2020 (5) TMI 437 - AT - Income Tax

Appellate Tribunal rules no deemed dividend under Income Tax Act Section 2(22)(e)

The Appellate Tribunal allowed the appeal, directing the Assessing Officer to delete the addition made under section 2(22)(e) of the Income Tax Act. The ... Deemed dividend addition u/s 2(22)(e) - Assessee has accepted loan from M/s Shreem Design & Infrastructure Pvt Ltd. (in short SDIPL) in which he is director and also holding 11.61% of equity share - HELD THAT:- Admittedly, the assessee has paid interest on the money borrowed from the company namely SDIPL. This fact can be established from the details such as TDS certificate issued by the assessee to the company for the deduction of TDS on the payment of interest to the company. There is also Ledger account of the assessee in the books of the company showing the amount of interest received from the assessee by the company. There remains no dispute that the assessee has incurred interest expenses on the money borrowed from the company. Accordingly, we hold that there was no benefit derived by the assessee from such company on the money borrowed by him. Provision of the deemed dividend under section 2(22)(e) of the Act, was brought under the statute to curb the practice of diverting the fund of the company for the benefit of the shareholders. However, in the case on hand there was no benefit extended by the company to the assessee. Thus, the impugned transaction is outside of the purview of the deemed dividend as envisaged under the provisions of section 2(22)(e) See assessee own case MOHAN BHAGWATPRASAD AGRAWAL[2019 (6) TMI 694 - ITAT AHMEDABAD]- Decided in favour of assessee. Issues Involved:1. Addition under section 2(22)(e) of the Income Tax Act for credit transactions from a company.Detailed Analysis:Issue 1: Addition under section 2(22)(e) of the Income Tax Act for credit transactions from a companyThe appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the assessment order passed under section 143 r.w.s. 147 of the Income Tax Act, 1961. The appellant contested the addition made by applying section 2(22)(e) for credit transactions from a specific company. The appellant raised multiple grounds challenging the addition based on various aspects of the law.The Assessing Officer (AO) considered the advance from the company as deemed dividend under section 2(22)(e) due to the accumulated profit of the lender. The appellant argued that the advance was part of the normal business activity of the company and claimed exemption under section 2(22)(e)(ii). The AO disagreed, stating that the company was not engaged in money lending business as per its Memorandum of Association (MOA). Consequently, the AO treated the advance as deemed dividend and added it to the appellant's income.Before the Commissioner of Income Tax (Appeals), the appellant presented additional details, including the nature of the transactions, interest payments made, and the company's business activities. However, the Commissioner confirmed the addition under section 2(22)(e) based on the appellant's shareholding, accumulated profit of the company, and lack of evidence supporting the appellant's claims.Upon further appeal, the Appellate Tribunal considered the appellant's argument that no benefit was derived from the advance, as evidenced by interest payments made to the company. Citing previous tribunal decisions and legal interpretations, the Tribunal concluded that the transaction did not fall under the purview of deemed dividend as per section 2(22)(e) due to the absence of any benefit received by the appellant. The Tribunal also highlighted the appellant's compliance with TDS requirements and the absence of shareholder benefits derived from the transactions.In the final judgment, the Tribunal allowed the appeal, directing the AO to delete the addition made under section 2(22)(e). The decision was based on the lack of benefit derived by the appellant from the transactions, as evidenced by interest payments made and legal interpretations supporting the appellant's position.In conclusion, the Tribunal's decision emphasized the importance of assessing the actual benefits received by shareholders in transactions with companies to determine the applicability of deemed dividend provisions under section 2(22)(e) of the Income Tax Act.