2016 (10) TMI 584 - AT - Income Tax

Deemed dividend u/s 2(22) - revision u/s 263 - Held that - As decided in assessee s own case where such a finding that the transactions of assessee with Ganesh Wheat Products (P) Ltd, where the assessee alone does not stand to benefit from such loan transaction, but the company also derives benefit there from, as such transactions assumes the character of a commercial transaction and will not qualify to be dividend to come within the purview of Section 2(22)(e) of the Act. Respectfully following the above decisions of the coordinate Benches of this Tribunal, inasmuch as the proceedings under section 263 of the Act, giving raise to the addition of ₹ 27,68,646/- we hold that the transactions of the assessee with Ganesh Wheat Products (P) Ltd cannot be treated to be dividend to come within the purview of Section 2(22)(e) of the Act, and any additions made on that premise will not survive. We accordingly reach a conclusion that the additions made by the AO and confirmed by the learned CIT cannot be sustained. - Decided in favour of assessee

Issues Involved:
1. Validity of the CIT(A)'s order dismissing the appeal.
2. Applicability of Section 2(22)(e) of the Income Tax Act, 1961, regarding deemed dividend.
3. Nature of transactions between the assessee and M/s. Ganesh Wheat Products Pvt. Ltd.
4. Validity of the proceedings initiated under Section 263 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Validity of the CIT(A)'s Order Dismissing the Appeal:
The assessee challenged the CIT(A)'s order dated 29.11.2013, claiming it was arbitrary, void, and invalid. The CIT(A) dismissed the appeal due to the assessee's non-representation on hearing dates, confirming the additions made by the AO. The Tribunal noted that the CIT(A) failed to consider the individual grounds of appeal raised by the assessee, thus rendering the order procedurally flawed.

2. Applicability of Section 2(22)(e) of the Income Tax Act, 1961:
The core issue was whether the advances received by the assessee from M/s. Ganesh Wheat Products Pvt. Ltd. should be treated as deemed dividend under Section 2(22)(e) of the Act. The AO initially added ?15,36,337/- as deemed dividend and later, following CIT's order under Section 263, added an additional ?27,68,646/-. The Tribunal examined whether these transactions fell within the purview of deemed dividend.

3. Nature of Transactions Between the Assessee and M/s. Ganesh Wheat Products Pvt. Ltd.:
The assessee argued that the transactions were in the nature of a current account, involving mutual financial assistance, and did not constitute deemed dividends. The Tribunal referred to its previous decisions and the jurisdictional High Court's ruling in Pradip Kumar Malhotra v. CIT, which clarified that mutual transactions benefiting both parties do not qualify as deemed dividends under Section 2(22)(e). The Tribunal found that the assessee had frequent, reciprocal transactions with M/s. Ganesh Wheat Products Pvt. Ltd., indicating a current account rather than a loan account.

4. Validity of the Proceedings Initiated Under Section 263 of the Income Tax Act, 1961:
The CIT initiated proceedings under Section 263, treating the original order passed under Section 153A as erroneous and prejudicial to the revenue's interest. However, the Tribunal noted that in the assessee's own case, similar transactions were previously adjudicated, and it was held that such transactions do not fall under Section 2(22)(e). Consequently, the Tribunal quashed the CIT's order under Section 263, rendering the additional addition of ?27,68,646/- invalid.

Conclusion:
The Tribunal concluded that the transactions between the assessee and M/s. Ganesh Wheat Products Pvt. Ltd. were in the nature of a current account and did not constitute deemed dividends under Section 2(22)(e). Therefore, the additions made by the AO and confirmed by the CIT(A) could not be sustained. The appeal of the assessee was allowed, and the order pronounced on August 26, 2016, reflected this decision.

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