2021 (12) TMI 397 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - Whether the impugned transaction is in the nature of business transaction and not in the nature of loan or advances? - HELD THAT - After perusing the judgments of Rameshwarlal Sanwarmal 1979 (12) TMI 1 - SUPREME COURT CIT Vs. Impact Containers (P.) Ltd. 2014 (9) TMI 88 - BOMBAY HIGH COURT and CIT Vs. Jignesh P. Shah 2015 (1) TMI 1165 - BOMBAY HIGH COURT and CIT Vs. Ankitech Pvt. Ltd. 2011 (5) TMI 325 - DELHI HIGH COURT and after giving due credence to the circular of the CBDT and looking into the facts of the instant case where it can be held that the transaction is a commercial transaction and hence the provisions of Section 2(22)(e) are not attracted - Decided in favour of assessee.

Summary

Issues:
Appeal against CIT(A) orders, Interpretation of section 2(22)(e) of the Income Tax Act, Addition of loan amount under section 2(22)(e).

Analysis:
The appeals were filed against the orders of the ld. CIT(A)-9, New Delhi, dated 09.03.2018. The main issue in both appeals was the addition of ?52,00,000 under section 2(22)(e) of the Income Tax Act, 1961. The assessee received a loan from M/s TCI India Ltd. to fulfill working capital requirements for export orders. The AO made the addition based on shareholding connections, but the assessee argued that as they did not hold shares in the lender company, section 2(22)(e) did not apply. The ld. CIT(A) confirmed the addition citing a common link between the assessee and the lender company.

The assessee contended that trade loans do not fall under the category of loans and advances as per section 2(22)(e). The ld. DR, however, argued based on the provision relating to substantial interest in a concern. The Tribunal referred to various judgments, including the Hon'ble Delhi High Court decisions in CIT Vs. Raj Kumar and CIT Vs. Ambassador Travels Pvt. Ltd., which emphasized that trade advances in commercial transactions do not fall under section 2(22)(e). Additionally, a circular by the CBDT clarified that trade advances are not covered under the provision.

Considering the legal precedents and the nature of the transaction as a commercial one, the Tribunal held that the provisions of section 2(22)(e) were not attracted in this case. The ground regarding prior period expenses was not pressed, and both appeals of the assessee were allowed. The Tribunal's decision was pronounced on 02/11/2021.