- (1.) WE have heard Shri Shambhu Chopra, learned counsel for the income tax department.
(2.) IN this income tax appeal under Section 260A of the Income Tax Act, the revenue is aggrieved by the order of the Income Tax Appellate Tribunal (ITAT) dated 02.03.2012 by which the Tribunal has affirmed the order of CIT (A), allowing the appeal to the effect that the loan totalling Rs.48,20,549/ - was treated by the A.O. as deemed dividend under Section 2 (22) (e) read with Section 56 (2) (i) of the Act. The findings recorded by CIT (A) summarised by the ITAT are as follows: - "As to whether section 2 (22) (e) of the Act is applicable to the appellant's case is a finding of fact. it is seen that admittedly the two partners of the firm namely Shri Kailash Chand Gupta and Mithlesh Khandelwal have profit sharing ratio of 80:20 and are registered and beneficial shareholders of M/s Khandelwal Cables Limited with share4holding of 11.57% and 13.05% respectively. Hence, 2 out of 3 conditions of section 2 (22) (e) are undisputedly fulfilled in the appellant's case. Thus, only the nature of the receipts aggregating to Rs.48,20,549/ - is in dispute insomuch that the Assessing Officer has treated these as advances/ loans as envisaged in section 2 (22) (e) of the Act, whereas the appellant has claimed that both the partners had substantial credit balances with M/s Khandelwal Cables Limited and that at no point of time was any amount received from Khandelwal Cables Limited which exceeded the deposits of the partners with Khandelwal Cables Limited. The combined cop -y of account of the appellant firm and its 2 partners in the books of Khandelwal Cables Limited was furnished by the appellant during ass4essment proceedings (Annexure to this order) and has been discussed in detail in the assessment order. The Assessing Officer has refuted the above claim of the appellant referring to the appellant's individual account independent of its partners' accounts with M/s Khandelwal Cables Limited. However, this view of the Assessing Officer is not justified for the reasons that - As argued by the appellant, a partnership firm is a compendious name of all the partners. Hence, the transactions of the firm cannot be considered in isolation from the transactions of the partners on behalf of and in their capacity as partners of the firm. The advances by Khandelwal Cables Limited to the appellant firm are not advances in the absolute as (i) Khandelwal Cables Limited was in possession of the funds of the partners and owned job work charges payable and (ii) the advances to the appellant firm did not exceed the credit balances of the partners with and job work charges receivable from Khandelwal Cables Limited. Hence, the impugned advance by Khandelwal Cables Limited to the appellant are effectively repayment of the loans of the appellant's partners though ostensibly to the appellant firm. Thus, though, in form, the amounts drawn by the appellant from Khandelwal Cables Limited appear as advances/ loans, in substance the appellant firm has received the impugned amounts of and from its own partners, though through Khandelwal Cables Limited. This is no different from repayment by Khandelwal Cables Limited of the deposits of the appellant's partners and introduction thereof by the partners in the appellant firm. The A.O. is of the view that the account of the appellant in the books of Khandelwal Cables Limited deserves to be considered in isolation from the partner's accounts in the books of Khandelwal Cables Limited and job work charges for the purpose of section 2 (22) (e). However, this view does not appear to be tenable for the reason that section 2 (22) (e) envisages integrated consideration of transactions between the creditor company and the debtor concern linked through the common shareholder. Bay this rationale, all the transactions fo the appellant firm and its partners with M/s Khandelwal Cables Limited warrant consideration in a composite manner. 4.6 Thus, since the consolidated balance in all the accounts of the appellant and its partners in Khandelwal Cables Limited (refer Annexure) is adequate to cover the appellant's withdrawals receipts from Khandelwal Cables Limited, no deemed dividend as per section 2 (22) (e) of the Act arises in the appellant's hands. Hence, the addition of Rs.48,20,549/ - is not sustainable and accordingly deleted."
(3.) WE do not find that any discussion in the judgment of ITAT in which finding of fact recorded by CIT (A) were challenged to the effect that though, in form, the amounts drawn by the appellant from Khandelwal Cables Limited appear as advances/ loans, in substance the appellant firm has received the impugned amounts of and from its own partners, though through Khandelwal Cables Limited. This was no different from repayment by Khandelwal Cables Limited of the deposits of the appellant's partners and introduction thereof by the partners in the appellant firm.;