Brief of the Case
Gujarat High Court held In the case of CIT (TDS) vs. Schutz Dishman Bio-Tech Pvt. Ltd. that there are large number of adjustment entries between the corporates. Unlike transactions of loans and advances, in this kind of adjustment entries, the movement of funds is both ways and the same is more in the nature of current account rather than a loan account. Transactions in the nature of loans and advances are usually very few and for a longer duration. Henec these entries are not in nature of loan or advances. In the absence of any loans and advances, the provisions of section 2(22)(e) in respect of deemed divided are not attracted and therefore, the question of deduction of tax at source also would not arise.
Facts of the Case
The assessee company had made advances in favour of one M/s. Dishman Pharmaceuticals & Chemicals Ltd. having 22.23% holding in the assessee company. According to the Revenue, therefore, such advances were in the nature of deemed dividend under section 2(22)(e). Since no deductions were made at the time of payment of such dividend, section 201, was invoked.
Held by CIT (A)
CIT (A) deleted the addition made by AO. It was held that in the facts of the present case, the nature of the transaction is in the form of current accommodation adjustment account and therefore, the same is not a transaction in the nature of loans and advances. In the absence of any loans and advances, the provisions of section 2(22)(e) in respect of deemed divided are not attracted and therefore, the question of deduction of tax at source also would not arise. This view is supported by the following direct decisions : CIT vs. Creative Dyeing & Pringint (P) ltd. 318 ITR 476 (Del) , CIT vs. Raj Kumar 318 ITR 462 (Del) , NH Securities Ltd v. DCIT (2007) 11 SOT 302 (BOM) , ACIT v. Global Agencies(P) ltd. (2005) 87 TTJ 1086(Delhi) and CIT v. Nagindas M. Kapadia (1989) 177 ITR 393 (BOM).
CIT (A) furhter held that , if the transactions are not in the nature of current accommodation adjustment account, the same are in the nature of deposits as it apparent from the nomenclature of the ledger account. If the transactions are in the nature of deposits and the same are between two corporate, it is nothing but Inter Corporate Deposits (ICD) which in any case would be outside the purview of section 2(22)(e). This view supported by the following direct binding decisions of the ITATs. M/s. Utkarsh Fincap(P) Ltd., v ITO 1288 ITR 38 On.(Tri. Ahmedabad) and M/s. Bombay Oil Industries Ltd, v. DCIT, Central Circle35 Mumbai 128 SOT 383 (Mum.)
Held by ITAT
ITAT upheld the view of CIT (A). It was held that the amounts were in the nature of Inter Corporate Deposits and were therefore, not to be treated as loans or advances as contemplated in section 2(22)(e).
Held by High Court
High Court held that when the CIT(Appeals) as well as Tribunal concurrently held that looking to large number of adjustment entries in the accounts between two entities, the amounts were not in the nature of loan or deposit, but merely adjustments, application of section 2(22)(e) would not arise. Consequently, no question of law arises.
Accordingly appeal disposed of.