Transactions through Current Accounts for Business purposes isn’t ‘Deemed Dividend’: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench ruled that the transactions carried out through current account for business purposes would not fall within the definition of “Deemed Dividend”. So Section 2(22)(e) of the Income Tax Act, 1961, would not apply.

The assessee, M/s. Exotica Housing & Infrastructure Company is engaged in the business of commission agent and property development. The return declaring income was filed. The A.O. completed assessment under section 143(3) of the Income Tax Act, 1961, after making the impugned addition of Rs.2,88,92,817/- under section 2(22)(e) of the Income Tax Act on account of deemed dividend. The total income was assessed at Rs.3,05,11,890/-.

The A.O. observed that during the year under consideration, the assessee company has received loans and advances from M/s Exotica Housing and Infra Projects Pvt. Ltd., which was squared off during the year. The assessee held 98% shares of M/s Exotica Housing and Infra Project Pvt. Ltd. Therefore, A.O. has taken a view that the case of the assessee has come within the purview of section 2(22)(e) of the Act and the amount received was to be considered as deemed dividend in the hands of the assessee. The assessee challenged the addition before the CIT(A), which was dismissed by the CIT(A).

The ITAT observed that the ledger account of the subsidiary company in the books of the assessee company, which reveals that initially, the assessee company has taken amount from the subsidiary company which was repaid and thereafter, it is the assessee company which has given the amount to the subsidiary company on most of the occasions and later on the subsidiary company has returned the amount to the assessee. Therefore, such facts would clearly reveal that provisions of Section 2(22)(e) would not be attracted in the case of assessee company because on most of the occasions the assessee company has advanced the amount to the subsidiary company and ultimately the balance is squared-up at the end of the year.

The tribunal consisting of the Accountant Member Anil Chaturvedi and a Judicial Member Bhavnaish Saini while emphasizing on the rule of consistency as held by the Supreme Court in the case of Radhasoami Satsung 193 ITR 321 (SC) ruled that the transactions carried out through current account for business purposes would not fall within the definition of  “Deemed Dividend”. So Section 2(22)(e) of the Income Tax Act, 1961, would not apply.