Interest-bearing advances from company to shareholder with TDS deductions not deemed dividend under section 2(22)(e) (22)(e)

ITAT Delhi held that advances from a company to a shareholder carrying interest charges do not constitute deemed dividend under section 2(22)(e). The tribunal found that interest-bearing advances with TDS deductions reflected a quid pro quo arrangement benefiting the lender company, establishing business character rather than personal benefit to the shareholder. Following precedents from Calcutta HC and Gujarat HC, the tribunal concluded such transactions fall outside the deeming fiction of section 2(22)(e) since they serve business purposes rather than individual shareholder benefit. The assessee's appeal was allowed.

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Issues involved:
The appeal against the first appellate order concerning the assessment order under Section 143(3) of the Income Tax Act, 1961 for Assessment Year 2012-13.

Issue 1: Applicability of Section 2(22)(e) of the Income Tax Act

The Assessing Officer invoked Section 2(22)(e) of the Act, making an addition in the hands of the assessee due to loans and advances received from a company where the assessee held shares. The CIT(A) upheld this addition, leading to the appeal before the Tribunal.

Details: The assessee argued against the application of Section 2(22)(e) based on the commercial nature of the transactions, payment of interest on the loans/advances, and the principle of consistency due to a previous assessment. The Tribunal agreed with the assessee, noting that the transactions were commercial in nature, and the advances were not for individual benefit but for business purposes, as supported by legal precedents. Consequently, the Tribunal set aside the CIT(A)'s order and quashed the additions made under Section 2(22)(e) of the Act.

Final Decision:
The Tribunal allowed the appeal of the assessee, setting aside the CIT(A)'s order and quashing the additions made under Section 2(22)(e) of the Income Tax Act. The order was pronounced on 19.01.2024.

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