9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (2) TMI 731 - HC - Income TaxDeemed dividend - ITAT deleted the addition made by the A.O. under Section 2(22)(e) - Held that - Revenue failed to adduce any evidence to prove that the transaction between the assessee and the company was a mere smoke screen to cover a surreptitious payment of money to a share holder. M/s Nexo Products (India) received certain export orders but was not in a position to execute the orders as its manufacturing facility was situated in a remote area and was beset with labour problems and erratic supply of electricity. The Company, therefore, entered into an agreement, dated 1.8.2007 with the assessee to install plant and machinery at his premises to enable the assessee to do job work for the company, at 10% below the prevailing market rate. The Assessing Officer did not doubt this agreement or these facts. The assessee having proved a tangible business expediency between the assessee and the company, the question of invoking Section 2(22)(e) of the Act does not arise. ITAT has after considering these facts rightly held that as the assessee has proved business expediency the advance is not covered by Section 2(22) (e) of the Act. We find no reason whether in law or in fact to interfere with these findings of facts, which are neither perverse nor arbitrary. - Decided against the revenue.
Issues:
Interpretation of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend and business expediency. Detailed Analysis: Interpretation of Section 2(22)(e) of the Income Tax Act: The case involved a dispute regarding the application of Section 2(22)(e) of the Income Tax Act, 1961, which deals with deemed dividends. The Assessing Officer initially made additions of advances made by a company to the assessee based on the substantial shareholding of the assessee in the company. The CIT(Appeals) upheld this addition. However, the Income Tax Appellate Tribunal examined the provisions of Section 2(22)(e) and held that it applies only if the advance or loan is for the individual benefit of the assessee without any business expediency. The Tribunal emphasized the need for a tangible business expediency between the parties for Section 2(22)(e) to be invoked. Business Expediency and Deemed Dividend: The Tribunal found that there was a tangible business expediency established between the assessee and the company in question. The company faced challenges in executing export orders due to location and operational issues. To address this, the company entered into an agreement with the assessee to install machinery at the assessee's premises for job work at a discounted rate. This business arrangement was deemed necessary for the company's operations and was not a cover for a surreptitious payment to a shareholder. Judicial Precedents and Legal Interpretation: The Tribunal referred to various judicial precedents, including decisions from the Delhi High Court and Mumbai High Court, to support its interpretation of Section 2(22)(e). These precedents highlighted that advances made during the ordinary course of business for business expediency may not fall under the purview of deemed dividends. The Tribunal also cited a case where the jurisdictional Bench of the ITAT held that advances for business expediency are not covered under Section 2(22)(e). Conclusion: Based on the facts presented and the legal interpretation of Section 2(22)(e), the Tribunal concluded that the advances made to the assessee were in the normal course of business and for business expediency, exempting them from being treated as deemed dividends. The Tribunal found no evidence to suggest that the transaction was a mere cover for benefitting the shareholder. Consequently, the Tribunal dismissed the revenue's appeal, affirming that the assessee had proven business expediency, and the addition under Section 2(22)(e) was unwarranted.
|
