2016 (12) TMI 1846 - AT - Income Tax

Addition u/s. 2(22)(e) - assessee was the major share holder/director of the company and also had entered into financial transaction with Kadam Exports (P) Ltd - non deduction of TDS - ITAT cancelling the order passed u/s 201(1) and 201(A) - HELD THAT - As decided in SCHUTZ DISHMAN BIO-TECH PVT. LTD. 2016 (1) TMI 84 - GUJARAT HIGH COURT Commissioner as a matter of fact found that the payments were not in the nature of current adjustment. There was movement of fund both ways on need basis. The transactions in the nature of loans and advances are usually very few in number whereas in the present case, such transactions are in the form of current accommodation adjustment entries. Commissioner therefore, held that the transactions were not in the nature of loans and advances. The Revenue carried the matter in appeal. The Tribunal concurred with the view of the CIT (Appeals) and held that the amounts were not in the nature of Inter Corporate Deposits and were therefore, not to be treated as loans or advances as contemplated in section 2(22)(e) of the Act. The issue is substantially one of appreciation of facts. When the CIT(Appeals) as well as Tribunal concurrently held that 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 against revenue

Summary

Issues:
1. Deletion of addition under section 2(22)(e) of the Act.
2. Interpretation of mutual, open, and current accommodation adjustment account.

Analysis:
1. The appeal by the Revenue challenged the deletion of an addition of ?45,00,000 made under section 2(22)(e) of the Act by the ld. CIT(A). The Revenue contended that the assessee had received funds from a company in a manner attracting the provisions of deemed dividend. The A.O. believed that the provisions of section 2(22)(e) were applicable due to the financial transactions between the assessee and the company. The ld. CIT(A) considered the arguments presented by the assessee, emphasizing the nature of the transactions as mutual, open, and current accommodation adjustment account rather than loans and advances. The ld. CIT(A) referred to similar cases where such accounts were not treated as deemed dividends, ultimately deleting the addition.

2. The crux of the matter revolved around the interpretation of a mutual, open, and current accommodation adjustment account. The ld. CIT(A) analyzed the ledger account provided by the assessee, showing multiple debit and credit transactions between the assessee and the company. The ld. CIT(A) compared this account with precedents and highlighted that in cases where such accounts were maintained, the provisions of section 2(22)(e) were not applicable. The ld. CIT(A) referenced the decision of the Hon'ble Jurisdictional High Court, which emphasized that transactions in the form of current accommodation adjustments did not fall under the purview of deemed dividends. The Tribunal concurred with this interpretation, dismissing the Revenue's appeal and upholding the deletion of the addition.

3. The Tribunal's decision was based on the factual analysis of the account transactions and the legal interpretation of the nature of the financial dealings between the assessee and the company. By aligning with the findings of the Hon'ble Jurisdictional High Court and considering the absence of loans and advances in the transactions, the Tribunal upheld the deletion of the addition under section 2(22)(e) of the Act. The Tribunal differentiated the case at hand from previous decisions cited by the Revenue, emphasizing the unique nature of the mutual, open, and current accommodation adjustment account in question. Ultimately, the Tribunal's decision rested on the application of legal principles to the specific facts of the case, resulting in the dismissal of the Revenue's appeal.