2023 (9) TMI 971 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - assessee has a strategic investment in one of the group concerns in which the assessee held 17.20% shareholding - AO was of the view that, as the assessee held 17.20% shareholding in the above said Company, thus, the amount received by the assessee from GAPL as an unsecured loan, is in the nature of deemed dividend - HELD THAT - The payments in question were provided due to business exigencies and the funds so provided for the sole benefit of company and not to individual benefit of a shareholder and, therefore, the question of applicability of the provisions of Section 2 (22)(e) of the Act doesn t arise. None of the three conditions prescribed are applicable to the case on hand, namely, (i) no payments were made to the assessee by way of advance or loan by GAPL, but funds were allocated for execution of work assigned to the assessee on its behalf; (ii) no payments were made on its behalf; and (iii) payments made were not for anybody s individual benefit. A receipt which cannot be liable for tax, unless there are specific provisions to tax the same. Certain transaction is covered by deeming provision have been brought in the statute under deeming provision. Same section 2(22)(e), deeming provision has been brought in the statute to cover up transaction. The benefit is not individual but solely on business exigency. The deeming provision is always under the control of express provision . It is pertinent to observe that the benefit of expressed provision is covered in deeming provision or not. Considering the factual matrix, the assessee did not get any direct benefit of the payment made by GAPL and the amount was returned back to party. We respectfully relied on the order of Suraj Dev Dada 2014 (5) TMI 625 - PUNJAB HARYANA HIGH COURT .Only it is the benefit of business exigency. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the amount received by the assessee from GAPL constitutes a "deemed dividend" under Section 2(22)(e) of the Income Tax Act.
2. Whether the transactions between the assessee and GAPL were for business exigencies and thus outside the scope of Section 2(22)(e).

Summary:

Issue 1: Deemed Dividend under Section 2(22)(e)
The primary issue was whether the amount received by the assessee from GAPL should be treated as a "deemed dividend" under Section 2(22)(e) of the Income Tax Act. The Assessing Officer (AO) had made an addition of Rs. 32,83,186/- under this section, considering the amount as an unsecured loan due to the assessee's 17.20% shareholding in GAPL. The CIT(A) upheld this addition, leading the assessee to appeal.

Issue 2: Business Exigencies
The assessee argued that the transactions with GAPL were regular business transactions, involving the receipt and repayment of funds based on business requirements. The funds were provided and received as per the business needs, with interest being charged at market rates. The assessee relied on several judicial precedents, including CIT vs. Suraj Dev Dada, which held that advances made for business purposes do not fall within the ambit of deemed dividends under Section 2(22)(e).

Assessment Proceedings:
The AO viewed the transactions as loans and advances, thus attracting Section 2(22)(e). However, the assessee contended that these were current account transactions for business expediency, supported by financial statements and audit reports.

Tribunal's Findings:
The Tribunal noted that the transactions were indeed for business exigencies, with TDS deducted on the interest paid. It relied on various judgments, including Pradip Kumar Malhotra and Amrik Singh, which supported the view that advances made for business purposes do not constitute deemed dividends. The Tribunal also considered the CBDT Circular No. 19/2017, which clarified that advances for business transactions are outside the scope of Section 2(22)(e).

Conclusion:
The Tribunal concluded that the transactions between the assessee and GAPL were for business exigencies and not for personal benefit, thus falling outside the purview of Section 2(22)(e). The order of the CIT(A) was set aside, and the appeals of the assessee were allowed.

Result:
The appeals of the assessee bearing ITA No. 189/Asr/2018 and ITA 513/Asr/2019 were allowed.