Amount advanced for supply Material/Labour cannot be treated as deemed dividend U/s. 2(22)(e)

Brief of the case:

In the case of Smt. Uppala Rajani Vs. DCIT Hyderabad Bench of ITAT have held that the amount advanced for business transaction between parties regarding supply of material and labour, are not such to fall within the definition of ‘deemed dividend’ under S.2(22)(e). ITAT Also adjudicated issue of reopening and held that reopening was based on information revealed out during survey and also statements were recorded at the time of survey. So it can not be said that reopening was based on change of opinion if earlier order was passed u/s 143 (3).

Facts of the Case:

• The assessee is an individual, who is promoter and Director of M/s. Aster Pvt. Ltd. Assessee filed its return after declaring total income of Rs.16,47,133.
• In the said return, loss of Rs.5,77,562 was shown by the assessee from her proprietary business of providing staff services to M/s. Aster Pvt. Ltd. claimed to be carried on in the name of M/s. Aster Industries, the same was set off against other income.
• In original proceedings u/s 143 (3) the income was accepted by AO.
• Subsequently, a survey action u/s 133A was carried out in the case of M/s. Aster Pvt. Ltd. and it was revealed out during the course of survey that the proprietary concern of the assessee, M/s. Aster Industries had actually not provided any staff services to M/s. Aster P. Ltd.
• During survey statement of CEO of Aster Pvt. Ltd. and brother of the assessee was recorded according to which there were no such staff services actually provided by M/s. Aster Industries during the year under consideration.
• CEO also agreed to offer to tax the amount claimed to be paid to M/s. Aster Industries towards providing staff services in the hands of M/s. Aster P. Ltd. and accordingly, filed a revised return of the said company, admitting such additional income.
• On the basis of this information assessment was reopened and notice u/s 148 was issued.
• During the course of reassessment proceedings, the assessee objected to the reopening of the assessment as well as the disallowance proposed to be made by the Assessing Officer on account of its claim for loss of Rs.5,77,562 suffered by her proprietary concern, M/s. Aster Industries.
• AO rejected the objections raised by the assessee and made an addition of Rs.5,77,562 to the total income of the assessee, by disallowing the loss claimed in the proprietary concern of Ms. Aster Industries.
• AO also noticed that the assessee was holding major part of the shares of both these companies and the provisions of S.2(22)(e) of the Act were applicable to the amount of loans and advances given by M/s. Aster P. Ltd. to M/s. Aster Infrastructure P. Ltd.
• Accordingly the addition was proposed to be made by him on account of the said amounts, treating it as deemed dividend under S.2(22)(e) in the case of M/s.Aster Infrastructure Private Limited.
• AO added the amount of Rs.5,38,42,692 advanced by M/s.Aster Private Limited to M/s.Aster Infrastructure Private Limited in the hands of M/s.Aster Infrastructure Private Limited under S.2(22)(e) on substantive basis, treating it as deemed dividend and also proposed to add the said amount in the hands of the assessee in her individual capacity, being share-holder of both the companies, on protective basis.
• Assessee contested the validity of reopening.

Contention of the assessee: