2022 (4) TMI 1017 - AT - Income Tax

Tribunal: Business loans not deemed dividends

The Tribunal allowed the appeal, ruling that loans and advances given for business purposes and commercial considerations do not constitute deemed ... Deemed dividend u/s 2(22)(e) - AO's action in considering the commercial and business transaction between EIL and group companies which were undertaken by EIL for the purpose of carrying on its business as payment by way of loans and advances for the purpose of section 2(22)(e) - HELD THAT:- All these loans and advances given to different companies by other companies are in the nature of loans and advances out of commercial consideration and business expediency. The co-ordinate Bench has given detailed reasons which stated that company has purchased land in the name of related companies for the purpose of setting up Wind farm and therefore, there is loan and advances in the land holder companies for business purposes. While holding so, the co-ordinate Bench also relied on several judicial precedents as well as CBDT Circular No. 19/2017 dated 12.06.2017. Further, following the same decision of co-ordinate Bench in assessee’s own case for AY 2012-13 [2021 (12) TMI 1335 - ITAT MUMBAI] ITAT has also deleted the identical addition. Departmental Representative could not show us any reason that how those decisions are not applicable in case of assessee for this year. Further, the CBDT has also taken a view vide CBDT Circular No. 19/2017 dated 12.06.2017 stating that where loans and advances are in the nature of commercial transactions, would not fall within the ambit of word ‘ advance’ in section 2(22) (e). In view of the above facts, respectfully following the decision of co-ordinate bench in assessee’s own case for earlier years as well as circular of CBDT, we hold that the addition made in the hands of the assessee on substantive basis is not sustainable. The orders of the lower authorities are reversed and AO is directed to delete the deemed dividend under section 2(22)(e) - The grounds no. 1 to 3 of the appeal are dismissed. Issues:1. Interpretation of Section 2(22)(e) of the Income Tax Act regarding deemed dividend.2. Treatment of loans and advances between related companies for business purposes.Analysis:Issue 1: Interpretation of Section 2(22)(e) of the Income Tax Act regarding deemed dividendThe appeal was filed against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2012-13. The Assessing Officer invoked Section 2(22)(e) of the Act to tax deemed dividend in the hands of the assessee and related concerns. The CIT(A) directed the AO to verify ledger accounts to ascertain if actual payments were made or only journal entries were passed. The assessee contended that commercial advances and journal entries should not invoke deemed dividend. The Tribunal referred to previous decisions where loans were given for business expediency and commercial considerations, not falling under Section 2(22)(e). The Tribunal held that the addition of deemed dividend was not sustainable, reversing the lower authorities' orders and directing deletion of the deemed dividend.Issue 2: Treatment of loans and advances between related companies for business purposesThe Tribunal considered the nature of loans and advances given by Wind World (India) Ltd. to related companies for setting up wind farms. It was noted that the loans were advanced for commercial considerations and business expediency, not falling under deemed dividend provisions. The Tribunal relied on judicial precedents and a CBDT circular to support the decision. Following the precedent set in the assessee's own case for earlier years, the Tribunal held that the addition of deemed dividend in the hands of the assessee was not sustainable. The Tribunal directed the Assessing Officer to delete the deemed dividend under Section 2(22)(e) of the Act, dismissing the grounds of appeal raised by the assessee.In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that loans and advances given for business purposes and commercial considerations do not attract deemed dividend taxation under Section 2(22)(e) of the Income Tax Act.