Audit & Assurance | Business Start up & Registration | Business Support | Tax Advisory | Management Consultancy | Visa Documentation | Project Syndication & Feasibility Studies

Thursday, 19 June 2014

LOAN VS DEPOSIT

Shital Kumar Vij,  Jalandhar vs Department Of Income Tax
Income Tax Appellate Tribunal - Amritsar
Income Tax Appellate Tribunal - Amritsar
Shital Kumar Vij, , Jalandhar vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P.JAIN, ACCOUNTANT MEMBER
I.T.A. No.406(Asr)/2009
Assessment year:2003-04
PAN :AAGPN8364C
Sh. Shital Kumar Vij, vs. Asstt. Commr. of Income-tax, Prop. M/s. Shital International, Range-II, Jalandhar. Jalandhar. (Appellant) (Respondent)
I.T.A. No.146(Asr)/2011
Assessment year:2003-04
PAN :AAGPN8364C
Dy. Commr. of Income-tax, vs. Sh. Shital Kumar Vij, Circle-II, Prop. M/s. Shital International, Jalandhar. Jalandhar. (Appellant) (Respondent)
Assessee by: S/Sh. Ashwani Kalia & C.K. Koul, CAs Respondent by:Sh. Tarsem Lal, DR
Date of hearing:11/09/2012 & 14/09/2012
Date of pronouncement:20/09/2012
ORDER
PER BENCH ;
The appeal of the assessee in ITA No.406(Asr)/2009 arises from the order of the Ld. CIT(A), Jalandhar, dated 16.07.2009 for the assessment year 2003-04. The Revenue has also filed appeal in ITA No.146(Asr)/2011 which
arises from the order of the ld. CIT(A), Jalandhar, dated 25.01.2011.
2. The assessee in ITA No. 406(Asr)/2009 has raised following groundsof appeal:
"1. That the Ld. CIT(A) has erred in rejecting application under rule 46A of the Income Tax Rules. It does not give rise to any new contention and only seeks to establish that provisions of section 2(22)(e) are not attracted in the case. The fact of enhanced limit by PNB is apparent from the file of the company M/s. Shital Fibres Ltd.
2.  That the Ld. CIT(A) erred in confirming the addition of Rs.1,39,45,384/- made by A.O. on account of deemed dividend.
3.  The Ld. CIT(A) has erred in not appreciating the difference between loan account and a mutual, open and current account especially when the assessee had lien over funds obtained by the company from P.N.B as overdraft. His credit balance in account in the books of the company M/s. Shital Fibres Ltd. was Rs.1,93,11,583/- as against Debit balance of Rs.1,39,45,384/- during the previous year.
4.  Any other ground that may be taken up at the time of hearing."
3. The Revenue in their appeal in ITA No.146(Asr)/2011 has raised following grounds of appeal for deleting the penalty by the ld. CIT(A) under section 271(1)(c) of the I.T.Act, 1961:
"1. That on the facts and in the circumstances of the case, the ld. CIT(A) has erred in law in deleting the penalty of Rs.43,92,796/- imposed by the AO u/s 271(1)(c) of the I.T.Act, 1961.
2.  That, it is prayed that the order of the ld. CIT(A) be set-aside and that of the A.O. restored.
3.  That the appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed of."
4.  First of all, we take up assessee's appeal in ITA No.406(Asr)/2009 as under:
The brief facts as arising from the order of the A.O. are reproduced
for the sake of clarity as under:
"The assessee is a director in M/s. Shital Fibre Ltd. As per reply dated 23-12-2005 filed on 17-01-2006 in the case of above company, it was stated that the assessee is holding a total of 1034400 shares of the above company out of total shares issued 1375000 i.e. he is holding 75.23% equity. As per Audit report filed, it was stated in Annexure'D' thereof that the assessee had accepated loan from the company during the year. The company is having substantial reserves and surplus out of profits. Accordingly, the assessee was required to show cause vide letter dated 07-02-2006 as to why loan taken from the above company should not be treated as deemed dividend as per definition u/s. 2(22)(e) of the IT Act, 1961.

The assessee has filed reply dated 16-03-2006 alongwith copy of a/c of the assessee in the books of M/s. Shital Fibre Ltd. It has been submitted that the firm is having running account with the above company and the transactions have been squared up at the close of the financial year. It was further submitted that the assessee did not receive any payment in the nature of loan or advance from the company and thus the provisions of section 2(22)(e) were not attracted.
The contention of the assessee has been examined. It is seen from the copy of account filed that the assessee has received various 4
amounts from the company starting from 02-04-2002 and there is a debit balance due to the company. The peak of such debit balance is reached on 11-06-2002 when the debit balance is at Rs. 1,52,06,934/-. It was held by the Apex Court in the case of Smt. Tarulata Shyam and Others Vs. Commissioner of Income-tax. West Bengal ( 108 ITR345) as under:
" when loan or advance made to shareholder are repaid before the end of the accounting year, whether the loan or advance could be treated as being dividend?. The Provision of S.2(6A)(e) of 1992 Act, would be attracted at the time of advance of loan being made to the shareholder except or the specific provision in s.12(IB) for the assessment year 1955-56, the legislature has deliberately not made the subsistence of the loan on the date of the prevision year a prerequisite for raising or applying the statutory provision. Therefore, even though the loan was not outstanding as of the year end, it should be treated as deemed dividend."
The above decision of the Apex Court is squarely applicable to the facts of the case. Irrespective of the fact whether the loan was squared up at the end of the year the provision of section 2(22)(e) of the IT Act, 1961 are attracted at the time of advance of loan being made to the share holder. Accordingly, the peak debit amount of Rs. 1,52,06,934/- advanced by the company, the assesee as on 11-06-2002 is liable to be treated as deemed dividend u/s. 2(22) ( e) of the I.T Act, 1961. From the details filed by the assessee, it is seen that the assessee is having a credit balance in another a/c with the company at Rs. 12,61,550/- as on beginning of the previous year which remained outstanding throughout the year. Therefore, the net advance from the company would come to Rs. 1,55,06,934 (-) Rs. 12,61,550/-+ Rs. 1,39,45,384/- and the same is treated as deemed Dividend u/s. 2 (22)(e) of the Income-tax Act, 1961 and is added to the income. The assessee is also treated to have concealed particulars of income-tax to this extend for which Penalty proceedings u/s 271(1)(c) of the I T Act, v1961 are being initiated separately."
5.  The Ld. CIT(A) after considering the written submissions of the assessee dated 17.11.2008 at pages 2 to 11 and thereafter the additional evidence and relying upon the decisions of various courts of law confirmed the action of the Assessing Officer.
6.  Before us, the ld. counsel for the assessee Mr. Ashwani Kalia, CA, at
the outset relied upon the submissions made before the ld. CIT(A), which for
the sake of clarity is reproduced as under:
" In this case, the A.O. has made an addition of Rs. 1,39,45,384 on account of deemed dividend u/s. 2(22)(e) of the Income Tax Act, 1961 ( in short "the Act") on the ground that assessee has received loans and advances of the aforesaid amounts from M/s. Shital Fibres Ltd. The a.O. as treated the said amount as deemed dividend within the meaning of section 2(22)(e) of the Act.
