2020 (5) TMI 533 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - Business transaction - amount being advanced and received back - HELD THAT - Tribunal with regard to related concerns, wherein it was noted that though advances were made but on the same date, there were transaction of receipt and payments itself by both the parties. Tribunal thus addressed itself as to whether such transaction is covered in the definition of deemed dividend in the hands of the assessee u/s 2(22)(e) or not. Tribunal held the issue to be covered by the decision of Praveen Bhimsi Chheda Shivsadan vs DCIT OFFICER 2011 (5) TMI 857 - ITAT MUMBAI against which the Hon ble Bombay High Court in the case of CIT vs Pravin Bhimsi Chheda 2014 (7) TMI 141 - BOMBAY HIGH COURT has dismissed the appeal of the Revenue holding that when the company got back its funds on the same day, it cannot fall into the definition of the deemed dividend. Same parity of reasoning and decision of Hon ble Bombay High Court, the issue was decided in favour of the assessee holding that where the transaction entered into by two companies were business transactions; where both the parties were engaged in similar trade and activities; then it was not hit by the provisions of section 2(22)(e). The issue is similar wherein the business transaction was between two parties and the assessee had produced the bank statements during the course of hearing before us evidencing the amount being advanced and received back on the same date. Accordingly, we find no merit in the addition in the hands of the assessee u/s 2(22)(e) of the Act and the same is deleted. - Decided in favour of assessee.

Summary

Issues:
Appeal against order of CIT(A)-1, Gurgaon dated 14.05.2015 related to assessment year 2011-12 under section 154 of the Income-tax Act, 1961.

Analysis:

1. Jurisdiction and Legality of Order:
The appellant raised grounds challenging the jurisdiction and legality of the impugned order under section 154. The Assessing Officer (AO) had assessed deemed dividend under section 2(22)(e) for a specific amount. The appellant contended that the order was bad in law and lacked proper notice under section 154. The appellant also argued for the deletion of the addition made by the AO. The issue of jurisdiction and legality was extensively debated.

2. Deemed Dividend Assessment:
The AO held the appellant in default under section 2(22)(e) for substantial loans given by a company to an associated concern of which the appellant was a director. The AO added a specific amount as deemed dividend in the hands of the appellant. The CIT(A) upheld this addition, leading to the appellant's appeal. The key contention revolved around whether the transactions fell under the definition of deemed dividend.

3. Legal Precedents and Interpretation:
The appellant cited related cases before the Tribunal where similar issues were addressed. The Tribunal analyzed whether the transactions between the companies constituted deemed dividend under section 2(22)(e). Reference was made to the decision of the Hon'ble Bombay High Court in a relevant case. The Tribunal concluded that the transactions were business-related and not covered under the definition of deemed dividend.

4. Decision and Ruling:
After considering the arguments and legal precedents, the Tribunal ruled in favor of the appellant. It found that the transactions were business-related and did not qualify as deemed dividend under section 2(22)(e). The Tribunal relied on the decision of the Hon'ble Bombay High Court to support its ruling. Consequently, the addition made by the AO was deleted, and the grounds of appeal raised by the appellant were allowed. The appeal of the assessee was allowed, and the order was pronounced in open court on 14th May 2020.

This detailed analysis covers the jurisdictional challenges, the assessment of deemed dividend, legal interpretations, and the final ruling of the Tribunal in the appeal.