2016 (10) TMI 1126 - AT - Income Tax

Deemed dividend addition u/s. 2(22)(e) - assessee company had 22.3% share capital of SDBPL and had also availed loan along with several financial transaction with the said company during the year - CIT-A deleted the addition - Held that - Findings of CIT(A) shows that he has followed the findings given in A.Y. 2006-07 wherein the First Appellate Authority has followed the decision taken in the case of SDBPL the appeal of SDBPL travelled up to the Hon ble Jurisdictional High Court of Gujarat wherein held that as looking to large number of adjustment entries in the accounts between two entities the amounts were not in the nature of loan or deposit but merely adjustments application of section 2(22)(e) of the Act would not arise. - Decided in favour of assessee.

Summary

Issues:
- Appeal by Revenue against deletion of addition u/s. 2(22)(e) of the Act in A.Ys. 2003-04 & 2004-05.
- Common grievance of revenue in both appeals.
- Claim by assessee that transactions with SDBPL are business transactions.
- CIT(A) decision based on previous rulings.
- High Court ruling on similar matter.

Analysis:
1. The case involved two appeals by the Revenue against orders of the Ld. CIT(A)-6, Ahmedabad for A.Ys. 2003-04 & 2004-05 regarding the deletion of additions u/s. 2(22)(e) of the Act. The appeals were heard together due to a common grievance with different quantum.

2. The Revenue contended that the assessee company had a substantial interest in SDBPL, holding 22.3% share capital and engaging in financial transactions with the company. The AO added amounts under section 2(22)(e) of the Act for both assessment years.

3. The assessee argued before the CIT(A) that transactions with SDBPL were in the ordinary course of business. The CIT(A) noted that a similar issue was decided in favor of the assessee for A.Y. 2006-07, and the transactions were not deemed dividends.

4. The CIT(A) found that the transactions were not in the nature of loans or advances but were adjustments, following the decision in the case of SDBPL. The High Court upheld this view, emphasizing the factual nature of the transactions and the absence of loans or deposits.

5. Based on the CIT(A) findings and the High Court ruling, the ITAT upheld the decision, dismissing the Revenue's appeals. The ITAT concluded that the transactions were not loans or advances as per section 2(22)(e) of the Act, and therefore, the additions made by the AO were not justified.

6. The ITAT's decision was in line with the CIT(A) and High Court rulings, emphasizing the factual nature of the transactions and the absence of loans or deposits, leading to the dismissal of the Revenue's appeals in both cases.