Case Law Details
Bees Infracon Private Ltd. Vs ITO (ITAT Ahmedabad)
Ahmedabad Tribunal allowed the appeal of Assessee by holding that loans advanced through current account for business purposes cannot be treated as deemed dividend u/s 2(22)(e).
Assessee, a private limited company engaged in infrastructure development, had originally filed its return declaring ₹29.19 lakh which was assessed at ₹29.79 lakh u/s 143(3). Subsequently, AO reopened the assessment on the basis that Assessee held 10.71% shares in M/s Sunburg Tradelink Pvt. Ltd., which had advanced ₹4.25 crore to Assessee. Since Sunburg had accumulated profits of ₹80.75 lakh, AO invoked provisions of deemed dividend u/s 2(22)(e) & made addition of ₹80,75,996/-.
In appeal, CIT(A) confirmed the action of AO, holding that the provision does not differentiate between interest-free & interest-bearing loans.
Before Tribunal, it was argued that the transaction was in the nature of current account maintained between group companies for business purposes. It was pointed out that part of the loan had been repaid during the year with interest of ₹6,16,800/- on which TDS u/s 194A was duly deducted. Assessee relied on the judgment of Calcutta High Court in CIT v. Gayatri Chakraborty (407 ITR 730), Gujarat High Court ruling in CIT v. Schutz Dishman Bio-Tech Pvt. Ltd., as well as ITAT Delhi decisions in Exotica Housing & Infrastructure Pvt. Ltd. & DCIT v. Ramesh Kumar Paggi. It was further contended that CBDT Circular No.19/2017 clarified that trade advances in the nature of commercial transactions do not fall within the ambit of deemed dividend.
Tribunal observed that the loan received was through current account, part of which was repaid with interest, & that Assessee had earned substantial interest income of ₹93.55 lakh during the year. It was further noted that in earlier & subsequent years no such addition was made on identical transactions. In view of the settled legal position that current account transactions & commercial advances are outside the purview of deemed dividend u/s 2(22)(e), Tribunal held that the addition made by AO was unsustainable. Accordingly, Tribunal directed deletion of the addition of ₹80,75,996/- made u/s 2(22)(e). In result, appeal of Assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee as against the appellate order dated 26.06.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2013-14.
2. Brief facts of the case are that the assessee is a private limited company engaged in infrastructural developments. For the Asst. Year 2013-14 assessee filed its Return of Income on 29-09-2013 declaring total income of Rs.29,19,058/= and a revised return on 14-11-2013. The return was taken for scrutiny assessment and regular assessment order u/s.143[3] was passed determining the income at Rs.29,79,190/=. Thereafter the return was reopened based on the information that the assessee is having 10.71% shareholding in M/s. Sunbarg Tradelink Pvt Ltd and it had given loan and advances of Rs.4,25,90,000/= to the assessee. M/s. Sunbarg had reserves and surplus of Rs.2,80,25,996/= including securities premium of Rs.1,99,50,000/= and accumulated profit of Rs.80,75,996/=. Therefore, the loans and advances given to the assessee is required to be treated as deemed dividend chargeable u/s.2[22][e] of the Act which has escaped assessment and therefore a notice u/s.148 of the Act was issued on the assessee on 26-03 2018. The assessee objected the reopening of assessment and clarified that the loan obtained from sister concern M/s. Sunburg was purely business purposes and part of the loan also repaid during the year under consideration along with interest of Rs.6,16,800/=, hence no question of invoking deemed dividend u/s.2[22][e] of the Act and requested to drop the reassessment proceedings. But the AO held that since the assessee is holding 10.71% shares in M/s. Sunburg Tradelink Pvt Ltd and the accumulated profit of Rs.80,75,996/= is treated as the deemed dividend u/s.2[22][e] of the Act and demanded tax thereon.
2.1. Aggrieved against the reassessment order, assessee filed an appeal before CIT[A] who has confirmed that addition by holding that the provisions of section 2[22][e] of the Act do not differentiate between the loan and interest-bearing loan and thereby dismissed the assessee appeal.
