Decided on December 15,1994



G. Santhanam, Accountant Member - (1.) THE appellant is an individual with previous year ending on 31-3-1990 relevant to the assessment year 1990-91. He is a director in M/s. Victory Press (P) Ltd. having 10% share in the capital of the company. THE other shareholders are his close relatives. During the previous year ending on31-3-1990, the assessee had an account with M/s. Victory Press (P.) Ltd. as follows : IN THE BOOKS OF THE COMPANY Copy of the account with Hotel Victory Internationalduring the period 1-4-1989 to 31-3-1990 JUDGEMENT_8521_TLIT0_19940.htm THE general reserves of the company as at the beginning of the year was in an extent of Rs. 8,94,592.85 and as at the end of the year it was in a figure of Rs. 13,94,592.85. THE increase in the general reserve was due to the transfer of net profit from the. profit and loss account appropriation account in a sum of Rs. 5 lakhs. THE Assessing Officer on a scrutiny of the account of the assessee with the company held that the assessee had taken advances through the current account in a sum of Rs. 6,70,000 in all. This figure he arrived at on a consideration of the total of the advances of Rs. 7,69,000 - the opening balance of Rs. 99,000. THEre is no dispute about this computation. He also noticed that the assessee had repaid the above sum in the course of the year but then it would not make any difference to invoke the provisions of Section 2(22)(e) of the Income-tax Act, 1961. In other words notwithstanding the fact that the advances totalling in a sum of Rs. 6,70,000 have also been repaid to the company on different dates leaving nil balance as at the end of the year, the Assessing Officer held that the transaction came within the mischief of Section 2(22)(e) of the Act. This view was upheld by the CIT (Appeals).
(2.) Sri Ramachandran, the learned Advocate, vehemently contended that the first two advances were of a different category, in that they represented commercial advances rather than advances simplicitor and if these two advances are excluded, it will be seen that the assessee's account was in credit with the company rather than in debit meaning thereby that it is the assessee who had advanced to the company rather than the company advancing to the assessee. In this connection he relied on the affidavit filed by the managing director of the company. Such an argument was also advanced before the CIT (Appeals). The learned CIT (Appeals) dismissed this argument as a clever attempt on the part of the assessee to show that there was a distinction between the transactions prior to 22-4-1989 and the transactions between 22-4-1989 & 31-3-1990 and if the appellant's argument and the contents of the affidavit were taken on its face value it would appear that there was no deemed dividend assessable Under Section 2(22)(e) of the Income-tax Act, 1961. In this view of the matter, he rejected the appellant's contention regarding the nature of the transactions relating to the first two advances that were made prior to 22-4-1989 and the nature of the advances that were made by the company between 22-4-1989 and 31-3-1990. Sri Ramachandran before us assailed the reasonings of the CIT (Appeals) on this issue.
(3.) SRI Balakrishnan, the learned departmental representative, vehemently contends that the affidavit was a self-serving document with no material attached to it and therefore it should be rejected outright. It is his further contention that the appellant had not proved on materials the clever distinction that he sought to make on the advances prior to 22-4-1989 and the other advances thereafter.;

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