2016 (2) TMI 497 - AT - Income Tax

Addition of 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 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 I.T. Act regarding deemed dividend.
2. Nature of the transaction between M/s. PPPL and Shri Chhatrapati Press.
3. Timing of the transaction and its impact on the assessment year.
4. Proportionate addition based on shareholding.

Issue-wise Analysis:

1. Applicability of Section 2(22)(e) of the I.T. Act:
The primary issue is whether the transaction between M/s. PPPL and Shri Chhatrapati Press qualifies as a deemed dividend under Section 2(22)(e) of the I.T. Act. The AO argued that the conditions for deemed dividend were met, including the payment by a company not substantially interested by the public, the payment to a person holding not less than 10% voting power, substantial interest in the concern receiving payment, and the presence of accumulated profits. The AO and CIT(A) both concluded that the transaction was an advance and thus taxable as deemed dividend.

2. Nature of the Transaction:
The assessee contended that the Rs. 2 crores received from M/s. PPPL was not a loan or advance but a reimbursement for printing labor charges, thus constituting a commercial transaction. The assessee cited various judicial precedents, including the Hon'ble Delhi High Court's decision in CIT Vs. Rajkumar, which held that advances for commercial transactions do not fall under the ambit of deemed dividends. The Tribunal found merit in this argument, noting that the Rs. 2 crores were adjusted against bills for printing labor charges and not refunded, thus qualifying as a commercial transaction.

3. Timing of the Transaction:
The assessee argued that since the cheques were encashed on 11-06-2008, the transaction should be considered for A.Y. 2009-10 and not A.Y. 2008-09. The AO and CIT(A) rejected this argument, stating that the transaction was recognized in the books on 31-03-2008. The Tribunal, however, did not find this argument compelling enough to alter the assessment year but focused more on the nature of the transaction.

4. Proportionate Addition Based on Shareholding:
The assessee argued that if the transaction were to be considered a deemed dividend, the addition should be proportionate to the shareholding in M/s. PPPL. The Tribunal did not delve deeply into this argument as it found the transaction to be a commercial one and thus outside the purview of Section 2(22)(e).

Conclusion:
The Tribunal concluded that the Rs. 2 crores received by Shri Chhatrapati Press from M/s. PPPL were part of a commercial transaction and not a loan or advance. This conclusion was supported by the continuous and substantial business transactions between the two entities and the adjustment of the amount against printing labor charges. Citing the Hon'ble Delhi High Court's decision in CIT Vs. Creative Dyeing and Printing Pvt. Ltd., the Tribunal directed the AO to delete the addition, thus allowing the appeal filed by the assessee.

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