Trade advances in the nature of commercial transactions would not fall within the ambit of the word ''advance'' in section 2(22)(e) of the Act.

JUDGMENT

K.S. Jhaveri, J. - By way of this appeal, the appellant has assailed the judgment and order of the Tribunal whereby Tribunal has dismissed the appeal preferred by the department and partly allowed the appeal of the assessee.

2. This court while admitting the appeal on 19.8.2015 framed following substantial question of law:-

"Whether the Tribunal was legally justified in holding that the assessee was not liable to be assessed on account of "deemed dividend" within the meaning of Section 2(22)(e) as the assessee had entered into trade transactions to circumvent the provisions of Section 2(22)(e)?

Whether the Tribunal was legally justified in confirming the findings of the CIT(A) and holding that Rs. 1,84,15,499/- was not liable to tax under section 2(22)(e) on account of funds received from the company in which the assessee was holding more than 10% share capital?"

2.1 Subsequently, since question no.5 was not typed out, vide order dated 11.12.2015 following question was also added:-

"Whether the findings of the tribunal are perverse in deleting addition of Rs. 92,94,092/- when the interest bearing loans were taken from banks and parties and utilized in investment of shares which earned dividend being tax free then the expenditure incurred for earning tax free income was to be disallowed under section 14A."

3. Counsel for the respondent Mr. Jhanwar has pointed out that in view of the circular dated 12.6.2017 wherein para no.2 & 3 reads as under:-

"2. The Board has observed that some Courts in the recent past have held that trade advances in the nature of commercial transactions would not fall within the ambit of the provisions of Section 2(22)(e) of the Act. Such views have attained finality.

2.1 Some illustrations/examples of trade advances/commercial transactions held to be not covered under Section 2(22)(e) of the Act are as follows:

i. Advances were made by a company to a sister concern and adjusted against the dues for job work done by the sister concern. It was held that amounts advanced for business transactions do not fall within the definition of deemed dividend under Section 2(22)(e) of the Act. (Commissioner of Income Tax vs. Creative Dyeing & Printing Pvt. Ltd., Delhi High Court).

ii. Advance was made by a company to its shareholder to install plant and macinery at the shareholder''s premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. (Commissioner of Income Tax vs. Amrik Singh, P & H High Court) .

iii. A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilised gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister concern was a business transaction arising in the normal course of business between two concerns and the transaction did not attract section 2(22)(e) of the Act. (CIT, Agra vs. Atul Engineering Udyog, Allahabad High Court) .

3. In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word ''advance'' in section 2(22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon."

3.1 In that view of the matter, in respect of two issues which are admitted on 19.8.2015, the appeal will not survive in view of the circular issued by CBDT.

3.2 The other issue regarding 14A is squarely covered by the decision of Bombay High Court in Godrej & Boyce MFG. Co. Ltd. vs. Deputy Commissioner of Income Tax & anr. reported in (2010) 328 ITR 81 which has been now confirmed by the Sup