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Normal Business Advances which are not in the nature of ‘Loan’ is not Deemed Dividend: ITAT

Business - Deemed Dividend - Business - Loan - ITAT - Taxscan

The Income Tax Appellate Tribunal (ITAT) of Delhi bench held that the transaction where received in advance in the normal course of business and which is not taken as a loan cannot be considered as Deemed Dividend.

The order of the ld. CIT(A), the record of the revenue and the paper book filed. The AO, in the assessment order, has highlighted the fact that the assessee was holding 86.67% shares in M/s Apra Auto India P. Ltd and had been in receipt of amount running into Rs.10.57 crores from the account of M/s Apra auto India P. Ltd. Keeping in view the fact, that the said company that is M/s. Apra Auto India p. Ltd. was also having accumulated profits of Rs. 21.65 crore, the amount so received by the assessee has been treated as deemed dividend as per Section 2(22)(e) of the Income Tax Act, 1961.

The Order was given by Judicial Member, S. Sidhu, and Accountant Member, B. R. R. Kumar on an issue raised by CIT on the ground that CIT has erred in law in deleting the additions of Rs.10,57,01,194/- made u/s 2(22)(e) of the I.T Act on account of deemed dividends.

Section 2(22)(e) elaborates  as, when a company in which the public are not substantially interested*, extends a loan or an advance to:

  1. any of its shareholders who has more than 10% voting power in the company or
  2. to any concern in which such shareholder is substantially interested or
  3. for the individual benefit of such shareholder or
  4. on behalf of such shareholder

to the extent the company has accumulated profits, such payment would be deemed as a dividend under Section 2(22)(e).

While dismissing the appeal, the Tribunal noted that the advance received from the company by the assessee is in the nature of trade advance against the booking of commercial place being built by the assessee and cannot be considered as deemed dividend under section 2(22) (e).

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