The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) amount advanced for business transactions between shareholding entities are not deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. Therefore the bench deleted additions made by the assessing officer.
The Assessee, Adiish Jain is an individual and apart from being a partner of M/s. JP Engineers having 50% share thereon, he is also a shareholder in SMW Metal Pvt. Ltd having 22.08% voting power thereon. During the year under consideration, M/s. SMW Metal Pvt. Ltd had advanced some monies to M/s. JP Engineers.
AO sought to treat the amount advanced by M/s. SMW Metals Pvt. Ltd to M/s. JP Engineers as deemed dividend in the hands of the assessee herein as the assessee was having more than 10% share in both the entities and having substantial interest thereon.
According to AO, the monies advanced by a concern in which the assessee has substantial interest had advanced monies in the nature of loan and advances to the other concern i.e. M/s. JP Engineers in which the assessee is substantially interested, would squarely fall within the ambit of definition of section 2(22)(e) of the Income Tax Act.
Aggrieved, the assessee filed an appeal before the CIT(A) who deleted the addition made on account of deemed dividend under Section 2(22)(e) of the Income Tax Act. Therefore the revenue filed second appeal before the tribunal.
During the appeal proceedings tribunal observed that transactions between two entities M/s. SMW Metal Pvt. Ltd and M/s. JP Engineers were on continuous basis and were prevailing in earlier years also.
Further the bench found that monies received by M/s. JP Engineers from M/s. SMW Metal Pvt. Ltd needs to be construed only as advance received for supply of goods by M/s. JP Engineers to M./s. SMW Metal Pvt. Ltd in the ordinary course of business.
Therefore the both the entities were advancing monies to each other on mutually reciprocal basis as has been done in the ordinary course of their business. Hence, the transaction is more in the nature of the current account and running account between the two entities.
After reviewing the submissions of both parties the two-member bench of M. Balaganesh (Accountant Member) and Anubhav Sharma (Judicial Member) relied upon the decision of CIT Vs Creative Dyeing and Printing Pvt. Ltd and observed that amount advanced for business transaction between shareholding entities are not deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.
Therefore the bench dismissed the appeal filed by the revenue.
Satish Aggrawal, counsel appeared for assessee and Kanv Bali, counsel appeared for revenue.
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