING NOT LESS THAN 10 PER CENT OF THE VOTING POWER OR (II) TO A CONCERN IN WHICH THE SHAREHOLDERS HAS SUBSTANTIAL INTEREST. CONCERN AS PER THE NEWLY I NSERTED EXPLANATION 3(A) TO SECTION 2(22) MEANS AN HUF OR A FIRM OR AN ASSOC IATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY. A SHAREHOLDERS HA VING A SUBSTANTIAL INTEREST IN A CONCERN AS PER PART (B) OF EXPLANATIO N 3 IS DEEMED TO BE ONE WHO IS BENEFICIALLY ENTITLED TO NOT LES THAN 20 PER CENT OF THE INCOME OF SUCH CONCERN. 10.3 THE NEW PROVISION WOULD THEREFORE BE APPLICAB LE IN A CASE WHERE A SHAREHOLDER HAS 10 PER CENT OR MORE OF THE EQUITY CAPITAL. FURTHER DEEMED DIVIDEND WOULD BE TAXED IN THE HANDS OF A CO NCERN WHERE ALL THE FOLLOWING CONDITIONS ARE SATISFIED. (I) WHERE THE COMPANY MAKES THE PAYMENT BY WAY OF L OANS OR ADVANCES TO A CONCERN; (II) WHERE A MEMBER OR A PARTNER OF THE CONCERN HOL DS 10 PER CENT OF THE VOTING POWER IN THE COMPANY; AND (III) WHERE THE MEMBER OR PARTNER OF THE CONCERN IS ALSO BENEFICIALLY ENTITLED TO 20 PER CENT OF THE INCOME OF SUCH CONCERN. WITH A VIEW TO AVOID THE HARDSHIP IN CASES WHERE AD VANCES OR LOANS HAVE ALREADY BEEN GIVEN THE NEW PROVISIONS HAVE BE EN MADE APPLICABLE ONLY IN CASES WHERE LOANS OR ADVANCES ARE GIVEN AFT ER 31 ST MAY 1987 9 THESE AMENDMENTS WILL APPLY IN RELATION TO ASSESSME NT YEAR 1988- 89 AND SUBSEQUENT YEARS. 2.8. ON THE OTHER HAND THE LD. AR RELIED ON THE SU BMISSIONS FILED BEFORE THE LD.CIT(A). THE LD. AR HAS ALSO RELIED UPON THE FOLL OWING DECISIONS. 1. CIT VS V.S. SIVASUBRAMANIAM 231 ITR 656 (M AD.) 2. CIT VS P.V. JOH 181 ITR 1 (KERL.) 2.9. WE HAVE HEARD BOTH THE PARTIES. BEFORE PROCEED ING FURTHER IT WILL BE USEFUL TO REPRODUCE SECTION 2(22)(E) OF THE ACT ( E ) ANY PAYMENT BY A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED OF ANY SUM (WH ETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) [MA DE AFTER THE 31ST DAY OF MAY 1987 BY WAY OF ADVANCE OR LOAN TO A SHAREHOLD ER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICI PATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WH ICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS T HE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OR FOR THE I NDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER TO THE EXTENT TO WHICH THE CO MPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS ; BUT DIVIDEND DOES NOT INCLUDE ( I ) ..; [( IA )A . ( II ) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER [OR THE SAID CONCERN] BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS WHE RE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPAN Y ; ( III ) [( IV ) 2.10. THE MAIN CONTENTION OF THE ASSESSEE IS THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF MONEY LENDING AS PERMISSIBLE IN CLAUSE 18 OF MEMORANDUM OF ASSOCIATION. CLAUSE 