MSN Pharmachem Private Limited Vs ACIT (ITAT Hyderabad)
ITAT Hyderabad held that trade advances, in the nature of commercial transactions, cannot be characterized as ‘loans or advance’ constituting deemed dividend within the meaning of section 2(22)(e). Thus, addition towards deemed dividend untenable.
Facts- The appellant company is engaged in the business of manufacturing and sale of drugs and pharmaceuticals. Post search operation, the case was selected for scrutiny and the assessment was completed u/s. 143(3) r.w.s. 153A of the Income Tax Act, 1961, for assessment year 2019-20 on 03-04-2023 and for assessment year 2020-21 on 31-03-2023, determining total income at Rs.495.03 crores and Rs.520.14 crores, respectively, by making additions towards deemed dividend u/s. 2(22)(e) of the Act and consequent dividend distribution tax u/s. 115Q of the Income Tax Act, 1961 for both the assessment years.
CIT(A) has sustained additions made by the AO towards deemed dividend u/s 2(22)(e) of the Act. Being aggrieved, the present appeal is filed.
Conclusion- Held that the entire amount of payments made against purchases has to be regarded as ‘trade advances’ without any artificial limitation on the quantum of such trade advances. As a result, the amounts paid to recipient company in excess of 200% of the purchases also have to be regarded as ‘trade advances’ which are in the nature of commercial transactions only and they cannot be characterized as ‘loans or advance’ constituting deemed dividend within the meaning of section 2(22)(e). The addition made by the AO and upheld by the CIT(A) towards deemed dividend is therefore wholly untenable and needs to be deleted.