2. Section 2(22)(e) is a deeming provision which creates a legal fiction. In order to appreciate the scope of its applicability and the conditions which are required to be satisfied, it would be appropriate to reproduce hereunder the provision of this section. The section reads as under :
"Any payment by a company not being a company in which the public are substantially interested, of any sum (whether representing a part of the assets of the company or otherwise)made after the 31st day of may 1987 by way of advance or loan to a shareholder being a person who is beneficial owner of shares ( not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holdings not less than ten percent of the voting power or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest ( herein after in this cause referred to as the said concern) or any payment by any such company on behalf or for the individual benefit of any such shares holder to the extent to which the company in either case process accumulated profits."
A bare reading of this section shows that certain specified payments made by a company to a specified shareholder or to a concern in which such shareholder is a member or a partner and in which he has substantial interest or any payment by any by any such company on behalf or for the individual benefit of specified shareholder to the extend to which company possesses accumulated profit constitutes deemed dividend and as such liable to tax in the hands of such shareholder. This section provides:
i) That it applies to a closely held company and not to company in which public are substantially interested;
ii) That such company has made a payment by way of loan or advance to the shareholder or to certain concern in which the shareholder has s substantial interest;
iii) Or that the such company has made payment on behalf of such shareholder;
iv) Or that such company has made payment for the individual benefit of such share holder.
The aforesaid payments then be treated as deemed dividend in the hands of shareholder and can be taxed as such. However the scope of deemed dividend is restricted to payments to the extend of accumulated profits. The section would not apply in case the company does not have accumulated profits.
3. It is o doubt true that section 2(22)(e) of the Act is a deeming provision. It is a settled rule of interpretation
of a fiction that court/authority must ascertain for what purpose the fiction is created, and after ascertaining
the purpose, the court has to assume all facts which are incidental to the giving effect to that fiction. However,
it will not be given a wider meaning then 7
that it purports to do. Reliance in this regard is placed on the judgement of Hon'ble Allahabad High Court in the case of CED Vs. Krishan Kumari Devi 173 ITR 561. In the case of D.K.Jain Vs. State of Haryana (1995) suppl (1) SCC 349, the Hon'ble Supreme Court has held that a statutory fiction cannot be extended beyond the purpose. Similar view was taken by the apex court in the case of CIT Vs. C.P. Sarthy Mudaliar 83 ITR 170 and of kerela high Court and in the case of P.V. John 181 ITR 1. Thus, it clear that before the deeming provision of the Act is invoked, the purpose for enacting the section must be clear and borne in mind.
4. The companies to which section applies include inter-alia the companies in which the majority of the voting
power lies in the hands of grounds of persons other than the public. These companies are controlled by group
of persons. The decision whether the profits of the companies should be distributed as dividends or not rests
with such group of persons. The Legislature realised that though the money was available with the company
in the form of profit, yet those in control of the company intentionally refused to distribute the same as
dividend to shareholders. Instead, such group controlling the company adopted the device of advancing the
said accumulated profits by way of loan or advance to one of the shareholders. It was obvious that such
practice was resorted to one of the shareholders. It was obvious that such practice was resorted to with a view
to evade the tax on accumulated profits. The purpose of enacting section 2 (22)(e) was to correct this mischief.
As per deeming provision of this section, such payments s by a company to a shareholder constitutes deemed
dividend, which may not otherwise fall in the category of divided. In this context, reliance is placed on the 
judgment of Hon'ble apex court in the case of Navneet Lal Javeri Vs. K.K. Sec 56 ITR 207, where the purpose for inserting this section in the Act was duly explained.
5 In the present case it is true that M/s. Shital Fibres Ltd, is not a Public Ltd. Company and the assessee was holding shares of M/s. Shital Febres Ltd exceeding the limit prescribed in section 2 (22) (e) of the Act. It is also true that the transactions noted by the assessing officer appear in the name of M/s. Shital International which is a proprietary concern of the assessee. Therefore both were related concerns and apparently the conditions necessary for invoking the provisions of section 2 (22)(e) are satisfied so far these parameters are concerned. However for invoking he provisions of section 2(22)(e) of the Act, the Department is required to establish that payment made by a company to the share holder or to a concern in which he has a substantial interest fall into the nature and character of loans or advances as there is no allegation of the department that the company has made payments on behalf of the assessee for his individual benefit. Now the material question which requires to be decided in this case is whether the entries appearing in the account of Shital International in the books of account of the company are in the nature and character of loan or advances so as to fustify the invocation of section 2 (22)(e) of the Act. The assessing officer has nowhere explained as to how these entries were in the nature of loans. The A.O. has merely referred to the statutory audit report in form no. 3CD where the Auditors have indicated the amounts of deposits or loan from the company because there is only one column for the same. But it does not mean that these amounts were loans or advances in the legal sense. Generalised meaning cannot be given to loan or advances. Moreover, items (a) and (b) of column 24 in the statutory audit report in form no. 3CD refers to particulars of each loan or deposit from and to related concerns. This also includes items of deposits. The term 'deposit' has a difference meaning than the term 'loan'. Therefore it was not correct on the part of the assessing officer o make a casual reference to the audit report and jump to the conclusion that impugned transactions were in the nature of loans.
6. As stated earlier the term 'deposit' is different from the term 'loan'. It is relevant to point our that section 2 22)(e) is applicable only to loans or advances and not be deposits. The deeming provisions of this section cannot be stretched to cover transaction of 'deposits' as these are legally different from the transaction of loan and these have not been covered in the section The difference between the loans and advances was duly noted by the Hon'ble Delhi High Court I the case of Vaidyanath Plastics Industries (P) Ltd, Vs. K.L. Anand, Income Tax Officer 230 ITR 522 which was delivered in the context of provision of section 269T of the Act. Section 269T of the Act as it stood at the relevant time prohibited the repayment of deposits in cash exceeding the prescribed monetary limit. However, the section did not include repayment of loans in cash at the relevant time. The assessing officer considered the transaction of loans as transactions of deposits and proceeded against the assessee for holding that the assessee had violated the provisions of section 269 T of the Act. However, the Hon'ble Delhi High Court observed that the provision of section 269T were applicable only to 'deposits' and not to 'loan'. The court also observed that there is a distinction between a loan and deposit in a much as in the case of the former, it is ordinarily the duty of the debtor to seek out the creditor and to repay the money accordingly to the agreement and in the case of the latter it is generally the duty of depositor to go to the banker or the depositee as the case may be and make a demand for it. The court also noticed the difference between a 'loan' and 'deposit' under the Limitation Act. The court observed while articles 19 and 21 the Limitation Act provide for the period within which a suit for recovery of a loan can be filed, article 22 deals with the period of limitation for suits for recovery on account of a deposit. The Hon'ble High Court observed that 'loans' and 'deposits' being different in legal terms and by applying the strict rule of interpretation it could not be said that there was a violation of provisions of section 269T of the Act because the transactions of loans were not included in section 269T of the Act. In the present case also section 2(22)(e) which is deeming provision must receive a strict Interpretation. Since this section does not include the transactions of deposits, the same cannot be extended to cover transaction of deposits. There, the A.O. was not correct in summarily concluding that these were transactions of loans without actually demonstrating that these were so in the legal terms.
