The Income Tax Appellate Tribunal ( ITAT ), Mumbai Bench deleted the addition on account of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.
The assessee firm, Herbert Brown Pharmaceuticals & Research Laboratories is engaged in the business of manufacturing and trading of chemicals and drugs and intermediates. For the year under consideration, the assessee filed its return of income on 29th September 2015 declaring total income of Rs.26,55,170. The Assessing Officer from the material available before him observed that the assessee has borrowed loans from private limited companies wherein common shareholders held over 10% of the voting rights.
The Assessing Officer was of the view that the amount of loans to the extent of the reserves and surplus available with M/s. Shirdi Chemicals Pvt. Ltd., falls within the ambit of provisions of section 2(22)(e) of the Act and, hence, liable to be taxed in the hands of the assessee under the head “Income From Other Sources”.
The AO observed that the assessee’s contention that the provisions of section 2(22)(e) of the Act are not application to trade advances, the same was not found acceptable to the Assessing Officer for the reason that the language used in this section refers to “any payment by a company by way of advance or loan” and the assessee firm having received an advance in whatever form the same falls within the ambit of section 2(22)(e) of the Act.
The Commissioner (Appeals), considering the submissions of the assessee deleted the addition made by the Assessing Officer under section 2(22)(e) of the Act.
The Revenue being aggrieved by this order of the Commissioner (Appeals), preferred appeal before the Tribunal raising the issue whether or not the learned Commissioner (Appeals) was justified in deleting the addition of Rs.2,89,21,986, made by the Assessing Officer in the hands of the assessee firm under section 2(22)(e) of the Income Tax Act, 1961.
The coram of Saktijit Dey and S. Rifaur Rahman while dismissing the revenue’s appeal found that the issue on applicability of provisions of section 2(22)(e) of the Act is squarely covered in favour of the assessee by the decision of the Co–ordinate Bench of the Tribunal in assessee’s own case in preceding assessment year 2019– 10, 2010–11, 2011–12, 2012–13 and 2013–14 wherein the Bench in Revenue’s appeal declined to interfere with the order of the first appellate authority and upheld the same.
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