Commercial advance was outside the purview of the deeming provision of section 2(22)(e)

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
Facts, in brief, as per relevant orders are that the return declaring income of ``4,29,40,331/- filed on 27.09.2008 by the assessee, engaged in the business of import and trading in yarn and knitting needles besides generation of wind power, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act 1961 (hereinafter referred to as the ‘Act’) issued on 17th August, 2009. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that Shri Ashwani Sehgal and Mrs. Monica Sehgal had 41.52% and 24.81% of the shareholding of the company while M/s Karsihma Machine Tools Pvt. Ltd. was reflected as sundry creditor to the tune of `1,67,42,661/-. To a query by the AO , the assessee replied that M/s Karishma Machine Tools Pvt. Ltd.[KMPTL] had invested `100 lacs by way of share application money besides advance of `63,58,573 against purchase of material and `3,96,888/- on account of advance against order. Since Mr. Ashwani Sehgal & Mrs. Monica Sehgal had 39.2% share holding each in M/s Karishma Machine Tools Pvt. Ltd. and the said company had reserves and surplus of `3,42,23,672.26, the AO show caused the assessee as to why the amount of `100 lacs by way of share application money as also advances of `63,58,573 and `3,96,888/- , be not taxed as deemed dividend u/s 2(22)(e) of the Act. In reply, the assessee submitted that share application money of ``1 crore was not covered within the meaning of provisions of sec. 2(22)(e) of the Act nor the aforesaid two advances. However, the AO did not accept the submissions of the assessee in view of decision in the case of Balotia Engg. Works Pvt. Ltd. vs. CIT, 275 ITR 399 (Jharkhand),holding that share application money part took the character of deposit. Since the share application money was deposited with the assessee on 20-12-2007 while shares were allotted only in July, 2010 i.e. after a period of more than 30 months in pursuance to the board resolution dated 22nd July, 2010, the AO concluded that the amount of ``1 crore was, in fact, advance and explanation regarding share application money was an afterthought, query having been raised much earlier regarding taxation of amount as deemed dividend . Accordingly, the AO brought to tax the amount of `1 crore and advance of `3,96,888/- as deemed dividend within the meaning of provisions of sec. 2(22)(e) of the Act while accepting the contentions of the assessee in respect of the amount of ``63,58,573/-.

Citation :
Deputy CIT, Circle 1(1), Room no.390,C.R. Building, IP Estate, New Delhi (Appellant) V/s.M/s Alpex Exports (P) Ltd. B-79, Shival ik, Near Malviya Nagar, New Delhi(Respondent)