2015 (9) TMI 485 - AT - Income Tax

Appellate Tribunal rules loans as business advances, not deemed dividends

The Income Tax Officer Company Ward Versus M/s Evershine Timber International Ltd

The Appellate Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to delete deemed dividend additions under Section 2(22)(e) of the ... Reopening of assessment - deemed dividend addition - CIT(A) deleted the addition - Held that:- We find from the case file that the assessment order is completely silent on the nature of the impugned loans in the shape of business advances. The CIT(Appeals) had examined all material on record for concluding that loans in question in the shape of business transactions / advances could not be treated as deemed dividends. The Revenue neither challenges the CIT(Appeals)’s order on the ground of admitting any additional evidence nor does it refer to any material rebutting the said factual conclusion. Therefore, the lower appellate findings categorizing the impugned loans as business advances have to be sustained. It has been held in case law CIT v. Creative Dyeing and Printing Private Ltd. (2009 (9) TMI 43 - DELHI HIGH COURT), that business advances cannot be treated as deemed dividends u/s 2(22)(e) of the Act. The Revenue does not quote any case laws to the contrary. This makes us to affirm the findings under challenge. - Decided in favour of assessee. Issues Involved:Deemed dividend additions under Section 2(22)(e) of the Income-tax Act, 1961 for assessment years 2006-07 and 2008-09.Detailed Analysis:Issue 1: Deemed Dividend Addition of Rs. 12,30,510/- and Rs. 48,04,000/-The case involved appeals by the Revenue challenging the deletion of deemed dividend additions by the Commissioner of Income Tax (Appeals) for assessment years 2006-07 and 2008-09. The Assessing Officer had added these amounts under Section 2(22)(e) of the Act due to unsecured loans taken by the assessee from a sister concern with common shareholders. The CIT(Appeals) accepted the assessee's contention that the amounts were business advances related to timber supplies, not deemed dividends. The Revenue contended that the loans were deemed dividends, but the CIT(Appeals) found them to be business advances based on detailed examination of transactions and balances.Issue 2: Nature of Impugned Loans as Business AdvancesThe Revenue's appeals were heard ex parte as the assessee did not appear. The assessment order did not specify the nature of the loans as business advances. The CIT(Appeals) had thoroughly analyzed the records and concluded that the loans were business transactions, not deemed dividends. Citing the case law of CIT v. Creative Dyeing and Printing Private Ltd., it was established that business advances do not fall under deemed dividends as per Section 2(22)(e) of the Act. The Revenue failed to provide any contrary case laws, leading to the affirmation of the lower appellate findings categorizing the loans as business advances.Conclusion:The Appellate Tribunal upheld the CIT(Appeals) decision to delete the deemed dividend additions, as the loans were deemed business advances and not dividends under Section 2(22)(e) of the Act. The Revenue's appeals were dismissed, and the orders were pronounced on March 5, 2015.