2014 (7) TMI 141 - HC - Income Tax

High Court affirms Tribunal decision on Income Tax Act, 1961 interpretation

The Commissioner of Income Tax-22 Versus Pravin Bhimshi Chheda

The High Court of Bombay upheld the Tribunal's decision, ruling that the transaction did not fall under section 2(22)(e) of the Income Tax Act, 1961. The ... Deemed dividend u/s 2(22)(e) - circuitous transaction – Loan or advance - Held that:- The Tribunal was of the view that the transaction was a circuitous transaction and the money which initially belongs to M/s. Swati Energy and Projects Pvt. Ltd. was returned to the same company on the very same day through M/s. Power Service Corporation - this is not a loan or advance so as to attract section 2(22)(e) - The Tribunal may have addressed itself to the status of Mr. Manish Dedhia and the financial position of M/s. Power Service Corporation possibly to take care of the argument of the revenue that these were entities closely connected and possibly the money was routed through them although there was no genuine business transaction - In taking care of that argument, the status and financial position of all the entities, their annual income has been referred by the Tribunal - the transaction essentially carried out is not falling u/s 2(22)(e) - the Tribunal cannot be said to be perverse or vitiated by any error of law apparent on the face of the record. Decision of Apex Court in Smt.Tarulata Shyam and Others [1977 (4) TMI 3 - SUPREME Court] and L. Alagusundaram Chettiar [1996 (10) TMI 73 - SUPREME Court] distinguished wherein it was held that, The assesssee could not escape the rigour of the law merely because the transaction has been routed by the assessee in a different way - Decided against Revenue. Issues:1. Applicability of section 2(22)(e) of the Income Tax Act, 1961 in a case involving circuitous transactions.Analysis:1. The appeal before the High Court of Bombay challenged the order passed by the Income Tax Appellate Tribunal regarding the assessment year 2006-07. The main issue revolved around the applicability of section 2(22)(e) of the Income Tax Act, 1961. The appellant contended that the Tribunal's conclusion on the circuitous transactions involving M/s. Swati Energy & Projects Pvt. Ltd., M/s. Power Services Corporation, and M/s. Sujyoti Enterprises was questionable and raised substantial questions of law.2. The appellant relied on two judgments by the Supreme Court to support their arguments. On the other hand, the respondent argued that the Tribunal's decision was correct based on a plain reading of section 2(22)(e) and in line with previous decisions by the Bombay High Court. The Tribunal had analyzed the transaction and concluded that it did not fall under section 2(22)(e) as there was no flow of funds or benefit from M/s. Swati Energy and Projects Pvt. Ltd. to M/s. Sujyoti Enterprises.3. The High Court examined the provisions of section 2(22)(e) and the facts of the case. It noted that the Tribunal found the transaction to be circuitous, with the money returning to the same company on the same day. The Court agreed with the Tribunal's analysis that the transaction did not attract section 2(22)(e) as there was no direct loan or advance to the respondent assessee.4. The Court distinguished the appellant's reliance on previous Supreme Court judgments, emphasizing that the facts and circumstances in those cases were different. Ultimately, the Court held that the appeal did not raise any substantial question of law and dismissed it without costs.In conclusion, the High Court of Bombay upheld the Tribunal's decision, finding that the transaction in question did not fall under the purview of section 2(22)(e) of the Income Tax Act, 1961. The Court's detailed analysis considered the circuitous nature of the transactions and the lack of direct benefit to the respondent assessee, leading to the dismissal of the appeal.