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2018 (7) TMI 1545 - AT - Income TaxDeemed dividend addition u/s. 2(22)(e) - Held that - The claim of the assessee is that the transaction entered into by the two Companies are the business transactions. It is stated that both the parties are engaged in similar trade and activities and the above amount was given as advance against business transaction. The above facts were also confirmed by the Audited Accounts by the parties and M/s Northern Strips Pvt. Ltd. is also providing goods transport services to M/s Super Plastic Coats Ltd. AO did not controvert the above submissions of the assessee by making the further enquiry. He has merely rejected the above claim of the assessee without further adducing any evidence. The CBDT in its Circular No. 19 of 2017 has clarified that trade and commercial transactions are not covered in the definition of loans and advances on which provision of Section 2(22)(e) of the Act can be applied. Following in the case of CIT vs. Pravin Bhimsi Chheda (2011 (5) TMI 857 - ITAT MUMBAI) and in view of the CBDT s Circular (Supra) we are of the view that Ld. CIT(A) has dealt with the issue correctly - Decided against revenue
Issues Involved:
1. Legality of the CIT(A)'s order. 2. Deletion of addition of ?1,03,00,000/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. Detailed Analysis: 1. Legality of the CIT(A)'s Order: The Revenue challenged the correctness of the CIT(A)'s order dated 01.09.2014, which pertained to the assessment year 2010-11. The CIT(A) had deleted an addition made by the AO, who had included ?1,03,00,000/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. 2. Deletion of Addition as Deemed Dividend: The AO reassessed the assessee's income at ?1,10,19,412/- after making an addition of ?1,03,00,000/- as deemed dividend under Section 2(22)(e). The CIT(A) deleted this addition on the grounds that the amount was advanced for business purposes, thus constituting a commercial transaction not covered by the definition of deemed dividend under Section 2(22)(e). Arguments by Revenue: The Revenue cited several judicial precedents to support the inclusion of the amount as deemed dividend: - Miss P. Sarada Vs CIT: The Supreme Court held that advances made by a company to an assessee would be treated as deemed dividends on the dates when withdrawals were allowed. - Gopal And Sons (HUF) Vs CIT: The Supreme Court ruled that advances/loans received by HUF are taxable as deemed dividend if the Karta-shareholder has a substantial interest in the HUF. - CIT Vs Mukundrav K. Shah: The Supreme Court upheld the addition under Section 2(22)(e) when firms were used as conduits by the assessee. - Other Cases: Various other cases were cited to argue that advances or loans given to shareholders should be treated as deemed dividends. Arguments by Assessee: The assessee contended that the amounts were advanced for business purposes and hence were commercial transactions. The CIT(A) accepted this explanation, noting that: - The transactions were advances against material and not loans. - The transactions were confirmed by statutory auditors. - The CBDT Circular No. 19/2017 clarified that trade advances in the nature of commercial transactions do not fall within the ambit of deemed dividend under Section 2(22)(e). Tribunal's Findings: The Tribunal upheld the CIT(A)'s decision, emphasizing the following points: - The transactions between M/s Northern Strips Pvt. Ltd. and M/s Super Plastic Coats Ltd. and between M/s Northern Strips Pvt. Ltd. and M/s Allied Poles India Ltd. were business transactions. - The amounts were squared up on the same date, indicating that they were not loans or advances. - The CBDT Circular No. 19/2017 supported the assessee's claim that commercial transactions are not covered under Section 2(22)(e). - The Tribunal distinguished the present case from the precedents cited by the Revenue, noting that those cases involved different factual scenarios. Conclusion: The Tribunal concluded that the CIT(A) had correctly deleted the addition of ?1,03,00,000/- as deemed dividend under Section 2(22)(e), as the transactions in question were commercial in nature. The Revenue's appeal was dismissed.
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