7. Now the question arises what is the meaning of a 'loan' and an ' advance'. Both these terms have distinct and separate meaning. The expression' advance' means something which is due to a person but which is paid to him ahead of time when it is due to be paid. This view was taken by the Hon'ble Madras High Court in the case of CIT.vs. k. Srinavasan 50 ITR788. In the dictionary of accounts by Eric L. Kohler (5th Edition ) the expression 'advance' was defined as payment of cash or the transfer of goods for which accounting must be rendered by the recipient at some later date. In the present case, no payment was due to be made by the company to the assessee. Therefore, payments made do not fall in the category of 'advances' so as to attract provision of section of section 2(22)(e) of the Act.
7.1 The expression 'loan' means a lending' delivery by one party to and receipt by another party of a sum of money upon agreement, express or implied, to reply with or without interest. For a loan there must be a lender, a borrower, a thing loaned for use as well as a contract between the parties of return of the thing loaned. A loan contracted no doubt creates as debt but there may be a debt without contracting a loan. In a loan the mind and intention of the two parties, the lender and the borrower must be ad idem. Now in the present case, the A.O. has not examined these aspects before coming to the conclusion that impugned transaction were in the nature and character of loans. Nowhere has he brought our the intent and mind of the parties. The mere fact that there was a running current account of the assessee in the book of a company does not mean that these were transaction of loans. Such inference is not automatic until it is so shown by the Revenue.
8. In order to appreciate the nature and character of transactions in this case, it is pertinent to mention the
background of these transactions. A copy of the account of the assessee in the books of the company is enclosed. It may be seen there from that the account between the assessee and the company is mutual, open and current in nature. The account opens with Rs. 100,000 on 02.04.2002. The debit balance goes on increasing till it reaches maximum of Rs. 1,52,06934 on 11.06.2002. It shows debit balance till 11.11.2002. Thereafter the same starts showing credit balance. The maximum debit balance is on 18.02.2003 of Rs. 1,93,11583. In simple words the payment made by the assessee to the company during the period from 11.11.2002 to 18.02.2003 far exceeded the payments received by the assessee during the period from 02.04.2002 to 11.06.2002. There are about 200 entries in his account which show that it is a running account for the mutual accommodation of the parties and not a loan account. It is not the case of the Department that there was a written or implied contract to bring these transactions between the purview of loans. On the other hand, the assessee any the company were parking their surplus funds with each other as 'deposits' for their mutual benefits.
9. It is also relevant to point out that in the year 1999, the company was badly in need of availing of higher credit limit from the bank. But the company had no properly to pledge with the bank as collateral security. At this stage in assessee came forward to pledge his own properties so that the company may avail of higher credit limit which was badly required by the company for the purpose of its business. To be specific assessee pledged the following properties:
1. Equitable mortgage of land and building measuring 8 k 8 marlas situated at Ram Nagar, Gaji Gulla, Jalandhar, in the name of Sh. Shital K. Vij.
2.  Equitable mortgage of land and building measuring 127.57 marlas situated at S-9, Industrial Area, Jalandhar, in the name of Sh. Shital K. Vij.
3.  Equitable mortgage of land and building situated at S-18 Industrial Area, Jalandhar, in the name of Sh. Shital K. Vij.
4. Equitable mortgage of land and building measuring 8 kanal 7 marla situated at Sanjay Gandhi Nagar, Industrial Area, Jalandhar, in the name of Sh. Shital K. Vij,
Against the pledge of above mentioned properties, the bank had advanced the following credit facilities:
Packing credit Rs. 75.00 lac
FOBP Rs. 100.00 lac
FOBNCL Need based (Within PBF) PBF Ceiling Rs. 1.60.000 lac
FLC(DP) Rs. 400.00 lac
The Certificate to this effect form Pumjab National Bank is enclosed as an additional evidence. Considering the fact such additional evidence is very vital which goes to the very root of this issue and in the interest of substantial justice he same may kindly be admitted as per provision of Rule 46 A.
Thus, it is clear that the company benefited more than assessee. However, while agreeing to pledge the above mentioned properties with the bank it was mutually agreed that both the company and the assessee would park their surplus funds with each other for their mutual benefit. With this understanding the company had parked its surplus funds as 'deposits' with the assessee during the lean period. It is relevant to mentioned the company is in the business of manufacture of mink blankets for which the demand is generally more in the winter season. The business in summer months is generally lean and, therefore, the surplus funds were deposited with the assessee during this lean season, these When the funds were needed by the company during the winter season, these were not only returned but also the assessee himself parked his surplus funds with the company. This is clear form the fat that as against the peak of debit balance of Rs. 1,52,06934 due from the assessee on 11.06.2002, 13
the peak of credit balance payable by the company to an assessee stood t Rsl 1,93,11853 as on 18.02.2003. In addition to the same here was a separate account in the name of assessee in the books of the company where company owed an amount of Rs. 12,61,550 throughout the year. Therefore, there was no intention of advancing any 'loan' to assessee out of accumulated profits. This only shown that these were not loans as alleged by the department but these were deposits in the mutual, open current account for the mutual benefit of each other. Therefore the provision of section 2(22)(e) are not attracted to this case.
10. Further, as discussed earlier, the account between the assessee and the company is mutual, open and current in nature. There are more than200 entries. Sometimes there is a debit balance and in the latter part there is huge credit balance. Therefore no part of running account could be treated as loan as the account is moving one and the balance reflected in that running account is momentary in nature and subject to frequent charges. In this regard attention is invited to the provision contained in schedule to Limitation Act, 1963 to explain the distinction provided by the statute between mutual, open, current account and loan account for the purpose of limitation. As per article 1 and 10 of schedule to Limitation Act, 1963, the limitation period prescribed in the case of mutual, open, current is there years from the close of the year in which the last item is admitted or proved as entered in the account whereas in the case of a loan the limitation period is three years from the date on which the loan is made. The distinction made by the Limitation Act is recognized by the courts to determine the exact nature of these transactions. Reliance in this regard is placed on the two judgments of Hon'ble Bombay High Court in the case of Durga Prasad Mandelia Vs. Registar of companies (1987) 61 companies cases479 and Pennwelt India Ltd. Vs. Registrar of Companies (1987)62 companies cases 112. Thus a running account maintained by two concerns even if they are related concerns does not fall within the purview of section 2(22)(e) of the Act as 14


entries therein are in the normal course of the business which cannot be treated as loans. Reliance in this regard is also placed on the decision of ITAT Bombay bench in the case of NH Securities Ltd. Vs. Deputy Commissioner of Income-tax (2007) 11SOT 302 where it was held that the law does not prohibit business transaction between related concerns and therefore payment made in the ordinary course of business cannot be treated as loans and advances for the purpose of section 2(22)(e) of the Act.
