2013 (10) TMI 1389 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - Held that - Assessing Officer neither in course of the assessment proceeding nor in his remand report has brought any materials to establish the fact that the amount received was not in regular course of trade but in the nature of loan and advance as envisaged u/s 2(22)(e) of the Act.

Summary

Issues Involved:
1. Deletion of addition made by the Assessing Officer by treating the amount received as deemed dividend under Section 2(22)(e) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition as Deemed Dividend:
The primary issue in this appeal is the deletion of the addition made by the Assessing Officer (AO) by treating the amount received as deemed dividend under Section 2(22)(e) of the Income Tax Act. The facts of the case reveal that the assessee, a Private Ltd. company, was engaged in marketing and sales promotion and had received advances from M/s Ushodaya Enterprises Ltd. These advances were later adjusted against bills for services rendered. The AO observed that the assessee was providing services to Ushodaya Enterprises Ltd., and since Ch. Ramoji Rao (HUF) held 90% shares in both companies, the AO treated the excess advances as deemed dividend under Section 2(22)(e) of the Act. Despite the assessee's contention that these advances were trade credits, the AO treated Rs. 3,32,25,964 as income for the assessment year.

CIT(A)'s Decision:
The assessee appealed against the AO's order before the CIT(A), who ruled in favor of the assessee. The CIT(A) held that the addition could not be made as the assessee was not a shareholder of M/s Ushodaya Enterprises Ltd. Furthermore, the advances were part of a running account for commercial trade and did not fall under the purview of deemed dividend as per Section 2(22)(e) of the Act. Consequently, the CIT(A) deleted the addition made by the AO.

Revenue's Appeal:
The Revenue appealed against the CIT(A)'s decision. The learned counsel for the assessee argued that the issue was covered by the decisions of the ITAT, Hyderabad in the assessee's own case for previous assessment years (2005-06 to 2008-09). The learned DR did not provide any contrary decisions.

ITAT's Analysis:
Upon review, the ITAT found that the issue had been previously adjudicated in favor of the assessee. The ITAT noted that the assessee was not a shareholder of Ushodaya Enterprises Ltd., and as such, the provisions of Section 2(22)(e) could not be applied. The ITAT referenced the Delhi High Court's decision in CIT Vs. Ankitech P. Ltd. and other similar cases, which clarified that deemed dividend provisions apply to shareholders and not to non-shareholder entities receiving advances.

Conclusion:
The ITAT upheld the CIT(A)'s decision, reiterating that the advances received by the assessee were in the regular course of trade and not in the nature of loans or advances as envisaged under Section 2(22)(e) of the Act. The ITAT dismissed the Revenue's appeal, confirming that the amounts received by the assessee from Ushodaya Enterprises Ltd. did not qualify as deemed dividend.

Final Judgment:
The appeal filed by the Revenue was dismissed, and the order of the CIT(A) deleting the addition made by the AO was upheld. The ITAT pronounced this judgment in the open court on 08-10-2013.