2020 (4) TMI 820 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - assessee is having substantial interest in M/s. Kasani Hotels and Resorts Pvt Ltd., by holding more than 20% shares or not? - HELD THAT - Apparently, the business transaction is only between the assessee and his family members with M/s.Amsri group of concerns. In this situation, the explanation presented by the assessee cannot be simply brushed aside. If the assessee has withdrawn the amount from M/s. Kasani group of Companies which was received from Amsri Group of business entities due to the business transaction between the assessee and his family members with Amsri Group of business entities then it cannot be said that M/s. Kasani group of Companies has extended loan to the assessee. There is nothing on record to suggest that there is any business relationship between M/s. Amsri Group of entities and M/s. Kasani Group of Companies other than the business transaction between M/s. Amsri group of companies with the assessee and his family members. Hence it is obvious that M/s. Kasani Group of Companies had been only used as a conduit by M/s. Amsri Group of companies to deliver the money to the assessee and his family. In such situation, the financial transaction between the M/s. Kasani Hotels and Resorts Pvt Ltd., and the assessee cannot be treated as loan transaction. Therefore, the provisions of section 2(22)(e) of the Act shall have no application in the case of the assessee. - Decided in favour of assessee.

Summary

Issues:
Appeal against addition under section 2(22)(e) of the Act.

Analysis:
The appeal was filed against the order of the Ld. CIT (A) upholding the addition made by the Ld. AO under section 2(22)(e) of the Act amounting to ?5,71,38,687. The case revolved around the assessee, a Director in a company, who received funds from another company in which he had substantial interest. The Ld. AO contended that the provisions of section 2(22)(e) applied as the assessee had not provided necessary information on the funds received. The Ld. CIT (A) upheld this decision due to lack of evidence showing the funds were related to a specific business transaction. The assessee argued that the funds were actually due to him from a separate business arrangement, and the companies involved acted as intermediaries. The Tribunal reviewed the documents submitted and found that the funds were part of a business transaction between the assessee's family and another group of entities, not a loan from the company to the assessee. It was concluded that the provisions of section 2(22)(e) did not apply in this case, and the addition was directed to be deleted.

This judgment highlights the importance of establishing the nature of financial transactions and the need for clear evidence to support claims in tax matters. The Tribunal's decision was based on a thorough analysis of the facts and documents presented, emphasizing the distinction between business transactions and loan arrangements. The ruling provides clarity on the application of section 2(22)(e) of the Act in cases involving inter-company fund transfers and the role of entities as conduits in such transactions. The judgment serves as a reminder for taxpayers to maintain proper documentation and evidence to substantiate their claims and effectively challenge tax assessments.