Loans from Sister Concern Treated as Deemed Dividend u/s 2(22)(e): ITAT Deletes Addition, Treating It as Business Current Account with Interest Repayment [Read Order]
The AO had treated the amount as a deemed dividend, but the Tribunal noted that it was a commercial transaction, part of which was repaid with interest after TDS deduction, and that similar transactions in other years were not subjected to such addition
ITAT Ahmedabad, Loans, Interest Repayment
ITAT Ahmedabad, Loans, Interest Repayment
The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) deleted the addition of deemed dividend under section 2(22)(e) of Income Tax Act,1961, on loans received from a sister concern, treating the transaction as a business current account with part repayment of interest.
Bees Infracon Private Ltd., appellant-assessee, was engaged in infrastructural development and filed its return of income for AY 2013-14, later revised, which was assessed under section 143(3) at ₹29,79,190. The case was reopened after it was found that the assessee held 10.71% shares in Sunbarg Tradelink Pvt. Ltd., which had advanced ₹4.25 crore, while having accumulated profits of ₹80.75 lakh.
The Assessing Officer (AO) treated the amount as deemed dividend under section 2(22)(e) and made an addition. The assessee contended that the loan was for business purposes, part of it was repaid with interest, and hence section 2(22)(e) was not applicable.
The Commissioner of Income Tax (Appeals)[CIT(A)], however, upheld the addition, holding that the provision applied even to interest-bearing loans. The matter was then taken to the tribunal.
The assessee counsel argued that the account with the group company was a current account maintained for business purposes and not a gratuitous loan. It was submitted that part of the amount had been repaid with interest of ₹6,16,800 after deducting TDS, and hence section 2(22)(e) was not applicable.
Reliance was placed on various judicial precedents and Central Board of Direct Taxes (CBDT) Circular No. 19/2017, which clarified that trade advances in the nature of commercial transactions would not fall under deemed dividend provisions.
The departmental counsel supported the orders of the lower authorities and sought confirmation of the addition under section 2(22)(e).
The two member bench comprising Dr.BRR Kumar (Vice President) and T.R.Senthil Kumar ( Judicial Member) considered the submissions and records, including case laws cited by the assessee. It found that the loan received from its sister concern, Sunburg Tradelink Pvt. Ltd., was a current account transaction for business purposes, part of which was repaid with interest after deducting TDS.
It also noted that the assessee had earned substantial interest income during the year and that no such addition had been made in earlier or later years on the same transactions.On these facts, the bench held that the amount could not be treated as deemed dividend under section 2(22)(e) and directed deletion of the addition.
Accordingly the appeal was allowed.
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