Provisions of Deemed Dividend does not attract If Loans & Advances in Normal Business benefits both Payer and Payee: ITAT [Read Order]

Income Tax Appellate Tribunal (ITAT), Rajkot bench consisting of Waseem Ahmed, Accountant Member and T. R. Senthil Kumar, Judicial Member held that loans and advances given in normal course of business and if transaction in question benefits both payer and payee companies, provisions of 'deemed dividend' cannot be invoked.

The assessee,DCIT is engaged in manufacturing, trading, import and export of high-end Organic vegetarian foods. The assessee filed return of income declaring a loss of Rs.6,88,53,879. During the course of assessment, the Assessing Officer (AO) found that the assessee has received loan from Entrack International Pvt. Ltd., one of the share holders of the assessee. The loan was accepted by the assessee company from Entrack International Trading Pvt. Ltd and claimed before the AO that the loan is an inter corporate deposit from the sister concern. The AO rejected the contention of the assessee and treated the inter corporate deposit as loan and consequently treated as deemed dividend under Section 2(22)(e) of the Act and accordingly computed tax.Aggrieved the order of AO the assessee filed appeal before the Commissioner of Income Tax(CIT).CIT deleted the addition made by the AO and allowing the grounds raised by the assessee. Aggrieved by the order the respondent filed appeal before ITAT.

The Counsel for the Respondent, Sanjeev Jain submitted that CIT erred in deleting the addition made by the AO under Section 2(22)(e) of the Act whereas the assessee contended that since the assessee company does not hold the share in other company from which it had received deposit, then it cannot be treated to be a deemed dividend under Section 2(22)(e) of the Act.

The Tribunal relied on the judgment of CIT v. Madhur Housing Development & Cowhile deciding the present case wherein the Supreme Court of India held that “where loans and advances are given in normal course of business and transaction in question benefits both payer and payee companies, provisions of section 2(22)(e) cannot be invoked “.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to TaxscanAdFree. Follow us on Telegram for quick updates.