Deemed dividend under section 2(22)(e) does not apply to a running account used for business funding.

Section 2(22)(e) deeming fiction does not apply where related-entity transactions are shown through a continuous running account used for day-to-day business funding rather than as a loan or advance. The assessee's ledger reflected repeated receipt and repayment of funds between group concerns during the year, supporting a business exigency characterisation. On those facts, the ITAT Kolkata held that the deemed dividend addition was not sustainable and deleted the addition.

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Issues: Whether the addition made as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961 was sustainable where the transactions between related entities were in a running account for meeting day-to-day business exigencies.

Analysis: The assessee's ledger reflected continuous receipt and repayment of funds between group concerns during the year, and the transactions were treated as arising from business exigency rather than as a loan or advance. On these facts, the deeming fiction under section 2(22)(e) was held not to apply to a running account between group entities used for meeting operational funding requirements.

Conclusion: The deemed dividend addition was not justified and was deleted in favour of the assessee.

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