2013 (9) TMI 1327 - AT - Income Tax

Deemed dividend classification of intercompany credits under Section 2(22)(e) held inapplicable, treated as commission income and deleted

Issue concerns whether intercompany credits arising from a personal security and reciprocal current account transactions attract treatment as deemed ... Deemed dividend - Addition made by the AO by invoking the provisions of Section 2(22)(e) of the Income Tax Act, 1961 - information u/s 133(6) from MCX with regard to code modification - commission income - HELD THAT:- We have found that Shri Vinod Singhvi has provided a personal security to the ICICI Bank Ltd. in the favour of M/s. Vinod & Company for National Stock Exchange of India and the assessee also produced necessary evidence before the AO. Both entities have current account with each other on which interest is charged on product basis. Therefore, these credits cannot be treated as deemed dividends u/s 2(22)(e) of the Act in the hands of this assessee. In this regard the decision of Hon’ble Calcutta High Court in the case of Pradeep Kumar Malhotra Vs. CIT [2011 (8) TMI 16 - CALCUTTA HIGH COURT], helps the case of the assessee. On almost similar facts in assessee’s own case for A.Y. 2008- 09 Appellate Tribunal in ITA order has held that provision of Section 2(22)(e) are not attracted. Therefore, we order to delete the impugned addition and allow ground of this appeal. After going through the records, we don’t find any such difference in A.Y. 2006-07 also the transactions were not admitted by the assessee and the facts are mutatis mutandis identical. Since on identical facts the Tribunal in assessee’s case for A.Ys. 2006-07, 2007-08 and 2008-09 admittedly, has deleted similar additions, we have to take a consistent view. Therefore, by respectfully following the Tribunal Order in ITA for the A.Y. 2006-07 [2012 (4) TMI 851 - ITAT JODHPUR]. we order to delete the impugned addition made by the A.O. treating it as commission income and allow ground of this appeal. In the result, the appeal of the assessee is partly allowed. Issues: (i) Whether credits between a company and its director/proprietor recorded in current accounts and on which interest is charged constitute advances or loans attracting Section 2(22)(e) (deemed dividend); (ii) Whether estimated commission income of Rs. 2,47,436/- based on unadmitted MCX codes should be sustained; (iii) Whether charging of interest under sections 234A, 234B and 234C is liable to be deleted.Issue (i): Whether the inter-entity current account credits/interest constitute advances or loans attracting Section 2(22)(e) of the Income-tax Act, 1961.Analysis: The transactions were in the nature of current account dealings between two business entities carrying on similar brokerage activities, with interest charged on product basis and supporting evidence of consideration and security furnished. Prior appellate decisions on identical facts and an authoritative High Court principle distinguishing gratuitous advances from advances given in return for consideration were applied.Conclusion: Section 2(22)(e) does not apply; the addition of Rs. 68,28,848/- as deemed dividend is deleted in favour of the assessee.Issue (ii): Whether the AOs estimated commission income of Rs. 2,47,436/- based on certain MCX codes (unconfirmed by the taxpayer) is maintainable.Analysis: On review of records and in light of prior Tribunal orders on identical facts for relevant assessment years, the facts were found to be mutatis mutandis identical and a consistent appellate view was followed to avoid contradictory treatment; the estimation was therefore re-examined in that context.Conclusion: The estimated commission addition of Rs. 2,47,436/- is deleted in favour of the assessee.Issue (iii): Whether interest under sections 234A, 234B and 234C can be deleted.Analysis: Interest under sections 234A, 234B and 234C is mandatorily chargeable by statute; however consequential relief, if any, arising from other allowed grounds was to be considered.Conclusion: The ground seeking deletion of interest under sections 234A, 234B and 234C is not allowed; statutory interest remains chargeable though consequential reliefs, if applicable, are to be given.Final Conclusion: The appeal is partly allowed by deleting the additions under Issue (i) and Issue (ii) while sustaining the statutory position on interest under Issue (iii); the overall effect is a partly favourable outcome for the assessee.Ratio Decidendi: Advances or loans arising from transactions that are current account dealings between commercial entities and given in return for consideration or security are not 'deemed dividend' under Section 2(22)(e); consistent appellate treatment on identical facts must be followed.