2012 (2) TMI 526 - HC - Income Tax

Deemed dividend addition - payments for business exigencies/purposes - loans and advances - Held that - The assessee has filed the copy of agreements and memorandum of undertaking executed by the parties and other connected papers beside order of the party for the relevant assessment year also filed. The assessee has also explained the business exigencies under which such amount were paid. The assessee has in support relied upon the decisions in the case of Smt. Nigam Chawala (2009 (1) TMI 534 - HIGH COURT OF DELHI) Bombay Oil Industries Ltd. (2009 (1) TMI 519 - ITAT MUMBAI ). The Assessing Officer did not dispute or contest the said contention of the respondent-assessee in the first appellate proceeding in the said remand report. In view of the aforesaid we do not find any merit in the present appeal and the same are dismissed - Decided against revenue

Summary

Issues:
1. Applicability of Section 2(22)(e) to payments made by the respondent-assessee.
2. Failure to deduct tax at source on loans/advances.
3. Acceptance of stand by CIT (Appeals) regarding applicability of Section 2(22)(e) to certain payments.
4. Dismissal of appeal by Revenue challenging the CIT (Appeals) decision.
5. Payments made to Alimuddin and M/s. Goldman Malls Pvt. Ltd. for business exigencies/purposes.

Analysis:

1. The Assessing Officer held that Section 2(22)(e) applied to payments made during assessment years 2005-06 and 2007-08. The respondent-assessee failed to deduct tax at source on these payments, leading to orders under Section 201/201(1A).

2. The CIT (Appeals) accepted the respondent-assessee's position that certain entities were not shareholders, thus Section 2(22)(e) did not apply to them. However, payments to Alimuddin and Goldman Malls Pvt. Ltd., who were shareholders, were deemed for business exigencies/purposes, exempting them from Section 2(22)(e).

3. The Revenue's appeal against the CIT (Appeals) decision was dismissed. The Tribunal affirmed that since M/s. ALM Infotech City (P) Ltd. and International Land Developers Ltd. were not shareholders of the respondent-assessee, Section 2(22)(e) did not apply. Similarly, payments to M/s. ILD Trade Centres were for legitimate purposes.

4. The Tribunal upheld the decisions based on precedents like CIT v. Ankitech Pvt. Ltd., emphasizing that common shareholders between entities preclude invoking Section 2(22)(e) as dividends are paid to shareholders, not to the entities involved.

5. The Assessing Officer's remand report supported the respondent-assessee's explanations for payments made to Alimuddin and M/s. Goldman Malls Pvt. Ltd., citing business exigencies. The Tribunal and CIT (Appeals) concurred that these payments were not loans/advances but for business purposes, aligning with precedents like CIT v. Ambassador Travels (P) Ltd. and CIT v. Creative Dyeing and Printing (P) Ltd.

In conclusion, the Tribunal's decision was upheld as the payments in question were found to be for business purposes exempt from Section 2(22)(e). The remand report and legal precedents supported the respondent-assessee's explanations, leading to the dismissal of the Revenue's appeal.