A division bench of the ITAT Kolkata comprising N.V.Vasudevan, Judicial Member and Waseem Ahmed, Accountant Member were ruled that the provisions of deemed dividend under section 2(22)(e) of the Income Tax Act would not applicable to Current Account Transactions.
In the instant case, the Assessee is a private company engaged in the business of basmati rice production and wind power generation, filed its return of income for a tune of 8 lakhs. Not satisfied with the amount the disclosed in the return, AO selected the same for scrutiny and completed assessment.
Later, the Pr. CIT observed that AO committed an error regarding no addition was made by him on account of deemed dividend income u/s 2(22)(e) of the Act. Assessee has a shareholding in a company called Subhchintak Vancom Pvt. Ltd. and had taken loan from the same company. According to CIT the loan taken by assessee attracts the provision of Sec. 2(22)(e) of the Act.
The Tribunal heard both the parties contention and perused the material available on record and stated that purpose of Section 2(22)(e) of the Act is to tax the benefit extended by private limited company to its shareholders holding shares not less than 10% as beneficial owner of shares.
Now coming to the amount of advance taken by assessee, the bench noted that the assessee has not only taken loan / advance from SVPL, but also it has sometime given advance to SVPL.
For supporting above statement, the bench relied on co-ordinate Bench of the same Tribunal in the case of Bombay Oil Industries Ltd. vs. DCIT wherein held that there is a clear distinction between the inter-corporate deposits viz-a-vz loans/advances. Accordingly, the bench reversed the orders of the lower authorities and held that the transaction between both the company and SVPL is representing current account transactions which would not attract the provision of Section 2(22)(e) of the Act.
The bench also endorsed the judgment of jurisdictional High Court in the case of Pradip Kumar Malhotra v. CIT wherein the High Court held that such advance or loan cannot be said to be deemed dividend within the meaning of the Act. “Thus, gratuitous loan or advance given by a company to those clauses of shareholders would come within the purview of section 2(22) but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder,” the bench said.