Deemed dividend under section 2(22)(e): commercial bank security transactions not for personal benefit, addition rejected.

Addition under the deemed dividend doctrine was contested on grounds that transfers from a closely held company were trade/commercial transactions and not loans for the shareholder's personal benefit. The tribunal noted AO's earlier record, found no procedural infirmity in admission of documents, and accepted that funds were transferred so the shareholder acted as a facilitator and fixed deposits were provided as bank security for company credit facilities. Consequently the payments were treated as commercial trade advances and not as loans or advances attractable as deemed dividend; addition was rejected.

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Issues: Whether the amounts advanced/transferred by a closely held company to the assessee fall within the meaning of "loan or advance" under Section 2(22)(e) of the Income-tax Act, 1961 and are therefore taxable as deemed dividend for AY 2016-17.

Analysis: The Tribunal examined the nature and purpose of the transactions and the surrounding facts: funds transferred by the company were used by the assessee to make fixed deposits; the fixed deposit receipts were furnished as security to the bank to obtain Letter of Credit facilities for the company; maturity proceeds were returned to the company; the assessee acted as a conduit facilitating commercial transactions for the company and did not derive personal benefit. The Tribunal reviewed relevant judicial precedents and CBDT Circular No.19/2017, which recognize that advances/transactions in the nature of trade or commercial transactions undertaken for business purposes do not attract Section 2(22)(e). The Tribunal also considered the Revenue's contention on procedural compliance (Rule 46A) and found that the assessing officer had the primary details in the original assessment file and that the CIT(A) did not violate Rule 46A in admitting and considering relevant material.

Conclusion: The payments received by the assessee do not constitute "loans or advances" within the meaning of Section 2(22)(e) because they were commercial/trade transactions for the benefit of the company and the assessee received no personal benefit. The addition under Section 2(22)(e) is therefore not sustainable and is deleted in favour of the assessee.

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