The New Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the inter-corporate deposits, being in the nature of deposits/loans shall attract the provisions of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.
The assessee, Shri Anil Nanda was holding substantial shareholding in both these companies, i.e., 65.6% share in M/s Joint Investment Pvt. Ltd. and 27.90% share in M/s GI Power Corporation Ltd. as on 31st July, 2007. The income tax department initiated re-assessment proceedings against the assesseeand made an addition of Rs.18,75,00,000/- u/s 2(22)(e) of the Act on the ground that Shri Anil Nanda was a substantial shareholder of both the payer and the payee company and, held that the sum/deposit of Rs.18.75 crore taken by M/s GI Power Corporation Ltd. from M/s Joint Investment Pvt. Ltd., is in the nature of advance or loan and this sum/deposit is taxable in the hands of Shri Anil Nanda.
After considering the arguments from both the sides, the Tribunal bench Judicial Member Mr. Kuldip Singh and Accountant Member R K Panda observed that an amount of Rs.18.75 crore had been shown under the grouping unsecured loans by both these companies in their balance sheets.
While dismissing the appeal filed by the assessee, the Tribunal held that “Further, while arguing the case of GI Power Corporation Ltd. before the CIT(A), Jammu, the said assessee itself had accepted that it had received loan from M/s Joint Investment Pvt. Ltd. Therefore, we do not find any force in the arguments of the ld. Counsel for the assessee that these are ICDs as per the resolutions and correspondences, etc., since the two concerns are closely related to each other and the transactions are not at arm’s length. It is within their exclusive knowledge as to why they have treated the same as ICDs and argued before CIT(A) Jammu in the case of GI Power Corporation Ltd., as loan. Therefore, the argument of the ld. Counsel that provisions of section 2(22)(e) are not applicable does not hold good. Further, the reliance on the CBDT Circular by the ld. Counsel is also not applicable since the said Circular relates to trade advance whereas in the instant case, it is deposit or loan and not a trade advance.”
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