2020 (4) TMI 555 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - Whether advances taken from the company takes the character of trade advances, hence, the provisions of deemed dividend u/s 2(22)(e) has no application in the assessee s case? - HELD THAT - We observe from the order of the AO that the assessee did not fail to furnish any information which was called for by the AO. Supply is more or less equal to the advances received by the assessee from the company - within the short span of time of receiving the advances, the assessee had supplied the chillies after procurement from M/s Religare Commodities Ltd. Though the Circular was dated 12.06.2017, the Board has clarified that the issue has attained finality and the commercial transactions would not fall within the ambit of sec.2(22)(e) of the Act. - CIT(A) rightly deleted the addition. However, matter remitted back to the file of the AO for limited purpose of verification of genuineness of transactions submitted in the paper book with regard to sales made to the company. If the sales are supported by the books of accounts of the assessee as well as the company the transactions would not treated as deemed dividend and covered by the circular cited. Appeal of the Revenue is allowed for statistical purposes.

Summary

Issues:
Deletion of addition made under section 2(22)(e) of the Income Tax Act, 1961.

Analysis:
The appeal involved the deletion of an addition made by the Assessing Officer under section 2(22)(e) of the Income Tax Act, 1961. The Assessing Officer found that the assessee received advances from a company and used the funds for personal business purposes. The assessee contended that the advances were trade advances and not deemed dividends. The Commissioner of Income Tax (Appeal) agreed with the assessee, citing various decisions in favor. The revenue appealed to the Tribunal, arguing that the advances should be treated as deemed dividends. The Tribunal considered the arguments from both sides and examined the transactions in detail. It noted that the advances were used for commercial transactions and were covered by a circular issued by the CBDT. The Tribunal held that the Commissioner was correct in deleting the addition. However, due to discrepancies in information available to the Assessing Officer, the Tribunal remitted the matter back for verification of the transactions. The appeal of the revenue was allowed for statistical purposes.

The Tribunal's decision was based on the nature of the transactions and the applicability of the circular issued by the CBDT. The Tribunal emphasized the commercial nature of the transactions and cited relevant case laws to support its decision. Despite upholding the deletion of the addition, the Tribunal remitted the matter back to the Assessing Officer for further verification, considering the discrepancies in the information available during the assessment. The cross objections filed by the assessee were also allowed for statistical purposes. Overall, the appeal of the revenue and the cross objections of the assessee were allowed for statistical purposes, and the Tribunal's order was pronounced on 7th February, 2020.