2009 (10) TMI 72 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition u/s 2(22)(e) of the IT Act, 1961.
2. Nature of transactions between the assessee and M/s Golden Strands (P) Ltd.
3. Applicability of deemed dividend provisions.

Issue-wise Comprehensive Details:

1. Deletion of Addition u/s 2(22)(e) of the IT Act, 1961:
The Revenue contested the deletion of an addition of Rs. 4,25,08,497 made by the AO u/s 2(22)(e) of the IT Act, 1961. The AO argued that the amount given by M/s Golden Strands (P) Ltd. to the assessee company should be treated as deemed dividend since the shareholders of both companies had substantial interest. However, the CIT(A) found that the transactions were in the normal course of business and not advances or loans, thus not attracting the provisions of s. 2(22)(e).

2. Nature of Transactions Between the Assessee and M/s Golden Strands (P) Ltd.:
The assessee contended that it had a trading relationship with M/s Golden Strands (P) Ltd., performing job work amounting to Rs. 1,98,66,179 during the year. The CIT(A) examined the ledger accounts and concluded that the transactions were trading transactions carried out in the normal course of business. The AO failed to prove that the outstanding balance represented an advance or loan.

3. Applicability of Deemed Dividend Provisions:
The Tribunal noted that the assessee was not a shareholder of the payer company, and the shareholders of the payer company did not have substantial interest in the assessee company. The Tribunal referred to the Special Bench decision in Asstt. CIT vs. Bhaumik Colour (P) Ltd. and the Rajasthan High Court decision in CIT vs. Hotel Hilltop, which held that additions u/s 2(22)(e) can only be made in the hands of the registered and beneficial shareholder, not in the hands of the concerns where such shareholders have substantial interest. The Tribunal also observed that the transactions were business transactions and not loans or advances simpliciter, thus falling outside the scope of s. 2(22)(e).

Conclusion:
The Tribunal upheld the CIT(A)'s decision, concluding that the amount received by the assessee was in the course of business and not by way of loan or advance. Therefore, the provisions of s. 2(22)(e) were not applicable, and the addition was rightly deleted. The appeal by the Revenue was dismissed.