18 IS REPRODUCED AS UNDER:- 18. SUBJECT TO THE PROVISIONS OF THE COMPANIES AC T 1956 TO LEND ADVANCE MONEY OTHERWISE PROVIDE FINAN CIAL 10 ASSISTANCE EITHER WITH OR WITHOUT SECURITY TO SUCH PERSON (INCLUDING GOVERNMENT) HAVING DEALING WITH THE COMPANY ENGAGE IN ANY SUCH BUSINESS AS MAY BE CONSIDERED LIKELY DIRECTLY OR IN DIRECTLY TO FURTHER THE MAIN OBJECTS OF THE COMPANY OR INTEREST S OF ITS SHAREHOLDERS ON SUCH TERMS AND CONDITIONS AS MAY BE DEEMED IN THE INTEREST OF THE COMPANY. 2.11. WE HAVE GONE THROUGH THE MEMORANDUM OF ASSOCI ATION. THE MEMORANDUM OF ASSOCIATION IN THE CASE OF A COMPANY MOST CONSISTS NUMBER OF BUSINESS WHICH COMPANY MAY UNDERTAKE. HOWEVER THE MAIN OBJECTS ARE MENTIO NED IN THE BEGINNING OF THE MEMORANDUM OF ASSOCIATION. IN THE CASE OF M/S. SPL THE MAIN OBJECTS TO BE PERUSED BY THE COMPANY ON ITS INCORPORATION ARE MENTIONED IN P ART A OF THE MEMORANDUM OF ASSOCIATION AND THESE ARE ONLY TWO MAIN OBJECTS WHI CH ARE REPRODUCED AS UNDER:- 1. TO DESIGN MANUFACTURE IMPORT EXPORT BUY SE LL EXCHANGE DISTRIBUTE FABRICATE EXTRUDE MOULD EX PAND COMPRESS BEND LAMINATE REINFORCE WELD SHAPE COAT PAINT TREAT INSTALL ERECT T ADOPT AN OF THE PROCESSES TO PREPARE FOR MA RKET OR OTHERWISE DEAL IN ALL KINDS OF PRODUCTS MADE OF PLASTICS PAP ER FOIL REINFORCED PLASTICS POLYURETHANE FIBRE GLASS EPOXY UREA FORM ALDEHYDE MELAMINE FORMALDEHYDE AND OTHER THERMOSETTING RESIN S AND MOULDING COMPOSITIONS NYLON INCLUDING PREFABRICAT ED SECTIONS AND CELLULOSE PLASTICS AND OTHER THERMOSETTING AND THERMOPLASTIC MATERIALS OF SYNTHETIC OF NATURAL ORIGIN AND ANY OT HER MATERIALS THAT ARE AND THAT MAY BE DEVELOPED FOR THE PURPOSE. 2. TO CARRY ON THE BUSINESS OF MANUFACTURERS EXPORTERS IMPORTERS SELLING BUYERS OF AND DEALERS IN RUBBER SYNTHETIC RUBBER VULCANIZING MATERIAL RUBBER HYGI ENIC GOODS MADE OF RUBBER AND LATEX ETHICAL RUBBER PRODUCTS TRANSMISSION BELTS AND CONVEYERS PLASTIC CONTAINERS BOTTLES AN D CLOSURES AND 11 RUBBER LINED VESSEL TOYS AND OTHER ALLIED GOODS LE ATHER CLOTH DRESS DRESS LININGS UMBRELLAS AND WATERPROOF GOODS 2.12. PART B OF THE MEMORANDUM OF ASSOCIATION CONTA INS THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS. SU CH ANCILLARY OBJECTS ARE MORE THAN 24 OBJECTS AND CLAUSE 18 IS CONSIDERED IN PART B OF TH E MEMORANDUM OF ASSOCIATION. IT WILL BE USEFUL TO REPRODUCE THE HEAD NOTE OF PART B AS U NDER:- THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAIN MENT OF THE MAIN OBJECTS ARE:-. 