2021 (5) TMI 708 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - assessee had received loan from Ramsan Communications Ltd. and the receipt of loan was considered as deemed dividend and added to the income u/s 2(22)(e) - HELD THAT - As decided in own case 2018 (8) TMI 1881 - ITAT DELHI Similar transaction was accepted as commercial transaction between the parties in earlier as well as subsequent years in which interest has also been paid and no adverse inference have been drawn against the assessee, therefore, rule of consistency do apply with the income proceedings and the AO without bringing any further evidence against the assessee should not have taken a different view against the assessee. The decisions relied upon by Ld. Counsel for the assessee squarely apply to the facts and the circumstances of the case. The assessee produce sufficient evidence on the record to justify that it was a commercial transaction between the parties not only in assessment year under appeal but in preceding and subsequent years, therefore, the authorities below were not justified in invoking provision of section 2 (22) (e) of the IT Act against the assessee for making the addition. Disallowance u/s 40(a)(ia) - scope of amendment of second proviso to Section 40(a)(ia) - HELD THAT - CIT(A) remitted the issue to AO to verify the issue in line with the decision of Hon ble Delhi High Court in the case of CIT vs. Ansal Landmark Township. 2015 (9) TMI 79 - DELHI HIGH COURT wherein has held that the insertion of second proviso to Section 40(a)(ia) to be declaratory and curative in nature and it has retrospective effect from 1st April 2005, being the date from which sub clause (ia) of Section 40(a) was inserted by the Finance (No.2) Act 2014. It has further held that as long as the payee has filed the return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the assessee would not be treated as a person in default. Before us, Revenue has not pointed to any fallacy in the findings of CIT(A). In such a situation, we find no reason with the order of CIT(A) and thus the ground of Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition made on account of deemed dividend under Section 2(22)(e) of the Income Tax Act.
2. Deletion of addition made under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on payment towards testing charges.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Deemed Dividend under Section 2(22)(e):

The first issue pertains to the deletion of an addition made by the Assessing Officer (AO) under Section 2(22)(e) of the Income Tax Act, treating a loan of ?2,41,50,000 received by the assessee from Ramsan Communications Ltd. as deemed dividend. The AO noted that the assessee could not establish a direct nexus between the loan advanced and the trade obligations, nor substantiate that the loan was taken in the ordinary course of trading advance.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, observing that the loan was a commercial transaction. The CIT(A) cited the case of Pradip Kumar Malhotra v. CIT, where it was held that loans or advances given to shareholders as a consequence of any further consideration beneficial to the company are not deemed dividends. The CIT(A) also noted that Ramsan Communications Ltd. had no business income except interest income, thus the transaction was in the ordinary course of business. The CIT(A) further referenced several judicial pronouncements and CBDT Circular No. 19/2017, which clarified that trade advances in the nature of commercial transactions do not fall within the ambit of deemed dividend.

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, noting that similar transactions in earlier years were not treated as deemed dividends, and the rule of consistency should apply. The ITAT found no distinguishing features in the facts of the present case compared to earlier years and thus dismissed the Revenue's appeal on this ground.

2. Deletion of Addition under Section 40(a)(ia) for Non-Deduction of TDS:

The second issue involves the deletion of an addition made under Section 40(a)(ia) for non-deduction of TDS on a payment of ?3,93,035 towards testing charges to RITES Ltd. The AO disallowed the amount, stating that the assessee failed to deduct TDS as mandated under Section 194J of the Income Tax Act.

The CIT(A) directed the AO to verify if RITES Ltd. had declared the payment as income and paid tax on it, in line with the Delhi High Court decision in CIT vs. Ansal Landmark Township, which held that the second proviso to Section 40(a)(ia) is declaratory and curative, having retrospective effect from 1st April 2005. The proviso states that if the payee has filed a return of income disclosing the payment and paid the tax, the assessee should not be treated as a person in default.

The ITAT upheld the CIT(A)'s decision, noting that the Revenue did not point out any fallacy in the CIT(A)'s findings. Thus, the ITAT dismissed the Revenue's appeal on this ground as well.

Conclusion:

The ITAT dismissed the Revenue's appeal on both grounds, upholding the CIT(A)'s decisions to delete the additions made under Section 2(22)(e) and Section 40(a)(ia) of the Income Tax Act. The judgments were based on established judicial precedents and the principle of consistency in tax assessments.