11. In the case of DCIT Vs. Lakra Bros (2004)106TTJ 205 ITAT Chandigarh bench has held that section 2(22)(e) cannot be extended to include even legitimate transaction carried out in the ordinary course of business where the international is neither to give loan nor an advance.
12. The Department has heavily relied on the solitary judgment of the Hon'ble Supreme Court in the case of Smt. Tarulata Shyam & others Vs. CIT 108 ITR 345 without appreciating the facts of that case and the issues raised therein. It is settled position of law that the judgement of the court takes it colour from the facts of the case and the issues raised therein. It is not correct to pick up an isolated world from the judgment and read as law laid down by the court. Reliance in this regard is based on the judgment of Hon'ble Supreme Court in the case of CIT Vs. Sum Engineering works 198 ITR 297. In the case of Smt. Tarulata Sham & others Vs. CIT the issue raised before he court was whether any payment by a company by way of advance or loan to a shareholder out of the accumulated profits is to be deemed as divided even if that advance or loan, was subsequently period in its entirely during the relevant previous year in which it was taken. In that case there was no dispute about the fact that the amount given by the company to the shareholder was in the nature of loan. Therefore, the court was not required to determine whether the transactions were in the nature and character of loans or not. The Hon'ble court held that such loan 15
would fall within the purview of section 2(22)(e) irrespective of the fact that such loan was returned before the close of the accounting year itself. In the present case the main controversy relates to the impugned transaction which is not in the nature of loans or advances. These are transactions in the mutual, running and current open account where surplus funds were kept as deposits for the mutual benefit of each other. Therefore the judgment relied upon by the revenue is not at all applicable to the facts of the present case.
13. further, without prejudice and independent of the view that impugned transaction were not in the nature of loans or advances, it is submitted that A.O. has erroneously made the addition by taken peak of the debits. This is not an addition of cash credit where addition could be made and worked out on peak basis. This is an addition under the deeming provision of section 2(22)(e) of the Act. The entire transaction appearing in the account needed to be examined in detail before coming conclusion that all transactions were in the nature of loans. Further, the A.O. was duty bounds to examine the subsequent transaction where the entire debit balance stood liquidated on 11.11.2002. Thereafter it was a credit balance payable to the assessee stood at staggering figure Rs. 1,93,11,583 ass on 18.02.2003. The company owed much higher amount to the shareholder then the vice versa. If the intention of the group of shareholder was to divert the accumulated profit to the assessee in the guise of loans, why would the assessee subsequently keep huge deposits with the company in the same accounting year. This only proves beyond doubt that transactions appearing in the mutual, open running account were in the nature of deposits and not loan and advances as alleged by the Department. This is not a case which would fall in the mischief for which deeming provision of section 2 (22)(e) were enacted.
14.   Thus. To sum up it is respectfully submitted that the impugned transactions in the mutual, open and current account are in the nature of deposit where surplus funds are parked by the parties for their mutual benefit. These are not loans and advances specified in section 2(22)(e) of the Act. Therefore section 2 (22)(e) of the Act is not applicable to the present case. The addition made by the A.O. is illegal, unwarranted and contrary to the provision of the Act. The same may kindly be deleted. "
15. He further argued that the additional evidence under Rule 46A of I.T. Rules, 1962 was withdrawn with a misconception that the certificate from PNB must have been filed with the return of income. Accordingly, he filed a fresh application dated 17.11.2008 for admitting the additional evidence which is the certificate from PNB. The Ld. CIT(A), however, observed on the fresh application that this document does not have the impact on the application u/s 2(22)(e) of the Act. The ld. counsel for the assessee, Mr. Ashwani Kalia, relied upon the decision of coordinate Bench of ITAT Chennai Bench 'A' in the case of ACIT vs.. Smt. G. Sreevidya in ITA No.1270(MDS) of 2011 dated 28.06.2012 reported in (2012) 24 Taxman .com 75 (Chennai) Trib., which is exactly on the identical issue in hand before the Bench in the case of the present assessee. The Ld. counsel for the assessee read the said decision of the coordinate Bench in the case of ACIT vs. Smt. G. Sreevidya (supra) and invited our attention to the explanation submitted before the ld. CIT(A) that the assessee did not receive any payment in the nature of loan or advance from the company. Thus, the provisions of section 2(22)(e) of the Act are not attracted. He invited our attention to para 9 being the explanation given before the ld. CIT(A) that the company M/s. Shital Fabrics Ltd. was badly in need of availing of higher credit limit from the bank and the company had no property to pledge with the bank as collateral security. At this stage, the assessee came forward to pledge his own properties so that company might avail of higher credit limit. The assessee pledged four properties mentioned in the explanation and the written submissions before the ld. CIT(A) mentioned hereinabove. There was a mutual agreement with the company that both the company and assessee would park their surplus funds with each other for their mutual benefit. With this understanding the company had parked its surplus funds as 'deposits' with the assessee during the loan period. The business in summer months is generally lean and therefore, the surplus funds were deposited with the assessee during this lean season. When the funds were needed by the company during the winter season, these were not only returned but also the assessee himself parked his surplus funds with the company. This is clear from the fact that as against the peak of debit balance of Rs.1,52,06,934/-due from the assessee on 11.06.2002, the peak of credit balance payable by the company to an assessee stood at Rs.1,93,11,853/- as on 18.02.2003. In addition to the same there was a separate account in the name of assessee in 18 the books of the company where the company owed an amount of Rs.12,61,550/- throughout the year. Therefore, there was no intention of advancing any 'loan' to assessee out of accumulated profits. 8. The Ld. counsel for the assessee, Mr. Ashwani Kalia, argued that the account between the assessee and the company is mutual, open and current in nature. Sometimes, there is a debit balance and in the latter part there is a huge credit balance and therefore, no part of running account could be treated as loan. He invited our attention to schedule of Limitation Act, 1963, in which as per article 1 and 9 of schedule to Limitation is different in case of mutual, open and current account as compared to the loan. The Ld. counsel for the assessee, relied upon the decision of the ITAT, Mumbai Bench in the case of N.H. Securities vs. Dy. CIT (2007) 11 SOT 302 where it has been held that the law does not prohibit business transactions between related concerns and therefore payments made in the ordinary course of business cannot be treated as loans and advances for the purposes of section 2(22)(e) of the Act. He further invited our attention to the decision of the ITAT, Chandigarh Bench in the case of DCIT vs. Lakra Bros (2004) 106 TTJ 205, in which it has been held that section 2(22)(e) cannot be extended to include even legitimate transactions carried out in the ordinary course of business where the intention is neither to give loan nor an advance.
9.The decisions relied upon by the AO and the ld. CIT(A) in the case of  Smt.  Tarulata Shyam & Others vs. CIT 108 ITR 345 cannot be made
applicable in the present case since the facts in that case are distinguishable
because the amount given by the company in the case of shareholders was in
the nature of loan and it was not in dispute. The dispute before the court in
the said case was whether any payment by a company by way of advance or
loan to a shareholder out of the accumulated profits is to be deemed as
dividend even if that advance or loan was subsequently repaid in its entirety
during the relevant previous year. But in the case of present assessee, the
transactions are in the form of deposits and not in the nature of loans or
advances. The transactions have been carried out in the ordinary course of
business as mentioned hereinabove.