2.13. THE OBJECT CLAUSE NO 7 CONTAINS IN PART B OF MEMORANDUM OF ASSOCIATION STATES THAT M/S. SUN POLYTEX (P) LTD. TO CARRY ON OR ASSI ST OR PARTICIPATE IN ANY OTHER TRADE OR BUSINESS WHETHER FINANCIAL COMMERCIAL MERCANTILE M ANUFACTURING OR OTHERWISE WHICH MAY SEEM CAPABLE OF BEING CONVENIENTLY CARRIED ON I N CONNECTION WITH ANY OF THE ABOVE SPECIFIED BUSINESSES OR CALCULATED DIRECTLY OR PROF ITABLE TO THE COMPANYS BUSINESS OR TO ENHANCE THE VALUE OF ANY OF THE COMPANYS PROPERTY OR RIGHT. THUS CLAUSES 7 AND 18 HAVE BEEN INCLUDED IN THE ANCILLARY OBJECTS. THERE MAY B E AN OBJECT CLAUSE IN THE MEMORANDUM OF ASSOCIATION OF A COMPANY TO DO BUSINESS OF DEALI NG IN SHARES BUT IN CASE THE ASSESSEE HAS SHOWN THE SHARES AS INVESTMENT AND HAS NOT DEAL T WITH THE SHARES REGULARLY THEN THE PROFIT FROM SALE OF SHARES CANNOT BE CONSIDERED AS BUSINESS ONLY ON ACCOUNT OF OBJECT CLAUSE IN THE MEMORANDUM OF ASSOCIATION. ONE HAS TO CONSIDER THE ACTUAL STATE OF AFFAIRS TO ASCERTAIN AS TO WHETHER THE MONEY LENDING HAS BE EN A SUBSTANTIAL BUSINESS OF THE ASSESSEE . THE MEANING OF WORD SUBSTANTIAL PART H AS BEEN CONSIDERED BY THE THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS PARLE PLAS TICS LTD. AND ANOTHER 332 ITR 63. IT 12 WILL BE USEFUL TO REPRODUCE THE FOLLOWING PARA FRO M THE ABOVE DECISION AVAILABLE AT PARA 13 OF THE ORDER. THE EXPRESSION USED UNDER CLAUSE (II) OF SECTION 2( 22)(E) IS SUBSTANTIAL PART OF THE BUSINESS. WE WOULD THE REFORE HAVE TO ASCERTAIN THE MEANING OF THE WORD SUBSTANTIAL APPEARING IN THE EXPRESSION SUBSTANTIAL PART OF THE BUSINESS. STROUDS JUDI CIAL DICTIONARY FIFTH EDITION GIVES THE FIRST MEANING OF THE WORD SUB STANTIAL AS A WORD OF NO FIXED MEANING IT IS AN UNSATISFACTORY MEDIUM FOR CARRYING THE IDEA OF SOME ASCERTAINABLE PROPORTION OF THE WHOLE. THE DE CISION OF TERRYS MOTORS LTD. V. RINDER [1948] SASR 167 IS GIVEN IN SUPPORT OF THIS MEANING. IN THE MEANING NO. 8 WHILE CONSIDERING SUBSTANTIAL AMOUNT IT IS STATED THAT OUT OF A RENT OF 80 PER ANNUM 13 PER ANNUM ATTRIBUTABLE TO THE AMOUNT PAID FOR FURNITURE WAS A SUBSTANTIAL AMOUNT ON THE BASIS OF THE DECISION IN MACLAY V. DIXON C. A. 170 L T 49. IN MEANING NO. 15 RELYING UPON THE DECISION OF LADBRO KE (FOOTBALL) LTD. V. WILLIAM HILL (FOOTBALL) LTD. [1964] 1 WLR 273 (HL) IT IS SAID THAT IN DECIDING WHETHER THE REPRODUCED PART OF COPYRIGHT M ATERIAL IS A SUBSTANTIAL PART OF THE WHOLE IT IS THE QUALITY RATHER THAN THE QUANTITY OF THE PART THAT SHOULD BE CONSIDERED. BLACKS LAW DIC TIONARY SIXTH EDITION DEFINES THE WORD SUBSTANTIAL AS OF REAL WORTH AN D IMPORTANCE ; OF CONSIDERABLE VALUE ; VALUABLE. BELONGING TO SUBSTAN CE ; ACTUALLY EXISTING ; REAL ; NOT SEEMING OR IMAGINARY ; NOT ILLUSIVE ; SOLID ; TRUE ; VERITABLE . . . SOMETHING WORTHWHILE AS DISTINGUISHED FROM SOMETHIN G WITHOUT VALUE OR MERELY NOMINAL. NO DECISION WAS CITED BEFORE US WHEREIN A VIEW HAS BEEN TAKEN THAT IN ORDER TO SHOW THAT A PART OF T HE WHOLE TO BE TREATED AS SUBSTANTIAL PART THE PART MUST EXCEED 50 PER C ENT. OF THE WHOLE. IN OUR VIEW THE EXPRESSION SUBSTANTIAL PART DOES NOT CONNOTE AN IDEA OF BEING THE MAJOR PART OR THE PART THAT