Tribunal Overturns Income Tax Additions

The Tribunal set aside the Commissioner of Income Tax (Appeals)'s order confirming additions under section 2(22)(e) of the Income Tax Act in two appeals. Despite a common shareholder, the transactions between entities were deemed to be part of ordinary business operations and not deemed dividends. Both appeals were allowed, and the additions were deleted.

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Issues:
- Appeal against the part confirmation of addition under section 2(22)(e) of the Income Tax Act.

Analysis:
1. The appeals were filed against separate orders of the Commissioner of Income Tax (Appeals)-20, Mumbai, by two assessees. The issue being common in both appeals, they were heard together and decided through a common order. The first appeal, ITA No.01/Mum/2017, focused on the part confirmation of addition by the Ld.CIT(A) amounting to Rs. 50,78,658 under section 2(22)(e) of the Act.

2. The history of the case revealed that it was the third round of litigation before the Tribunal. The matter was initially sent back to the Ld.CIT(A) for fresh adjudication, leading to subsequent appeals and orders. The AO, after providing an opportunity to the assessee, made an addition of Rs. 74,32,885, claiming it as deemed dividend under section 2(22)(e) of the Act. The Ld.CIT(A) partially allowed the appeal, considering accumulated profits as of a certain date for the purpose of deemed dividend, resulting in a confirmed addition of Rs. 50,78,658.

3. The Ld.CIT(A) supported the addition with a detailed chart and held that the specified amount must be treated as deemed dividend. However, upon reviewing the facts and documents, the Tribunal observed that the entities involved were engaged in trading operations with each other, advancing money without interest. Despite the common shareholder, the transactions seemed to be necessitated by the business relationship, falling within the ordinary course of business operations. Therefore, the Tribunal concluded that treating these transactions as deemed dividend under section 2(22)(e) would go against the spirit of the law. Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the disallowance.

4. In the second appeal, ITA No.02/Mum/2017, the issue was identical to the first appeal, and the findings in the first appeal applied mutatis mutandis. The Tribunal allowed this appeal as well, resulting in both appeals being allowed. The final order was pronounced on 01.08.2019, wherein both appeals were allowed, and the additions under section 2(22)(e) of the Act were set aside.

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