The Delhi Bench of Income Tax Appellate Tribunal (ITAT) while deleting the addition ruled that the business transaction can not be treated as deemed dividend.
The assessee, M/s Lakhmi Chand Tejoo Mal contended that the CIT(A) erred in confirming the addition of Rs. 46,66,803 made by the Assessing Officer on account of the amount received from Brahmand System Private Limited treating the same as deemed dividend by invoking the provisions of Section 2(22)(e) of the Act.
The Assessing Officer noticed that the shareholding of Shri Naveen Makrani and Shri Manohar Lal in the said company is 1% each. The Assessing Officer further found that the balance 98% shareholding in Brahmand System Pvt Ltd is held by TQM Advertising and Marketing Ltd in which Shri Naveen Makrani and Manohar Lal are having 20% each in shareholding. Being convinced that the provisions of section 2(22)(e) of the Act squarely apply to the facts of the case, the Assessing Officer issued a show-cause notice to the assessee asking it to explain as to why the loan amount should not be treated as deemed dividend under section 2(22)(e) of the Act.
In its reply, the assessee contended that it has received Rs.78 lakhs from the said company as it was not a loan but received as an advance for the purchase of property owned by the assessee and since the transaction had not materialized, the amount was returned back to the said company.
The two-member bench of Judicial Member Suchitra Kamble and Accountant Member N.K. Billaiya while relying on the CBDT Circular, which is binding on the Assessing Officer, held that the business transaction of Rs. 78 lakhs cannot be treated as deemed dividends under section 2(22)(e) of the Act. The Tribunal directed the Assessing Officer to delete the addition of Rs. 46,66, 803.
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