CONSTITUTES MAJ ORITY OF THE WHOLE. IF THE LEGISLATURE REALLY INTENDED THAT MORE THAN 50 PER CENT. OF THE BUSINESS OF THE LENDING COMPANY MUST COME FROM THE BUSINESS O F LENDING NOTHING 13 PREVENTED THE LEGISLATURE FROM USING THE EXPRESSI ON MAJORITY OF BUSINESS. IF THE LEGISLATURE AT ALL INTENDED THA T A PARTICULAR MINIMUM PERCENTAGE OF THE BUSINESS OF A LENDING COMPANY S HOULD COME FROM THE BUSINESS OF LENDING THE LEGISLATURE COULD HAVE S PECIFICALLY PROVIDED FOR THAT PERCENTAGE WHILE DRAFTING CLAUSE (II) OF SEC TION 2(22)(E) OF THE ACT. THE LEGISLATURE HAD DELIBERATELY USED THE WORD SUB STANTIAL INSTEAD OF USING THE WORD MAJOR AND/OR SPECIFYING ANY PERC ENTAGE OF THE BUSINESS OR PROFIT TO BE COMING FROM THE LENDING BUSINESS OF THE LENDING COMPANY FOR THE PURPOSE OF CLAUSE (II) OF SECTION 2(22)(E ) OF THE ACT. WE WOULD GIVE AN ILLUSTRATION TO ASCERTAIN THE MEANING OF THE EXPRESSION SUBSTANTIAL BUSINESS OR SUBSTANTIAL INCOME OF A COMPANY. IN THE MODERN DAYS A LARGE NUMBER OF COMPANIES DO NOT R ESTRICT TO ONE OR TWO BUSINESSES. THEY CARRY ON NUMEROUS ACTIVITIES AND CARRY ON NUMEROUS BUSINESSES AND HAVE NUMEROUS BUSINESS DIVISIONS. LET US TAKE A CASE OF A FIRST COMPANY WHICH HAS 3 DIVISIONS OF WORKS CONSIS TING OF THREE DIFFERENT TYPES OF BUSINESS. THE TURNOVER AS WELL AS THE PR OFIT OF THE FIRST DIVISION IS 40 PER CENT. ; TURNOVER AND THE PROFIT OF THE SEC OND DIVISION IS 30 PER CENT. AND THE TURNOVER AND THE PROFIT OF THE THIRD DIVI SION OF THE BUSINESS IS 30 PER CENT. IN THE CASE OF THIS COMPANY NO PART OF TH E BUSINESS HAS TURNOVER EXCEEDING 50 PER CENT. AND NO PART OF THE BUSINES S COMPANY GENERATES PROFIT OF MORE THAN 50 PER CENT. OF THE TOTAL. IN SUCH A CASE CAN IT BE SAID THAT NONE OF THE BUSINESSES OF THE SAID COMPANY I S A SUBSTANTIAL BUSINESS OF THE COMPANY. IN OUR VIEW NOT. THE FIRST BUSINE SS WHICH CONSTITUTES 40 PER CENT. OF THE TURNOVER AND CONTRIBUTES 40 PER CE NT. TO THE PROFIT WOULD BE THE SINGLE LARGEST PART OF THE BUSINESS OF THE CO MPANY THE SECOND AND THIRD DIVISIONS OF THE BUSINESS EACH OF WHICH CO NTRIBUTES 30 PER CENT. OF THE TURNOVER AS WELL AS PROFIT OF THE COMPANY TH OUGH NOT THE MAJOR AND NOT EVEN THE SINGLE LARGEST PART OF THE BUSINESS OF THE COMPANY WOULD STILL BE A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY BECAUSE IF ANY PART OF THE THREE DIVISIONS OF THE BUSINESS OF THE COMPANY WAS TO BE CLOSED DOWN THAT WOULD RESULT IN LOSS OF TURNOVER AND/O R BUSINESS OF 30 PER 14 CENT. ORDINARILY NO COMPANY WOULD REGARD SUCH PA RT OF THE BUSINESS AS INSIGNIFICANT. AS RIGHTLY OBSERVED IN STROUDS JU DICIAL DICTIONARY IT IS NOT POSSIBLE TO GIVE ANY FIXED DEFINITION OF THE WORD SUBSTANTIAL IN RELATION TO A SUBSTANTIAL BUSINESS OF A COMPANY. ANY BUS INESS OF A COMPANY WHICH THE COMPANY DOES NOT REGARD AS SMALL