2015 (1) TMI 1256 - AT - Income Tax

Deemed dividend u/s.2(22)(e) - Held that - Since there is continuous and substantial business transaction between PPPL and Shri Chhatrapati Press and considering the fact that the amount of 2 crores has been adjusted against the bills for printing labour charges therefore in view of the decision of the Hon ble Delhi High Court in the case of Creative Dyeing and Printing Pvt. Ltd. cited (2009 (9) TMI 43 - DELHI HIGH COURT ) the amount of 2 crores cannot be taxed u/s.2(22)(e) of the I.T. Act. In this view of the matter we set aside the order of the CIT(A) and direct the AO to delete the addition - Decided in favour of assessee

Issues Involved:
1. Applicability of Section 2(22)(e) of the Income Tax Act regarding deemed dividend.
2. Nature of the transaction between M/s. Pudhari Publications Pvt. Ltd. (PPPL) and Shri Chhatrapati Press.
3. Timing of the transaction and its relevance to the assessment year.
4. Proportionate addition based on shareholding.

Issue-wise Detailed Analysis:

1. Applicability of Section 2(22)(e) of the Income Tax Act regarding deemed dividend:
The primary issue revolves around whether the sum of Rs. 2 crores transferred from PPPL to Shri Chhatrapati Press qualifies as deemed dividend under Section 2(22)(e) of the Income Tax Act. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] concluded that the conditions for Section 2(22)(e) were satisfied, as PPPL is a private company, the assessee holds substantial shares in PPPL, and the payment was classified as an advance. However, the assessee argued that the transaction was a commercial one, intended to reimburse labor charges for printing newspapers, and thus should not be treated as deemed dividend. The Tribunal found merit in the assessee's argument, citing that the transaction was a business transaction and not a loan or advance as per the legislative intent behind Section 2(22)(e).

2. Nature of the transaction between M/s. Pudhari Publications Pvt. Ltd. (PPPL) and Shri Chhatrapati Press:
The assessee contended that the Rs. 2 crores transferred was to reimburse labor charges and was adjusted against bills raised for printing labor charges, thus constituting a commercial transaction. The Tribunal referred to several judicial precedents, including the Delhi High Court's decision in CIT Vs. Creative Dyeing and Printing Pvt. Ltd., which held that advances for business purposes do not fall under the ambit of deemed dividend. The Tribunal concluded that since the amount was adjusted against labor charges and not returned, it was indeed a commercial transaction.

3. Timing of the transaction and its relevance to the assessment year:
The assessee argued that the cheques were encashed on 11-06-2008, making the transaction relevant to Assessment Year (AY) 2009-10 rather than AY 2008-09. The AO and CIT(A) rejected this argument, stating that the transactions were recognized in the books on 31-03-2008. However, the Tribunal did not find it necessary to delve into this issue deeply, as it concluded that the transaction itself did not qualify as deemed dividend under Section 2(22)(e).

4. Proportionate addition based on shareholding:
The assessee's alternate contention was that if the transaction were to be considered under Section 2(22)(e), the addition should be proportionate to the assessee's shareholding in PPPL. The Tribunal acknowledged this argument but did not need to apply it, as it had already decided that the transaction was a commercial one and not subject to Section 2(22)(e).

Conclusion:
The Tribunal concluded that the Rs. 2 crores transferred from PPPL to Shri Chhatrapati Press was a commercial transaction, adjusted against labor charges, and thus not a deemed dividend under Section 2(22)(e). Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of Rs. 2 crores in the assessee's income. The appeal filed by the assessee was allowed.

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