2020 (9) TMI 1321 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - amounts transferred between the appellant and its sister concern - HELD THAT - Mere fact that the assessee having met its business exigency of funds requirement coming from its group concerns by way of a running account does not attract deemed dividend u/s 2(22)(e) of the Act. Case law in Dishman Pharmaceuticals and Chemicals Ltd. and Pradip Kumar Malhotra 2011 (8) TMI 16 - CALCUTTA HIGH COURT and decision Shri Amit Kumar Jain 2019 (6) TMI 743 - ITAT DELHI hold that the impugned deeming fiction does not come into play in the case of a running account involving group entities meeting day to day business exigency(ies) with each other s funds. We therefore hold that both the learned lower authorities have erred in making the impugned addition in assessee s hands. We also sought now from both the parties as to whether these two entities satisfy statutory requirements of stake holding or not. We are informed that these two entities i.e. the assessee herein the M/s Bhudia Agencies Pvt. Ltd. and M/s Republic Tractor Motor Pvt. Ltd. have common shareholders only. Assessee appeal allowed.

Summary

The Appellate Tribunal, ITAT Kolkata, heard an appeal for the assessment year 2013-14 regarding the correctness of the deemed dividend addition under section 2(22)(e) of the Income Tax Act, 1961. The appellant challenged the addition of Rs. 16,00,000/- made by the Assessing Officer, which was enhanced to Rs. 18,76,414/- in the lower appellate order. The core issue revolved around whether the amounts transferred between the appellant and its sister concern constituted deemed dividend.The CIT(A) found that the ledger of the appellant in the books of M/s. Republic Tractor Motor (P) Ltd. showed that various amounts were advanced and repaid between the entities. The appellant argued that these transactions were for meeting day-to-day exigencies involving sister concerns and not loans, thus not attracting deemed dividend taxation. The appellant cited case law to support this argument, emphasizing that the deeming fiction of deemed dividend does not apply in the case of running accounts involving group entities meeting business exigencies with each other's funds.The Tribunal held that the lower authorities erred in making the deemed dividend addition as the transactions were part of a running account for business exigencies and not loans. The Tribunal also considered the common shareholders between the appellant and M/s. Republic Tractor Motor Pvt. Ltd. but refrained from addressing this aspect due to the deletion of the addition on the running account ground.In conclusion, the Tribunal allowed the appellant's appeal, ruling in favor of the appellant based on the finding that the transactions between the entities constituted a running account for business exigencies and not loans, thus not attracting deemed dividend taxation.