TRIVI AL OR INCONSEQUENTIAL AS COMPARED TO THE WHOLE OF THE BUSINESS IS SUBSTAN TIAL BUSINESS. VARIOUS FACTORS AND CIRCUMSTANCES WOULD BE REQUIRED TO BE LOOKED INTO WHILE CONSIDERING WHETHER A PART OF THE BUSINESS OF A COM PANY IS ITS SUBSTANTIAL BUSINESS. SOMETIMES A PORTION WHICH CONTRIBUTES A SUBSTANTIAL PART OF THE TURNOVER THOUGH IT CONTRIBUTES A RELATIVELY SMALL PORTION OF THE PROFIT WOULD BE A SUBSTANTIAL PART OF THE BUSINESS. SIMILA RLY A PORTION WHICH RELATIVELY A SMALL AS COMPARED TO THE TOTAL TURNOVE R BUT GENERATES A LARGE SAY MORE THAN 50 PER CENT. OF THE TOTAL PROFIT OF T HE COMPANY WOULD ALSO BE A SUBSTANTIAL PART OF ITS BUSINESS. PERCENTAGE OF T URNOVER IN RELATION TO THE WHOLE AS ALSO THE PERCENTAGE OF THE PROFIT IN RELAT ION TO THE WHOLE AND SOMETIMES EVEN PERCENTAGE OF A MANPOWER USED FOR A PARTICULAR PART OF BUSINESS IN RELATION TO THE TOTAL MAN POWER OR WORK ING FORCE OF THE COMPANY WOULD BE REQUIRED TO BE TAKEN INTO CONSIDER ATION. EMPLOYEES OF A COMPANY ARE NOW CALLED ITS HUMAN RESOURCES AND THEREFORE THE PERCENTAGE OF HUMAN RESOURCES USED BY THE COMPANY FOR CARRYING ON A PARTICULAR DIVISION OF BUSINESS MAY ALSO BE REQUIRE D TO BE TAKEN INTO CONSIDERATION WHILE CONSIDERING WHETHER A PARTICULA R BUSINESS FORMS A SUBSTANTIAL PART OF ITS BUSINESS. UNDISPUTEDLY THE CAPITAL EMPLOYED BY A COMPANY FOR CARRYING ON A PARTICULAR DIVISION OF IT S BUSINESS AS COMPARED TO THE TOTAL CAPITAL EMPLOYED BY IT WOULD ALSO BE R ELEVANT WHILE CONSIDERING WHETHER THE PART OF THE BUSINESS OF THE COMPANY CONSTITUTES SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. 2.14 NOW WE HAVE TO APPLY THE TESTS AS LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT. IT IS NOT DISPUTED THAT THE TURNOVER OF THE ASSESSE E IS TO THE EXTENT OF RS. 12.18 CRORES. THE 15 PROFIT BEFORE TAX IS TO THE EXTENT OF RS. 1.31 CORE S. THE BALANCE SHEET OF M/S. SUN POLYTEX (P) LTD. IN THE NORMAL FORM IS AS UNDER:- SHAREHOLDERS FUNDS SHARE CAPITAL 15 000 000 FIXED ASSETS 17 137 424 RESERVE & SURPLUS 17 227 025 INVESTMENTS 10 730 000 LOANS SECURED & UNSECURED 31 668 088 CURRENT ASSETS LOANS & ADVANCES 44 232 763 CURRENT LIABILITIES 8 205 074 - - 72 100 187 72 100 187 2.15. THE CURRENT ASSETS LOANS AND ADVANCES SHOW T HE FIGURE OF LOAN AND ADVANCE OF RS. 2 02 09 379/-. THE OTHER ITEMS IN CURRENT ASSETS AR E INVENTORY SUNDRY CREDITORS AND CASH IN BANK BALANCE. THE SUNDRY CREDITORS ARE FOR THE P URPOSE OF MAIN BUSINESS. THE DETAILS OF LOANS AND ADVANCES ARE AVAILABLE AT PAGE 62 OF THE PAPER BOOK FILED BY THE LD. AR WHICH CONTAINS THE FIGURE OF RS. 8 94 324/- AS SECURITY D EPOSIT AND THEREFORE IT CANNOT BE CONSIDERED A PART OF THE MONEY LENDING BUSINESS. OT HER ITEMS SHOWN IN ADVANCE ARE AVAILABLE AT PAGE 62 OF THE PAPER BOOK AND ARE AS U NDER. WE ARE ONLY MENTIONING