10. The Ld. counsel also relied upon the decision of the Hon'ble Calcutta High Court, in the case of Pradip Kumar Malhotra vs. CIT 338 ITR 538 where any loan in return to advantage conferred by shareholder is not treated as deemed dividend u/s 2(22)(e) of the Act. The Ld. Counsel also relied upon the judgment of hon'ble Delhi High Court in the case of CIT vs. 20 Raj kumar (2009) 318 ITR 462 and in the case of Baidya Nath Plastic Industries (P) Ltd. vs. K.L. Anand ITO reported at 230 ITR 522.
11.   The Ld. DCIT(DR), Mr. Tarsem Lal, on the other hand, made the written submissions which are reproduced for the sake of clarity as under:
"It is submitted that the following facts were admitted by the learned counsel for the assessee during the course of last hearing i.e.

a) The assessee was holding around 75.52% (i.e. more than 10% as stipulated in the provisions of section 2(22)(e) of the Income Tax Act, 1961 of the shares of the Company. b) The company M/s. Shital Fibres Ltd. had substantial accumulated profits kept in reserves.
c)  The company M/s. Shital Fibres Ltd. is one in which public are not substantially interested i.e. it was a closely held company.
d)  Money has been paid by the company to the shareholder i.e. the assessee for the individual benefit of the assessee.
The only point which the assessee disputed is that the monies received by him were in the nature of deposits and not loan or advances. The submissions made by the ld. counsel made are as under:
a)  The assessee had received deposits from the company M/s. Shital Fibres Ltd.
b) The account with company M/s. Shital Fibres Ltd. was a running account or current account.
c)  The company had entered into an agreement with the assessee that in lieu of keeping his immovable properties as security with PBN and standing collateral security for the company, the company would deposit its surplus funds with him.
The submissions made are self contradictory and loudly proclaim that the assessee is having no worthwhile submission to make. The irrelevance of the submissions made is discussed hereunder:
The ld. counsel for the assessee has been harping mainly on the submission that the assessee had received deposits from the company. He was vehemently asserting that the payments received were in the nature of deposits and not loan. He merely asserted that the payments received from deposits but could not adduce any argument/evidence as to how the payments received should be accepted as deposits. The only submission made in support of this contention was by way of additional evidence in support of his contention that the company had entered into an agreement with him that in lieu of keeping his immovable properties as security with PBN and standing collateral security for the company. The company would deposits its surplus funds with him. This contention has been sought to be raised in ground No.1 of appeal. It is pertinent to mention here that the ld. counsel had adduced no argument or evidence in support of this contention and moreover the assessee had withdrawn the additional evidence before the AO which he had filed before the AO. This fact has been recorded at para 3.3.1 of the ld. CIT(A)'s order.
In view of the above, it is clear that the only basis of the assessee's claim that the payments received by the assessee were deposit is not existing on record and as such, this submission is not worth entertaining in the first place itself.
The other submission in support of this contention was that in Annexure D to the Audit Report for the assessment year 2003-04, what had been shown were deposits and not loan. The ld. counsel had invited the kind attention of the Hon'ble Bench to para 3 of the assessment order in this regard. He had asserted that in the said Annexure-D, both the words loan or deposit are mentioned and the AO picked up the word 'loan' and ignored the word 'deposit' when actually the said amount represented deposit. In this regard, it is submitted that when the assessee on the one hand claims that the monies were deposits and in the same breath it claims that the account of the assessee with company was a running account or current account, this clearly shows that the assessee has adopted a conflicting stance. The perusal of the account shows that the monies received by the assessee was for the free use of the assessee. Thus the assessee himself affirms when he claims that it was a running account and as and when money was needed, the same was raised by them for each other. This being so, it hardly leaves any room for the culmination of the fact that the monies received by the assessee were in the nature of loan and the assessee's case was covered by the provisions of section 2(22)(e) on all fours.
The judgments relied upon by the ld. counsel are also not relevant. The irrelevance of the judgments relied upon by the ld. counsel for the assessee is discussed as under:
CIT vs. Raj Kumar 318 ITR 462
The finding of the Hon'ble Tribunal in this case in appreciation of which the Hon'ble Delhi High Court passed the judgment was the money received by the assessee from CEI ltd. was in the nature of a trade advance. The ld. counsel for the assessee Sh. Ashwani Kalia never claimed in his submissions before the Hon'ble Bench that the monies received by Sh. Shital Vij was in the nature of trade advance. He had made two submissions mainly i.e. the monies received were in the nature of deposits and second it was a running or current account with the company. There was no claim of any business dealing with each other. Therefore, this judgment is clearly not relevant to the facts of the case and does not help the assessee in any way.
Baidya Nath Plastic Industries (P) Ltd. vs. K.L. Anand ITO reported at 230 ITR 522.
It may be stated that this judgment gives a lucid account of the terms 'deposit' and 'loan' and clearly show that the monies received by the assessee were in the nature of loan.
In this case, the contention of the assessee had been that it had raised loan and repayment was made in cash of the said loan. But the department had taken the stance that the repayment had been made of deposit. The Hon'ble High Court delved into the relative meaning of the term 'deposit' and 'loan' and on appreciating that the complainant i.e. the AO had himself written to the assessee in show cause notice dated 2nd March, 1987 that the said assessee had raised a loan from M/s. Summan Steel & Rolling Mills and made payment for the said 23
loan in the previous year relevant to the A.Y. 1984-85 in cash, had set aside the prosecution proceedings u/s 276E of the I.T. Act.
In view of the above, it is clear that the factual matrix of the case is not at par with the assessee. Nonetheless, as submitted above, in this judgment, the Hon'ble High Court had delved into the relative meaning of the terms 'deposit' and loan which is as under:
that a deposit is to be kept by the depositeee for the depositor and the loan is to be kept by the borrower for himself. Thus, I deposit my hat in the cloak room. My hat is not to be used by the depositee but is to be kept for me and returned to me on my demand' but I lend my money to a friend and he can do what he likes with it as long as he returns it to me either on demand or at some specified time.
In view of such a clarity of the terms 'deposit' and 'loan' it becomes clear that the monies received by the assessee were loan and not deposit as vehemently claimed the ld. counsel for the assessee. It is pertinent to mention here that when the assessee claims that it had a current account or running account with the company, it clearly shows that it was free to use the money in any manner it liked and was not to keep the money for the company as such, as a deposit. Thus, the essential ingredient of 'deposit' is not satisfied. Rather, it emphatically affirms that the monies given by the company was in the nature of loan as the assessee was free to use the monies received from the companies in the manner he liked. This is what is the true import of a running or current account.

In view of the above submissions, it becomes crystal clear that the assessee's submissions are totally irrelevant and it was copy book case where the provisions of section 2(22)(e) had direct applicability.
