The Delhi bench of the Income Tax Appellate Tribunal (ITAT), Delhi bench has held that loan on interest received from the sister concern to fulfill the enhanced requirement of working capital for export orders does not attract the provisions of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.
The assessee received the loan on interest from M/s TCI India Ltd. of Rs.52,00,000/- during the F.Y. 2012-13 to fulfill the enhanced requirement of working capital for export orders. TCI India Ltd. is a closely held company holding 50,000 equity shares of the assessee company which is 2.5% of the total equity shares issued and subscribed. The AO made an addition based on the fact that Mrs. Urmila Agarwal having more than 20% equity holding is also holding more than 10% of equity holding in the lender company.
Before the authorities, the assessee contended that the assessee company does not have any shareholding in the TCI India Ltd., and hence the provisions of Section 2(22)(e) are not attractive. It was further argued that the trade loans do not fall under the category of loans and advances as envisaged under section 2(22)(e) of the Act.
The assessee also relied on the Delhi High Court decision in the case of CIT Vs. Ambassador Travels Pvt. Ltd., where the Court has held that “since the transactions were normal business transactions, which were carried out during the course of the relevant previous year, they cannot be described as advances or loans, which form a distinct category of financial transactions.”
After considering the arguments, the bench comprising Judicial Member Mr. Amit Shukla and Accountant Member B R R Kumar relied on the decision of the Supreme Court in the case of Rameshwarlal Sanwarmal Vs. CIT and the and a few High Court judgments wherein the Courts granted relief to the taxpayers.
Relying on the above rulings, the Tribunal held that “after giving due credence to the circular of the CBDT and looking into the facts of the instant case, where it can be held that the transaction is a commercial transaction and hence the provisions of Section 2(22)(e) are not attracted.”
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