Tribunal rules no deemed dividend for ICD and advances

The Tribunal upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer, ruling that the amounts received by the assessee in the form of Inter Corporate Deposits (ICD) and advances from another company could not be treated as deemed dividend under Section 2(22)(e) of the Income Tax Act. This was because the assessee was not a shareholder in the lending company. The Tribunal cited relevant judicial precedents and dismissed the Department's appeal, affirming that the loans and advances received did not qualify as deemed dividend in the assessee's hands.

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Issues Involved:
1. Deletion of addition made by the Assessing Officer by treating the amount received as deemed dividend under Section 2(22)(e) of the Income Tax Act.
2. Nature of Inter Corporate Deposits (ICD) and advances received by the assessee.
3. Shareholding status of the assessee in the lender company.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by the Assessing Officer:
The Department challenged the order of the CIT(A) which deleted the addition made by the Assessing Officer by treating the amount received as deemed dividend under Section 2(22)(e) of the Income Tax Act. The CIT(A) held that the amounts received by the assessee from M/s Excel Rubber Pvt. Ltd. cannot be treated as deemed dividend under Section 2(22)(e) and accordingly deleted the addition.

2. Nature of Inter Corporate Deposits (ICD) and Advances:
During the reassessment proceedings, the assessee explained that the amounts received from M/s Excel Rubber Pvt. Ltd. were in the form of Inter Corporate Deposits (ICD) and advances for business purposes, and hence, cannot be treated as deemed dividend. The CIT(A) considered the submissions and various judicial precedents, particularly the decision of ITAT, Mumbai Bench in the case of Bombay Oil Industries Ltd. Vs. DCIT, and held that ICDs received by the assessee cannot be considered along with loans and advances for the purpose of application of the provisions of Section 2(22)(e).

3. Shareholding Status of the Assessee:
The core promoter, Shri G.R. Reddy, possessed more than 10% of voting rights in the assessee company and also more than 20% in Excel Rubber Pvt. Ltd. However, the assessee itself was not a shareholder in M/s Excel Rubber Pvt. Ltd. The CIT(A) followed the decision of the Hon'ble Delhi High Court in CIT Vs. Ankitech P. Ltd. & Others and the ITAT, Hyderabad Bench in MTAR Technologies Pvt. Ltd. Vs. ACIT, which held that deemed dividend under Section 2(22)(e) can only be taxed in the hands of the shareholder. Since the assessee was not a shareholder of M/s Excel Rubber Pvt. Ltd., the loans and advances received could not be treated as deemed dividend in its hands.

Conclusion:
The Tribunal upheld the CIT(A)'s order, agreeing that the ICDs and advances received by the assessee could not be treated as deemed dividend under Section 2(22)(e) because the assessee was not a shareholder in M/s Excel Rubber Pvt. Ltd. The Tribunal also referenced various judicial precedents, including the Hon'ble Delhi High Court's decision in CIT Vs. Ankitech P. Ltd. and the ITAT, Mumbai Special Bench's decision in Bhaumic Colours (P) Ltd., which supported this conclusion. Consequently, the Department's appeal was dismissed.

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