Last but not the least, it may be mentioned here that the assessee has stated in the ground No.1 of appeal as the company had been allowed enhanced limit by Punjab National Bank. It is strange that the assessee had raised this ground which required to be supported by additional evidence and what to speak of seeking the admission of any evidence, the assessee had chose to withdraw the 24
additional evidence before the AO himself. In this regard, the finding of the ld. CIT(A) at para 3.3.1 are quoted verbatim:
"The AO submitted that the assessee had not sought to adduce additional evidence which he had filed earlier also and the withdrawn. The AO submitted that the changing stands showed that the provisions of section 2(220(e0 were attracted in the case of appellant and support of additional evidence was an afterthought to hide the true facts of the case."
The assessee has relied upon the judgment of the Hon'ble Chennai Bench 'A" in the case report as ACIT vs. Smt. G. Sreevidya in ITA No.1270(MDS) of 2011 which is clearly not applicable as the assessee had furnished no evidence to prove that he had entered into an agreement with the company that he would give bank guarantee and also given collateral security for enhancing the limit of the company and the company in turn would also him liberty to withdraw funds form the company as and when required. Pressing this judgment and ground No.1 rather was completely off the tangent.
It is further submitted that the ld. CIT(A) has passed a well- reasoned order and it may further be mentioned that the judgment of the Hon'ble Supreme Court in the case of Smt. Tarulata Shyam & Ors vs. CIT reported at 108 ITR 345 clears all doubts about the applicability of the provisions of section 2(22)(e) in the facts and circumstances which are obtaining in this case. It had held that 'advance to shareholder during the relevant previous year by the company is chargeable as deemed dividend even though the loan does not remain outstanding as on last day of the previous year. If the assessee comes under the letter of law, he has to be taxed, however, great the hardship may appear to the judicial mind to be."
12. We have heard the rival contentions and perused the facts of the case. In the present case, the AO noticed that as per Audit Report in Col. No.24, the Auditors' had reported the particulars of loans or deposits. It is on the basis of the report by the Tax Auditors' in Form 3CD in Col.24, the AO had 25 initiated proceeding to give show cause notice dated 07.02.2006 as to why loan taken from the M/s. Shital Fibres Ltd. should not be treated as deemed dividend under section 2(22)(e) of the Act. The assessee submitted his reply dated 16.07.2006 that the firm is having running account with the said company and the said amount has not been received in the nature of loan or advance and therefore, the provisions of section 2(22)(e) of the Act were not attracted. The assessee submitted the explanation before the ld. CIT(A) dated 17.11.2008, which is available at pages 2 to 11 of ld. CIT(A)'s order, which for the sake of clarity has been reproduced hereinabove. There cannot be any dispute that in Col. No.24, the 'word' loan or deposit has been mentioned and not only the loan which is required to be reported by tax auditors'. Therefore, according to the tax auditors' the amount reported could be loan or deposit for which the assessee had submitted the reply, which was not found satisfactory by the A.O. Now the question before us is whether the said running account is in the character of loan or advance or deposit. The second question is whether the amount has been received by the assessee and given by the assessee to the said company during the ordinary course of business or as per some mutual agreement. There is no dispute to the fact and which has not been denied by any of the authorities below that 26 the assessee Sh. Shital Vij had pledged his properties to the bank for availing higher limits by M/s. Shital Fibres Ltd; which for the sake of clarity are reproduced in short as under :
i) Land and building measuring 8 k 8 marla at Ram Nagar, Jalandhar.
ii) Land and building measuring 127.57 marlas at Industrial Area, Jalandhar.
iii) Land and building at S-18 Industrial Area, Jalandhar.
iv) Land and building measuring 8 k 7 marlas situated at Sanjay Gandhi Nagar, Jalandhar.
All the properties are owned and registered in the name of Sh. Shital K. Vij, is a matter of record which has been explained before the Ld. CIT(A) and thee fact is available at pages 7 & 8 of CIT(A)'s order. Against the said pledge of above properties, the bank had advanced the following creditfacilities, which for the sake of clarity are reproduced as under:
i) Packing credit Rs.75 lacs
ii) FOBP Rs.100 lacs
iii) FOBNCL Need based (within PBF)
iv) PBF Ceiling Rs.160 lacs
v) FLC (DP) Rs.400 lacs 27
Even if the additional evidence in the form of bank certificate had not been admitted, the facts are on record of the Company which were before the authorities below. The said argument and the explanation of the assessee cannot be brushed aside by the ld. CIT(A) and cannot be commented upon or disposed of that such explanation does not make impact on the applicability of section 2(22)(e) of the Act, to the facts of the present case. There is no doubt that the Company in the present case has benefited more than the assessee. As per the mutual agreement both the company and the assessee would park their surplus funds with each other for their mutual benefit. With this understanding the company had parked its surplus funds as 'deposits' with the assessee during the lean period. This was explained by the ld. counsel for the assessee before the ld. CIT(A) as well as before us. Therefore, there was no intention of advancing any loan to the assessee out of accumulated profits by the company, M/s. Shital Fibres Ltd. The said amount in the open, current account was in the nature of deposit and not as a loan or advance by the company M/s. Shital Fibres Ltd. The distinction of loan, mutual, open and current account has been defined in the Limitation Act, 1963, argued by the ld. counsel for the assessee which is different in the case of loan as compared to the mutual, open and current account. Therefore, in the present case, the transactions are business transactions 28carried out in the ordinary course of business and cannot be treated as loans and advances.
12.1 The decision of Hon'ble Supreme Court in the case of Smt. Tarulata Shyam & Ors vs. CIT reported in 108 ITR 345, relied upon by the AO and the Ld. CIT(A) and the ld. DCIT(DR), Mr. Tarsem Lal is not applicable being distinguishable on facts since in that case the issue before the Hon'ble Court was that if the loans or advances were subsequently repaid in its entirety during the relevant previous year in which it was taken then provisions of section 2(22)(e) are attracted or not. In that case there was no dispute about the fact that the amount given by the company to the shareholder was in the nature of loan. Therefore, the Hon'ble court was not required to determine whether the transactions were in the nature and character of loans or not and held that such loan would fall within the purview of section 2(22)(e) of the Act, irrespective of the fact that such loan was returned before the close of the accounting year. Therefore, in that case, essentially it was established that it was a loan and not a deposit in the ordinary course of business.

12.2. The reliance is placed on the decision of Hon'ble Calcutta High Court, in the case of Pradip Kumar Malhota vs. CIT (supra) by the Ld. counsel for the assessee, applies to the present facts and circumstances of the 29 case. The Head Note of the said decision of Hon'ble Calcutta High Court, in the case of Pradip Kumar Malhota vs. CIT (supra), is reproduced for the sake of clarity as under:
"The phrase "by way of advance or loan" appearing in sub- clause (3) of section 2(22) of the Income-tax Act, 1961, must be construed to mean those advances or loans which a shareholder enjoys simply on account of being 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 participate in profits) holding not less than ten per cent of the voting power; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder.