3. Aggrieved against the appellate order assessee is in appeal before us raising the following Grounds of Appeal :
1 That the learned NFAC/CIT(A) has erred in not holding, that the notice issued under section 148 of the Act and the subsequent reassessment proceeding and the order passed by the Id.AO, is without jurisdiction and bad in law and therefore the order passed by the learned AO is required to be quashed and addition made therein should be deleted in full and accordingly the learned AO is to be directed to accept the returned income.
2 That the learned NFAC/CIT(A) has erred in laws and facts by confirming addition of u/s. 2(22)(e) of Rs.80,75,996/- and therefore the learned AO is to be directed to delete the said addition while computing the total income.
3 The appellant craves liberty to add, amend, alter and delete any grounds of appeal before the final hearing.
4. At the outset Ld Counsel Mr. P.D. Shah appearing for the assessee made an endorsement that the assessee is not pressing Ground No.1 raised before us, recording the same Ground No.1 is hereby dismissed.
4.1. Regarding Ground No.2:- Addition Under section 2(22)(e) of the Act, Ld Counsel submitted that it is a current account with mutual consent of group company for the purpose of the business and that the amount given is not out of gratuitous. Therefore, while part of the loan repaid with interest of Rs.6,16,800/- with appropriate TDS. Thus the Ld.CIT(A) has not considered assessee’s submission in relation to commercial expediency and relied upon following case laws:
(a) CIT VS GAYATRI CHAKRABORTY (407 ITR 730)(Cal), wherein it has been held that-Tribunal was justified in holding that transactions between shareholder and company were in nature of current account, thus, provisions of section 2(22)(e) would not be applicable.
(b) Hon’ble Gujarat High Court in the case of CIT VS SCHUTZ DISHMAN BIO-TECH PVT.LTD (Tax Appeal No.958 to 959 of 2015) and wherein the Hon’ble High Court has accepted the finding of the Id. CIT(A) and the Hon’ble ITAT, for the treatment of current account as non-loans or advances for applicability of section 2(22)(e) of the Act.
(c) EXOTICA HOUSING & INFRASTRUCTURE COMPANY PVT. LTD. vs ITO ITA No.5188/Del/2019 and wherein finally in para 9.3, following has been held by the Ho’ble ITAT-
93 The above issue have been considered by the different Benches of the ITAT as reproduced above in which various decisions of different High Courts have been considered and it was held that ‘when current account is maintained between the parties, provisions of Section 2(22)(e) of the I.T. Act, 1961, would not apply. Thus, the issue is covered by the aforesaid decisions of the Tribunal in favour of the assessee as well as various decisions considered by the Hon’ble jurisdictional Delhi High Court. In view of the above, we do not find any justification to sustain the addition In view of the above findings, we set aside the Orders of the authorities below and delete the addition.
(d) DCIT Vs Ramesh Kumar Paggi (ITA No.6168/Del/2017)
(e) The CBDT in circular no. 19/2017 dated 12.6.2017 states that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word ‘advance’ in section 2(22)(e) of the Act. In our case also it is trade advance, in the nature of commercial transactions.
5. Per contra Ld Sr DR appearing for the Revenue supported the orders passed by the lower authorities and requested to confirm the addition made u/s. [22][e] of the Act.
6. Heard rival submissions at considerable time and perused the materials available on record including the Paper Book and case laws relied by the assessee. It is undisputed fact that the loan received by the assessee from its sister concern M/s. Sunburg Tradelink Pvt Ltd is through current account for business purposes. Further the assessee company has earned interest income of Rs.93,55,171/- (Page No.9 of the Paper Book) during the year under consideration and part of the loan amount was repaid to M/s. Sunburg Tradelink Pvt Ltd. during the year with interest amount of Rs.6,16,800/- with appropriate TDS u/s.194A of Rs.61,680/=. Further there is no addition u/s.2(22)(e) of the Act in the earlier year(s) or subsequent year(s) on the very same loan transactions between the assessee and M/s. Sunburg Tradelink Pvt Ltd. In view of the above facts, the said amount cannot be termed as dividend u/s.2(22)(e) of the Act and settled legal principles as cited in paragraph 4.1 of this order. Therefore, the addition made by the ld AO u/s. [22][e] of the Act is directed to deleted.
7. In the result the appeal filed by the assessee is hereby allowed.
Order pronounced in the open court on 02-09-2025
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