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2014 (11) TMI 1222 - AT - Income TaxDeemed dividend u/s.2(22)(e) - assessee was in receipt of the amount from M/s JMD Marketing Pvt. Ltd. as loan - HELD THAT - We found that similar issue has been considered by the Hon ble Punjab and Haryana High Court in the case of Shri Suraj Dev Dada 2014 (5) TMI 625 - PUNJAB HARYANA HIGH COURT wherein it was held that assessee having running account with the company, the provisions of Section 2(22)(e) were not attracted as this provisions was inserted to stop the misuse by the assessee by taking the funds out of the company by way of loans advances instead of dividends and thereby avoid tax. Applying the proposition of law as discussed above to the facts of the present case, we found that assessee was having debit balance only for 17 days out of 365 days. On all other dates, assessee was having credit balance and peak of such credit. It is also a matter of record that assessee has not charged any interest in respect of temporary advance given to the company. Accordingly, we do not find any merit in the action of the lower authorities for bringing such transaction in the net of the Section 2(22)(e) of the Act. - Appeal filed by the assessee is allowed.
Issues Involved:
Appeal against addition made u/s.2(22)(e) of the Act for assessment year 2009-10. Detailed Analysis: Issue 1: Addition u/s.2(22)(e) of the Act The appeal was filed by the assessee against the order of CIT(A) regarding an addition made u/s.2(22)(e) of the Income Tax Act, amounting to Rs. 9,50,000. The AO had observed that the assessee received this amount from a company as a loan, resulting in a deemed dividend under the said provision. Issue 2: Contention of the Assessee The assessee contended that the transactions were in the nature of temporary advances through a current account with the company. The assessee had given money to the company on most occasions, resulting in credit balances, with only a few instances of debit balances. The peak debit balance was Rs. 9,50,000, which was the amount added by the AO. Issue 3: Legal Precedents The assessee relied on decisions from different Tribunal benches to support the contention that the transactions were temporary advances and not loans or dividends under Section 2(22)(e). The decisions highlighted similar facts where temporary advances were returned within a short period, leading to the conclusion that such transactions did not fall under the purview of deemed dividends. Issue 4: Judicial Interpretation The Hon'ble Punjab and Haryana High Court's decision in a relevant case emphasized that having a running account with a company did not attract Section 2(22)(e) if the transactions were not aimed at misusing funds to avoid tax liabilities. This interpretation provided a legal basis for assessing whether the provisions of the Act applied in the present case. Issue 5: Tribunal's Decision After considering the legal propositions and applying them to the facts of the case, the Tribunal noted that the assessee had a debit balance for only 17 days out of 365 days. The majority of the time, the assessee maintained credit balances, with a peak credit of Rs. 8,49,700. Additionally, no interest was charged on the temporary advances given to the company. Consequently, the Tribunal found no merit in including the transactions under Section 2(22)(e) and allowed the appeal filed by the assessee. In conclusion, the Tribunal's decision favored the assessee, emphasizing the temporary nature of the advances and the absence of interest charges, which led to the allowance of the appeal against the addition made under Section 2(22)(e) of the Income Tax Act for the assessment year 2009-10.
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