The assessee had substantial shareholding in a private company. The assessee permitted his immovable property to be mortgaged to the bank for enabling the company to take the benefit of loan and in spite of request of the assessee the company was unable to release the property from mortgage. Consequently, the board of directors of the company passed interest-free deposit up to R.50 lakhs as and when required. During the previous year relevant to the assessment year 1999-2000, the assessee obtained from the company a sum of Rs.20,75,000 by way of security deposit. Out of the amount, a sum of Rs. 20 lakh was subsequently returned by the assessee to the company. In the assessment made for 1999-2000 the Assessing Officer added the sum of Rs.20,75,000 as deemed dividend. This was upheld by the Tribunal. On appeal to the High Court:
Held, allowing the appeal, that for retaining the benefit of loan availed of from the bank if decision was taken to give advance to the assessee such decision was not to give gratuitous advance to its shareholder but to protect the business interest of the company. The sum of Rs.20,75,000 could not be treated as deemed dividend." 30
12.3 The reliance is also placed on the decision of the Hon'ble Delhi High Court, in the case of C.I.T. vs. Raj Kumar, reported in 318 ITR 462, where the advances which are in the nature of money transacted to give effect to a
commercial transaction, would not fall within the ambit of the provisions of section 2(22)(e).

12.4. As mentioned hereinabove, the word 'deposit' is different from the word 'loan', has been decided by the Hon'ble Delhi High Court, in the case of Baidya Nath Plastic Industries (P.) Ltd. And Others vs. K.L. Anand,
Income Tax Officer (supra). The Head Notes of which are reproduced for the sake of clarity as under:
"In case two interpretations are possible, an interpretation which takes an assessee out of the clutches of a penal provision must be preferred.
A perusal of section 269T of the Income-tax Act, 196, makes it clear that the aggregate amount of deposits held by a company shall not be repaid to any person otherwise than by an account payee cheque or account payee bank draft where the amount of deposit, or where the amount of deposit is to be repaid together with any interest, the aggregate of the amount of deposit and such interest, is ten thousand rupees or above, after the Income-tax (Second Amendment) Act, 1981, received the assent of the President of India. The President of India assented to the Amendment Act on September 19,1981. The provisions of section 269T read with section 276E are penal in nature and must be strictly construed. Since the Legislature specifically used the word "deposit" in contradistinction to the term "loan", the provisions would only be attracted if the repayment has been made in respect of a deposit. The meaning of the word "deposit" occuringg in section 269T cannot be stretched to include a loan. The distinction between a loan and a deposit is that in the case of the former, it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement and in the case of the latter it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make a demand for it. While articles 19 and 21 of the Limitation Act fix the period within which a suit for recovery of the loan can be filed, article 22 deals with the period of limitation for suits for money on account of deposit."

12.5. The facts in the present case are identical to the facts in the case of Asstt. Commr. of Income-tax vs. Smt. G. Sreevidya, in ITA No.1270(MDS) of 2011 for the assessment year 2006-07, dated 28th June, 2012, where the amount withdrawn from the company by the assessee even for personal purposes has not been held to be deemed dividend. For the sake of clarity, the facts of the case are reproduced as under:
"The present appeal has been filed by the Revenue impugning the order of the CIT(A)-V,Chennai dated 06.04.2011.
2. The facts in brief of the case are that the assessee had filed return of income relevant to the A.Y. 2006-07
on 31.10.2006 declaring total income of Rs.6,78,056/-. The case of the assessee was selected for scrutiny and
notice u/s 143(2) and 142(1) were issued. The assessee is a Managing Director of M/s. Ravindra Services (P)
Ltd. (hereinafter referred to as RSPL) having substantial ownership of shareholding and 10% of voting power.
The assessee had taken a loan of Rs.17,65,517/- from RSPL which was subsequently repaid by the assessee.
The Assessing Officer treated the said amount as deemed dividend and made addition under the head "other
sources" invoking the provisions of section 2(22)(e) of the Act. Apart from the above, the AO made addition
of Rs.2,62,035/- towards the rent received from RSPL under the head 'Income from House Property'. Further,
an addition of Rs.1,20,718/- was made in the total income of the assessee as 'undisclosed income'. The
assessee preferred an appeal against the assessment order dated 10.02.2008. The CIT(A) allowed the appeal
of the assessee vide order dated 6.4.2011 deleting the additions under the provisions of section 2(22)(e) as well as additions made under other heads.
3.  The present appeal has been filed by the Revenue assailing order of the CIT(A) only on the ground that CIT(A) has erred in deleting the addition of Rs.17,65,517/- made by the A.O. as deemed dividend u/s 2(22)(e) of the Act.
4.  Mr. Shaji P. Jacaob, DR appearing on behalf of the Revenue vehemently opposed the order of the CIT(A). He submitted that the loan was granted by RSPL to the assessee who is having substantial interest in the company having more than 10% voting power. The amount advanced by the company to the assessee falls within the ambit of definition of 'deemed dividend' under section 2(22)(e) of the Act, as the company was having accumulated profits to that extent when the amount was advanced to the assessee. He further submitted that the repayment of loan amount as alleged by the assessee cannot be criteria to take out the said amount from the ambit of the provisions of section 2(22)(e) . He strongly contended that the CIT(A) has erred in relying on the following cases:
i) CIT vs. Creative Dyeing & Printing (P) Ltd [2009] 318 ITR 476 (Delhi)/184 Taxman 483 (Delhi).
ii) CIT vs. Ambassador Travels (P) Ltd. [2009] 318 ITR 376/[2008] 173 Taxman 407 (Delhi).
iii) CIT vs. Rajkumar [2009] 318 ITR 462/181 Taxman 155 (Delhi)
The DR submitted that case of the assessee is squarely covered by the judgment of the Hon'ble Supreme  Court of India in the case of Miss P.Sarda v. CIT [1998] 229 ITR 444/96 Taxman 11 as well as Smt. Tarulata Shyam vs. CIT [1977] 108 ITR 345 (SC). He further relied on the judgment of the Ho'ble Madras High Court in the case of CIT vs. P.K. Abubucker [2003] 259 ITR 507/[2009]135 Taxman 77 (Mad.)
