Current account adjustments, not loans or advances, kept inter-company transfers outside deemed dividend and section 201 exposure.

Amounts transferred between the two concerns were treated on facts as current adjustment entries, not loans or advances, because the account showed frequent debit and credit movements in both directions on a need basis. As a result, the transactions were held outside the scope of deemed dividend under section 2(22)(e) of the Income-tax Act, and the basis for liability under section 201 did not survive. The issue was therefore answered against the Revenue and in favour of the assessee.

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Issues: Whether the amounts moved between the two concerns were loans or advances attracting deemed dividend under section 2(22)(e) of the Income-tax Act, and consequent liability under section 201.

Analysis: The authorities below had found on facts that the account reflected large numbers of debit and credit entries, with movement of funds both ways on need basis, and that the transactions were in the nature of current adjustment entries rather than loans or advances. On that factual appreciation, the amounts were not treated as inter-corporate deposits or as payments falling within section 2(22)(e), and the foundation for action under section 201 did not survive.

Conclusion: The issue was answered against the Revenue and in favour of the assessee.

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