2012 (8) TMI 1008 - AT - Income Tax

Tribunal Upholds Disallowance Reversal: Commercial Advances Not Deemed Dividends

Deputy CIT Versus M/s Alpex Exports (P) Ltd.

The Tribunal upheld the deletion of an addition of Rs. 1,03,96,888/- on account of disallowance u/s 2(22)(e) of the Income-tax Act, 1961. The ld. CIT(A) ... Deemed dividend u/s 2(22)(e) - Held that:- The AO did not even attempt to examine as to whether or not the share application money can be treated as “loan” or “advance” within the meaning of provisions of sec. 2(22)(e) of the Act. There is nothing on record to show that these transact ions were at tached with certain condit ions or st ipulat ion as to period of repayment, rate of interest, manner of repayment , etc. so as to treat the said transactions as loans or advances. Moreover, the Revenue have not placed before us any material, suggest ing that the transact ions were actually in the nature of loans or advances In CIT vs. I.P. India Pvt. Ltd., Hon’ble jurisdictional High Court in their decision [ 2011 (11) TMI 252 - DELHI HIGH COURT ] concluded that the receipt of share application monies for allotment of shares in the assessee-company could not be treated as receipt of loan or deposit. In the light of view taken by the Hon’ble jurisdictional High Court in the aforesaid decisions, especially when the ld. CIT(A) found as a fact that the amount of ₹ 1 crore was indeed received by the assessee from KMPTL as share application money, we are not inclined to interfere with the findings of the ld. CIT(A). As regards advance of ₹ 3,96,888/- against order, the AO did not record any reasons to tax the amount by way of deemed dividend. On appeal, the ld. CIT(A) concluded that commercial advance was outside the purview of the deeming provisions of section 2(22)(e) of the Act. Hon’ble jurisdictional High Court in Raj Kumar (2009 (5) TMI 17 - DELHI HIGH COURT) following the view in CIT vs. Nagindas M Kapadia(1988 (12) TMI 89 - BOMBAY High Court) held that the trade advance which is in the nature of money transacted to give effect to a commercial transaction does not fall within the ambit of the provisions of sec. 2(22)(e) of the Act Issues:1. Deletion of addition on account of disallowance u/s 2(22)(e) of the Income-tax Act, 1961.Analysis:The appeal filed by the Revenue challenged the deletion of an addition of Rs. 1,03,96,888/- on account of disallowance u/s 2(22)(e) of the Income-tax Act, 1961. The Assessing Officer (AO) had raised concerns regarding the nature of transactions involving share application money and advances received by the assessee from another entity. The AO treated a significant amount as deemed dividend u/s 2(22)(e) based on the interpretation that the share application money was in fact an advance. However, the ld. CIT(A) disagreed and deleted the addition after considering detailed documentary evidence provided by the assessee. The ld. CIT(A) found that the amounts received were for genuine business transactions and not covered within the definition of deemed dividend u/s 2(22)(e) of the Act.Detailed Analysis:1. The AO had raised concerns regarding the share application money and advances received by the assessee from another entity, treating a substantial amount as deemed dividend u/s 2(22)(e) based on the interpretation that the share application money was an advance.2. The ld. CIT(A) considered detailed documentary evidence provided by the assessee, including share application forms, share certificates, balance sheets, board resolutions, and bank statements, to conclude that the amounts were received for genuine business purposes and not covered within the definition of deemed dividend.3. The ld. CIT(A) highlighted that commercial advances and advances for business transactions are outside the purview of the deeming provisions of section 2(22)(e) of the Act, citing various decisions in support of this interpretation.4. The Tribunal noted that the AO did not provide valid reasons to tax a specific amount against an order as deemed dividend. The ld. CIT(A) concluded that commercial advances fall outside the deeming provisions of section 2(22)(e) of the Act, supported by relevant judicial precedents.5. In light of the detailed analysis and the absence of contradictory material from the Revenue, the Tribunal dismissed the appeal, upholding the findings of the ld. CIT(A) regarding the non-taxability of the amounts received as deemed dividend under section 2(22)(e) of the Act.6. No additional grounds were raised during the appeal proceedings, leading to the dismissal of the appeal by the Tribunal.This comprehensive analysis of the judgment highlights the key legal interpretations and findings related to the deletion of the addition on account of disallowance u/s 2(22)(e) of the Income-tax Act, 1961.