Amount advanced for Business Transactions cannot treated as Deemed Dividend: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chennai held that amount advanced for business transactions cannot be treated as Deemed Dividend.

The assessee company, The Reliance Motor Company Pvt Ltd, filed its return of income by filing an audit report in Form No.3CD u/s.44AB. This return was processed u/s.143(1) and thereafter notices u/s.147 and 148 were issued. The reason recorded for reopening of assessment was that the assessee company has received a loan of Rs.71 lakhs from M Ct M Corporation Pvt Ltd. As the assessee company’s shareholders who are having substantial interest are having 10% voting power in the above-said company, the loan is to be treated as deemed dividend in the hands of the assessee company as per the provisions of section 2(22)(e).

The assessee during the course of assessment proceedings stated that the provisions of section 2(22)(e) would not apply to the loan amount of Rs.71 lakhs received, as none of the shareholders who beneficially hold substantial interest holds also more than 10% in the lending company. The assessee filed complete details before AO in support of the claim of the shareholders who hold more than 10% beneficial interest in the lending company do not beneficially hold substantial interest and since none of the shareholders who own more than 10% beneficial interest in the lending company holds substantial interest beneficially in the assessee, the provisions of section 2(22)(e) are not applicable in this case.

 The Assessing Officer (AO) considered the reply of the assessee and finally invoked the provisions of section 2(22)(e) treated this loan of Rs.71 lakhs as deemed dividends in the hands of the assessee and added to the returned income of the assessee. Aggrieved, assessee preferred appeal before Commissioner of Income Tax (CIT) wherein, the CIT confirmed the Action of AO. Hence the assessee is in appeal before the Tribunal.

Mahavir Singh, Vice President, and Manoj Kumar Aggarwal, Accountant Member held that “If the amounts advanced are for business transactions between the parties, such payment would not fall within the deeming dividend under Section 2(22)(e) of the Act.”

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