The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the provisions of Deemed Dividend does not attract in case of normal business transactions.
The bench comprising of Sudhanshu Srivastava (Judicial Member) and G.D. Agrawal (President) was hearing the appeal of the Assessee being a major shareholder of some private companies against the Deputy Commissioner of Income Tax.
The Revenue argued that if the assessee has substantial interest in the concerns then they were advanced the money and also the concerns received the borrowed money. Hence section 2(22)(e) is applicable here and definitely can make the additional provisions of deemed dividend.
The assessee has submitted all the relevant details of the transactions made by him with the said concerns which prove that no money is paid by any of the companies to the assessee and no loan is received by the assessee from these companies.
The bench, after analyzing these evidences, noted that “there was regular a transaction of advancing money by one of these companies to the group concerns from whom interest was charged at the normal market rate and it would be treated as a normal business transaction. But in the case of the assessee he is an individual and does not borrowed any advances. Hence it did not make any addition u/s 2(22)(e) of the Act.”
The bench observed that the advancing of money is a regular course of action of the company hence it can be treated as a normal business transaction for earning interest. Therefore, it would not attract the provisions of ‘deemed dividend’. The bench going along with the decision taken by the high court in a previous case on the similar issue, allowed the appeals of the assessee.
Read the full text of the Order below.
