The Delhi bench of Income Tax Appellate Tribunal (ITAT) has recently held that the amount advanced for business transactions between parties would not fall within the definition of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.
Section 2(22)(e) of the Income Tax Act deals with deemed dividends which were loans or advances extended by a company.
Assesee Vishnu Aggarwal is an individual and proprietor of M/s. Shri Hari Metals which deals in metal scrap. He is also a Director in M/s. Singhal Metalloys Pvt. Ltd.
While the assessment proceedings carried out the AO addition of Rs. 16,04,242/- as deemed dividend under section 2(22)(e) of the Income Tax Act. AO found that assessee availed loan from Singhal Metalloys Pvt. Ltd. in which company the assessee is also a Director having substantial shareholding. It had been shown in the audited balance sheet of the assessee under the head “unsecured loan”.
Although, while filing the income tax return the assessee has considered the advance from M/s. Singhal Metalloys Pvt. Ltd. and shown in the sundry creditors which comes to Rs. 3,14,69,419/-, the contentions of the assessee was found to be entirely against the facts of the case. When an appeal was filed by the assessee against the action of the AO, the CIT(A) upheld the decision of the AO. Thereafter the assessee filed an appeal before the tribunal.
Before the tribunal, K.C. Singhal, counsel for the assessee submitted that section 2(22)(e) of Income Tax Act did not apply to business transactions.
Also placed on the circular of CBDT assesses contended 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 Income Tax Act ”.
Umesh Takyar, counsel for the revenue supported the decision of the lower authorities.
The tribunal viewed that the amounts advanced for business transactions between the parties would not fall within the definition of deemed dividend under section 2(22)(e) of the Income Tax Act.
Therefore, the two member bench of G.S. Pannu, (President) and Astha Chandra, (Judicial Member) allowed the appeal filed by the assessee.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