THE FIGURES WHICH EXCEED RS. 1.00 LAC ADVANCE INCOME TAX & TDS RS. 28 82 792 CENVAT CREDIT RS. 1 40 866 CENVAT CREDIT RS. 2 64 015 CENVAT CREDIT OF INPUT RS. 24 50 295 DEFERRED TAX RS. 1 23 975 EXCEL INDUSTRIES RS. 8 674 867 EXCISE DUTY REFUNDABLE RS. 60 95 140 (LAST YEAR 16 34 446) PREPAID EXPENSES RS. 1 93 511 RELIANCE INDS. LTD. RS. 1 15 188 MEWAR POLYTEX LTD. ASSESSEES LOAN ACCOUNT RS. 57 23 987/- 2.16 FROM THE ABOVE IT IS CLEAR THAT THE ADVANCE R ELATE TO THE MAIN BUSINESS AND INCREASE IN ADVANCE ON ACCOUNT OF INCREASE IN REFUN DABLE EXCISE DUTY. THUS THERE IS ONLY ONE LOAN I.E. TO THE ASSESSEE. OTHER CANNOT BE CONS IDERED AS ADVANCE FOR THE PURPOSE OF 16 MONEY LENDING. THE INTEREST RECEIVED IS ONLY TO THE EXTENT OF RS. 2 97 552/-. THUS THE INCOME RECEIVED IN THE FORM OF INTEREST CANNOT BE CONSIDERED AS SUBSTANTIAL PART OF THE INCOME OF THE ASSESSEE. THE PERUSAL OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF M/S. SUN POLYTEX (P) LTD. DID NOT INSPIRE ANY CONFI DENCE THAT M/S. SUN POLYTEX (P) LTD. WAS HAVING MONEY LENDING AS SUBSTANTIAL PART OF THE BUSINESS. THE ADVANCES HAVE ALSO NOT BEEN FOR THE PURPOSE OF THE BUSINESS OF M/S. SUN PO LYTEX (P) LTD. BUT IT WAS A LOAN AS MENTIONED IN THE BALANCE SHEET. THE AUDIT REPORT OF M/S. SUN POLYTEX (P) LTD. IS AVAILABLE AT PAGES 46 TO 62 OF THE PAPER BOOK FILED BY THE AS SESSEE. THE AUDITOR HAS MENTIONED THAT COMPANY HAS GIVEN SHORT TERM LOAN TO FOUR CONCERNS AGGREGATING TO RS. 2.27 CRORES DURING THE YEAR . IT IS NOWHERE MENTIONED THAT THESE WERE INTER CORPORATE DEPOSITS (ICDS). IT IS ALSO MENTIONED THAT THE COMPANY HAS TAKEN SHORT TER M LOAN FROM 31 PARTIES AGGREGATING TO RS. 3.29 CRORES DURING THE YEAR . THE AUDITORS IN C LAUSE 12 OF THEIR REPORTS HAS MENTIONED THAT COMPANY HAS NOT GRANTED ANY LOANS AND ADVANCES ON THE BASIS OF SECURITY BY WAY OF PLEDGE OF SHARES DEBENTURES AND OTHER SECURITIES. THE ASSESSEE WHO IS DEALING MAINLY IN DEBENTURES AND MONEY LENDING WILL NOT GIVE ANY ADVA NCE WITHOUT ANY SECURITY. HENCE IT CANNOT BE SAID THAT SHORT TERM LOAN TAKEN BY THE AS SESSEE WERE FOR THE PURPOSE OF MONEY LENDING BUSINESS. THE LD. AR HAS RELIED UPON THE DE CISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS V.S. SIVESUBRAMANIAM (SUPRA). IN THAT CASE THERE IS A FACTUAL FINDING THAT COMPANY WAS DOING MONEY LENDING BUSINE SS AND THEREFORE ADVANCE RECEIVED CANNOT BE CONSIDERED AS DEEMED DIVIDEND. IN THE CA SE OF CIT VS P.V. JOHN (SUPRA) THE HON'BLE KERALA HIGH COURT HAD AN OCCASION TO CONSID ER AS TO WHETHER GIFT TO SHAREHOLDER SON CAN BE CONSIDERED AS DEEMED DIVIDEND. THE HON'B LE KERALA HIGH COURT NOTICED THAT THERE HAS BEEN NO EVIDENCE THAT GIFTS WERE FOR THE BENEFIT OF THE SHAREHOLDERS. THIS 17 DECISION IS OF NO HELP TO THE ASSESSEE. IF THE ASSE SSEE IS TO BE COVERED IN