5. On the other hand, Dr. Anita Sumanth, counsel appearing on behalf of the assessee submitted that the order passed by the CIT(A) is a well reasoned and detailed order.She submitted that the amount was advanced to the assessee as per her pre-condition of granting bank guarantee and a collateral security for finding of the company. The counsel submitted that the assessee had given personal guarantee and had given collateral security to facilitate availing of credit facility by the company. At the time of extending guarantee/security the assessee had sought liberty to withdraw funds from the company as and when amount from the company and had also repaid the amounts withdrawn periodically. Therefore, the transaction between the assessee and the company was purely out of business consideration. The counsel further contended that if the assessee would not have given bank guarantee and collateral security, the operations of the company would have come to a standstill. The counsel submitted that the amount was advanced by the company to the assessee purely on the terms of commercial expediency. In order to support her contentions the counsel relied on the judgment of the Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra v. CIT [2011] 338 ITR 538/203 Taxman 110/15 taxman.com 66 and the judgments of the Hon'ble Delhi High Court in the following cases :
i) Creative Dyeing & Printing (P) Ltd (supra) ii) Ambassador Travels (P) Ltd. (supra)
iii) Rajkumar (supra)
6. We have heard the submissions made by the respective parties and have gone through the documents on
record, orders of the lower authorities as well as the judgments referred to by the respective parties. The
provisions of section 2(22)(e) are reproduced herein below:-
"2(22)(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [made after the 31st day of May, 1987, by way of advance or loan to a shareholder, 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 participate 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 which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits. 
but 'dividend' does not include-(i) a distribution made in accordance with sub-clause (c) or sub-clause(d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; (ia) a distribution made in accordance with sub-clauseƂ© or sub- clause (d) in so far as such distribution is attributable to the capitalized profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964 ( and before the Ist day of April, 1965)
ii) any advance or loan made to a shareholder [ or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company;
iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub clause (e) to the extent to which it is so set off;
iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 ( 1 of 1956);
v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company)."
The definition laid down by section 2(22) is inclusive and not exhaustive. The following payments of distributions by a company to its shareholder are deemed as dividends to the extent of accumulated profits of the company although these payments may not be dividends under the provisions of Companies Act:
a) any distribution or release of company's assets; b) any distribution of debentures, debenture stock, deposit certificates and bonus to preference share-holders; 35
c)  distribution on liquidation of company;
d) distribution on reduction of capital.
e)  any payment by ay of loan or advances by a closely held company to a shareholder holding substantial interest provided the loan should not have been made in the ordinary course of business and money lending should not be a substantial part of the company's business.

7.  In order to attract the provisions of section 2(22)(e), the important consideration is that there should be loan/advance by a company to its shareholder. Every amount paid must make the company a creditor of the shareholder of that amount. At the same time, it is to be borne in mind that every payment by a company to its shareholders may not be loan/advance. In the present case, the amount was withdrawn by the assessee from the company only to meet her short term cash requirements. By virtue of offering personal guarantee and collateral security for the benefit of the company, the liquidity position of the assessee had gone down. In the strict sense if it is to be construed the amount forwarded by the company to the assessee was not in the shape of advances or loans. The arrangement between the assessee and the company was merely for the sake of convenience arising out of business expediency. In the facts and circumstances of the case, it is not appropriate to hold that the amount withdrawn by the assessee partake the character of deemed dividend under the provisions of section 2(22)(e) of the Act.
8.   The case of the assessee is squarely covered by the Division Bench judgment of the Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra (supra), wherein the facts were similar to the facts of company. The assessee permitted his immovable property to be mortgaged to the bank for enabling the company to take the benefit of loan. The Board of Directors of the company passed a resolution to obtain interest free deposit upto Rs.50 lakhs as and when requi8red. The assessee obtained from the company a sum of Rs.20,75,000/- by way of security deposit. Out of this amount, a sum of Rs.20 lakhs was returned by the assessee to the company. The AO added the sum of Rs.20,75,000/- as deemed dividend. The Hon'ble High Court while allowing the appeal of the assessee held that for retaining the benefit of loan availed of from the bank, if decision was taken to give advance to the assessee such decision was not to give gratuitous advance to its shareholder but to protect the business interest of the company. The sum of Rs.20,75,000/- could not be treated as deemed dividend. The Division Bench of the Hon'ble High Court followed the decision of the Hon'ble Delhi High Court in the case of Creative Dyeing & Printing (P) Ltd (supra). In the instant case also the assessee was allowed to withdraw funds from the company as per requirement for personal purposes against the personal guarantee and the collateral security given by her to facilitate her availing of credit facility of the company.
9. It is a well settled law that loan or advance given to a shareholder by a company in which public is not substantially interested and which had accumulated profits, the amount advanced as loan to such shareholder is deemed to be dividend as per the provisions of section 2(22)(e) of the Act. However, the facts and circumstances of each case have to be scrutinized before applying the ratio of the cases holding above well
settled law. In the facts and circumstances of the instant case, judgments relied upon by the DR in the cases of
Miss P. Sarada (supra), P.K. Abubucker (supra) and Smt. Tarulata Shyam (supra) are not applicable 
10. The CIT(A) vide order dated 6.4.2011 has rightly deleted the addition made on account of "deemed
dividend" by the Assessing Officer. We do not find any infirmity in the order passed by the CIT(A). In view
of the our aforesaid findings, the appeal of the Revenue fails and the same is dismissed being devoid of any
merit."
12.6 The Ld. DCIT(DR) has tried to distinguish the cases relied upon by the ld. counsel for the assessee, which in fact go in favour of the assessee and therefore, cannot help the revenue.
12.7 In the facts and circumstances of the case, the Ld. CIT(A) is not justified in confirming the action of the AO in treating the said deposits as deemed dividend under section 2(22)(e) of the Act. The AO is accordingly 37 directed to delete the addition. Thus, all the grounds of the assessee are allowed.

13. As regards the appeal of the Revenue in ITA No.146(Asr)/2011 for the assessment year 2003-04, the A.O. levied penalty under section 271(1)(c) of the Income Tax Act, 1961 @ 100% of the tax sought to be evaded by the assessee by order dated 28.05.2010. The said penalty has been deleted by the Ld. CIT(A), since the assessee was able to substantiate his contention that the money received from M/s. Shital Fibres Ltd. was in the nature of deposits and accordingly cancelled the penalty levied by the Assessing Officer. The Ld. CIT(A) relied upon the decisions of various courts of law.
14. We have heard the rival contentions and perused the facts of the case.
Since the additions in the present case have been deleted by us in quantum
appeal hereinabove in assessee's case in ITA No. 406(Asr)/2009 for the assessment year 2003-04 by our order of even date. Therefore, in the absence of any addition, no penalty under section 271(1)(c) of the Act, can be levied by the AO and the same deserves to be cancelled. The Ld. CIT(A) has deleted the penalty since the assessee had established that the money received from M/s. Shital Fibres Ltd. is in the nature of deposits and we do 38 not find any infirmity in the order of the Ld. CIT(A). Thus, all the grounds of the Revenue are dismissed.
15. In the result, the appeal of the assessee in ITA No.406(Asr)/2009 is allowed and the appeal of the Revenue in ITA No.146(Asr)/2011 is dismissed.
Order pronounced in the open court on 20th September, 2012. Sd/- Sd/-(H.S. SIDHU) (B.P. JAIN)
JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 20th September, 2012 /SKR/ Copy of the order forwarded to:
1.  The Assessee:M/s. Shital Kumar Vij Prop. M/s. Shital International, Jalandhar.
2.  The ACIT R-II/DCIT,Cir.II, Jalandhar.
3.  The CIT(A), Jalandhar.
4.  The CIT, Jalandhar.
5.  The SR DR, ITAT, Amritsar. True copy
By order
(Assistant Registrar)
Income Tax Appellate Tribunal,
Amritsar Bench: Amritsar.