No Deemed Dividend on Business transactions via current A/c

FULL TEXT OF THE ITAT JUDGEMENT

This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-34, New Delhi, Dated 18.03.2019, for the A.Y. 2013-2014.

2. We have heard the Learned Representatives of both the parties through video conferencing and perused the material on record.

3. In the present appeal the assessee challenged the addition of Rs.2,88,92,8 17/- made on account of deemed dividend under section 2(22)(e) of the I.T. Act, 1961.

4. The brief facts of the case are that the assessee company is engaged in the business of commission agent and property development. The return declaring income of 16,19,070/- was filed on 17.10.2013. The A.O. completed assessment under section 143(3) of the I.T. Act, 1961, after making the impugned addition of Rs.2,88,92,817/- under section 2(22)(e) of the I.T. Act on account of deemed dividend. The total income was assessed at Rs.3,05,1 1,890/-. It is observed by the A.O. that during the year under consideration, assessee company has received loans and advances for a value of Rs.23,70,33,000/- from M/s Exotica Housing and Infra Projects Pvt. Ltd., which was squared off during the year. The assessee held 98% shares of M/s Exotica Housing and Infra Project Pvt. Ltd. Therefore, A.O. has taken a view that case of the assessee has come within the purview of section 2(22)(e) of the Act and amount received was to be considered as deemed dividend in the hands of the assessee. The A.O. issued show cause to the assessee as to why the amount in question should not be considered as deemed dividend and why the amount of Rs.2,88,92,817/- i.e. accumulated profit of advance giving company is not to be considered as undisclosed income of the assessee. The assessee submitted before the AO that it has taken money from its subsidiary company which was repaid within a short span of time. The transaction between the assessee company and its subsidiary company are in the nature of current account transactions. Hence provisions of section 2(22)(e) is not applicable in the case of the assessee. The A.O. however, did not accept the contention of the assessee as the amount was taken to discharge its liability by the assessee and advance was not made in the ordinary course of business. The A.O. accordingly made the impugned addition to the extent of accumulated profit of advance giving company as deemed dividend in the hands of the assessee.

5. The assessee challenged the addition before the Ld. CIT(A). The written submissions of the assessee is reproduced in the appellate order in which the assessee reiterated the same facts before the Ld. CIT(A). It was also submitted that the transactions between the assessee company and its subsidiary company are in the nature of current account transactions, therefore, case of assessee would not fall within the provision to Section 2(22)(e) of the I.T. Act, 1961. It was submitted that it is a trite Law that current account transactions are outside the purview of deemed dividend and hence, same cannot be recorded as deemed dividend. It is submitted that no part of the current account can be treated as loans and advances as the amount is constantly moving one and the balances reflected in the current/running account are momentary in nature and subject to frequent changes. Several decisions of different Benches of the Tribunal and various High Courts were relied upon on this proposition that the amount in question could not be treated as dividend in view of the fact that the amount fell in clause (ii) of Section 2(22)(e) of the Act and it is specifically excluded from the definition of the dividend. The assessee in support of this contention also enclosed statement of current account to show that current account transactions are outside the purview of the deemed dividend and cannot be taxed in the hands of the assessee. The money in question was advanced by subsidiary company to the assessee company in the ordinary course of business and as per Memorandum and Articles of Association money lending is one of the main objectives of the subsidiary company. The assessee also submitted that without prejudice to the above contention the accumulated profit shall not include the current year’s profit and there is a distinction between accumulated profit of the business and current year’s profit of the business.

6. The Ld. CIT(A), however, did not accept the contention of the assessee and distinguished all the decisions relied upon by the assessee and dismissed the appeal of assessee.

7. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and referred to the copy of the current account between the parties which is filed at page No.7 of the PB and also referred to page-6 of the PB to show that in earlier year as well in subsequent years on the same pattern no addition on account deemed dividend have been made against the assessee. He has relied upon the following decisions :