2020 (6) TMI 290 - AT - Income Tax

Deemed dividend u/s 2(22) (e) - Addition being the transaction with E-edit Infotech Pvt. - as per AO fresh advances have been given by the subsidiary companies to the assessee company and since such advances were not in the normal course of business, therefore the provisions of Section 2(22)(e) of the Act shall get attracted to the extent of accumulated profits of the respective subsidiary companies - HELD THAT - Assessee emphasized the money advanced to the assessee company by EIPL (E-edit Infotech Pvt. Ltd.) is either an advance for property or current account transaction. CIT(A) has also gone through the audited account of E-edit Infotech Pvt. Ltd. and noticed that substantial part of business of E-Edit Infotech Pvt. Ltd. was granting of loans. DR submits before us that object clause of memorandum of association of E-Edit Infotech Pvt. Ltd. does not say that the company is in the business of money lending. It is also not clear that said advance by E-Edit Infotech Pvt. Ltd. is for advance for purchase of property / land. Both these issues have not been examined by ld. CIT(A). Therefore, we think it fit and appropriate to remit this issue back to the file of CIT(A) for fresh examination. Therefore, we set aside the order of CIT(A) and remit this issue back to the file of ld. CIT(A) for fresh adjudication in accordance to law. For statistical purposes, the ground raised by the Revenue is allowed. Addition u/s 2(22)(e) being trade advance received from EDP Software Ltd - whether such advance was given by EDP Software Ltd in the ordinary course of business and substantial business of the said company were to deal in loan and advance, as evident from the audited accounts? - HELD THAT - Section 2(22) (e ) of the Act states that any payment by a company .for the individual benefit of any such shareholder, to the extent to which the company in either case possesses accumulated profits . That is, deemed dividend would be to the extent of accumulated profits of the company and that accumulated profit should be as on 31st March 2012 ( P.Y.2011-12), however, in assessee s case under consideration the accumulated profit as on 31st March 2012 is in negative, that is,loss to the tune of ₹ 10,60,332/- , therefore, the provisions of section 2(22) (e ) does not apply.That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid addition. His order on this addition is therefore, upheld and the grounds of appeal of the Revenue are dismissed. Addition u/s 2(22)(e) on account of advances received from Nathvar Tracon Pvt. Ltd. - main grievance of the assessee is that the CIT(A) has confirmed the addition without appreciating that the assessee is having current account with M/s Nathvar Tracon Pvt. Ltd. (i.e. the company from whom the assessee took the advance and given advance were through current account). - HELD THAT - As per the ld. Counsel for the assessee mere perusal of the ledger account, it is clear that the said account was for the purpose of doing business which was in the nature of current account wherein one can find debit entry and credit entry on several occasions which needs to be examined by the ld. CIT(A). Therefore, we are of the view that this matter should be remitted back to the file of ld. CIT(A) for fresh examination. We also make it clear that if the ld. CIT(A) having examined the ledger account finds that it is a current account, no addition is warranted as held by the Co-ordinate Bench of this Tribunal in case of M/s Snehapusph Barter Pvt. Ltd 2017 (10) TMI 934 - ITAT KOLKATA - we set aside the order of ld. CIT(A) and remit this issue back to the file of ld. CIT(A) for fresh examination and adjudicate the issue in accordance to law.

Summary

Issues Involved:
1. Deletion of addition of ?2,88,30,842/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.
2. Deletion of addition of ?24,25,168/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.
3. Treatment of accumulated profit while making addition under Section 2(22)(e) of the Income Tax Act, 1961.
4. Addition of ?1,84,509/- under Section 2(22)(e) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?2,88,30,842/- as Deemed Dividend under Section 2(22)(e):
The Revenue challenged the deletion of the addition of ?2,88,30,842/- made by the Assessing Officer (AO) under Section 2(22)(e) of the Act, treating it as deemed dividend. The AO had made this addition on the grounds that the assessee received advances from E-Edit Infotech Pvt. Ltd., which were not in the normal course of business. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, stating that the advances were either for the purchase of property or were current account transactions. However, the Tribunal noted that the CIT(A) did not examine whether E-Edit Infotech Pvt. Ltd. was engaged in the lending business as per its Memorandum of Association and whether the advances were indeed for property purchase. Consequently, the Tribunal remitted the issue back to the CIT(A) for fresh examination and adjudication.

2. Deletion of Addition of ?24,25,168/- as Deemed Dividend under Section 2(22)(e):
The AO added ?24,25,168/- as deemed dividend under Section 2(22)(e) for advances received from EDP Software Ltd. The CIT(A) deleted this addition, noting that EDP Software Ltd. had no accumulated profits as on 31.03.2011 and that the advances were given in the ordinary course of business. The Tribunal upheld the CIT(A)’s decision, agreeing that the securities/share premium cannot be construed as accumulated profits, as held by the Calcutta High Court in CIT, Kol-III vs. Shree Balaji Glass Manufacturing Pvt. Ltd. Therefore, the Tribunal confirmed the deletion of the addition.

3. Treatment of Accumulated Profit while Making Addition under Section 2(22)(e):
The assessee raised a cross objection regarding the treatment of accumulated profits for the purpose of Section 2(22)(e). The assessee argued that the AO should have reduced the opening balance of advances received while making the addition. The Tribunal noted that this issue was identical to the Revenue’s ground regarding the addition of ?2,88,30,842/- and remitted it back to the CIT(A) for fresh examination, rendering the cross objection infructuous.

4. Addition of ?1,84,509/- under Section 2(22)(e):
The AO added ?1,84,509/- as deemed dividend for advances received from Nathvar Tracon Pvt. Ltd. The CIT(A) confirmed this addition. The assessee contended that the transactions were through a current account for business purposes, and thus, Section 2(22)(e) should not apply. The Tribunal examined the ledger account and noted that the transactions appeared to be mutual and in the nature of a current account. Citing previous judgments, the Tribunal remitted the issue back to the CIT(A) for fresh examination to determine if the transactions were indeed current account transactions, which would not attract Section 2(22)(e).

Conclusion:
The Tribunal partly allowed the Revenue’s appeal and the assessee’s cross objection for statistical purposes, remitting certain issues back to the CIT(A) for fresh examination and adjudication in accordance with the law.