NON-INCLUSIVE SECTION 2(22)(E) THEN THE ONUS IS ON THE ASSESSEE. THE ASSESSEE HAS NOT BEEN ALE TO SHOW THAT M/S. SUN POLYTEX (P) LTD. WAS HAVING MONEY LEN DING BUSINESS AS SUBSTANTIAL PART OF THE BUSINESS. WE THEREFORE HOLD THAT THE AO WAS JU STIFIED IN HOLDING THE SUM OF RS. 55.00 LACS AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSE E. 3.0 NOW WE TAKE UP THE APPEAL FOR THE ASSESSMENT YE AR 2007-08 OF THE REVENUE. 3.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 18.40 LACS MADE ON ACCOUNT OF DEEME D DIVIDEND U/S 2(22)(E) OF THE ACT. 3.2 WE HAVE HEARD BOTH THE PARTIES. THE LD.CIT(A) H AS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF HIS PRED ECESSOR FOR THE EARLIER ASSESSMENT YEARS. WE ARE NOT HAVING BENEFIT OF THE COPY OF THE ACCOUN T OF M/S. SUN POLYTEX (P) LTD. IN THE BOOKS OF THE ASSESSEE OR LEDGER ACCOUNT OF THE ASSE SSEE IN THE BOOKS OF M/S. SUN POLYTEX (P) LTD.. THE AO IN HIS ORDER HAS MENTIONED THAT AD VANCE IS TO THE EXTENT OF RS. 18.40 LACS. IN THE PRECEDING YEAR THE ADVANCE WAS MORE T HAN RS. 18.50 LACS. SINCE WE HAD HELD THAT LOAN AND ADVANCE IN THE IMMEDIATELY PRECEDING YEAR IS TO BE CONSIDERED AS DEEMED DIVIDEND AND IN CASE THE AMOUNT OUTSTANDING AT THE END OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION IS LESS THA N THE ADVANCE AT THE CLOSE OF THE PREVIOUS YEAR THEN NO ADDITION CAN BE MADE IN RESPE CT OF DEEMED DIVIDEND. WE THEREFORE RESTORE THE ISSUE ON THE FILE OF THE AO TO ASCERTAI N AS TO WHETHER THE ADVANCE DURING THE YEAR EXCEEDS THE CLOSING BALANCE OF EARLIER YEAR. I N CASE IT EXCEEDS THEN THE AMOUNT SHOULD BE TREATED AS DEEMED DIVIDEND IN VIEW OF OUR FINDINGS FOR THE ASSESSMENT YEAR 2006-07. IF THE AMOUNT IS LESS THEN NO ADDITION WIL L BE MADE BECAUSE THE ADVANCE IN IMMEDIATELY PRECEDING YEAR HAS ALREADY BEEN TREATED AS DEEMED DIVIDEND. 18 4.1 THE SECOND GROUND OF REVENUE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 5 710/- MADE U/S 36(1)(VA) R.W.S. 2 (24)(X) OF THE INCOME TAX ACT. 4.2 WE HAVE HEARD BOTH THE PARTIES. THE EMPLOYEES C ONTRIBUTION BEFORE DUE DATE OF RETURN IS ALLOWABLE U/S 43B OF THE ACT .RELIANCE IS PLACED ON THE FOLLOWING DECISIONS:- 1. CIT VS AIMIL LTD. & OTHERS 312 ITR 508 (DEL) 2. CIT VS VINAY CEMENT LTD. 213 CTR 268 (SC) 4.3 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 5 710/- 5.0 IN THE RESULT THE APPEALS OF THE REVENUE FOR T HE ASSESSMENT YEAR 2006-07 IS ALLOWED AND THAT OF ASSESSMENT YEAR 2007-08 IS PART LY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 09-12-2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JODHPUR DATED: 09 /12/2011 MISHRA COPY TO: 1. THE ACIT CIRCLE- 1 UDAIPUR 2. M/S. MEWAR POLYTEX LTD. UDAIPUR 3.THE LD. CIT (A) BY ORDER 4.THE CIT 5.THE D/R 6.THE GUARD FILE (ITA NO.455/JU/09 & & 382/JU/10) A.R.. ITAT: JODHPUR 19