2025 (9) TMI 242 - AT - Income Tax

Loan from sister concern not treated as deemed dividend under section 2(22)(e); addition deleted, assessee favored

ITAT (Ahd) held that amounts received as loans from a sister concern did not qualify as deemed dividend under section 2(22)(e). Finding no prior or ... Addition u/s 2(22)(e) - loan received by the assessee from its sister concern - HELD THAT:- There is no addition u/s. 2(22)(e) of the Act in the earlier year(s) or subsequent year(s) on the very same loan transactions between the assessee and M/s. Sunburg Tradelink Pvt Ltd. In view of the above facts, the said amount cannot be termed as dividend u/s. 2(22)(e) of the Act. Therefore, the addition made by the ld AO u/s. 2 [22][e] of the Act is directed to deleted. Decided in favour of assessee, ISSUES PRESENTED AND CONSIDERED 1. Whether amounts received by the assessee through a current account from a sister concern, used for business purposes and partly repaid with interest and TDS, constitute 'dividend' within the meaning of section 2(22)(e) of the Income Tax Act. 2. Whether the reassessment proceedings under section 148 and consequential addition under section 2(22)(e) (ground not pressed by the appellant) raise any adjudicative question for the Tribunal (not pressed; dismissed). ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether the current-account loan qualifies as deemed dividend under section 2(22)(e) Legal framework - The statutory provision treats certain advances or loans by a company to a shareholder (or to a concern in which the shareholder is interested) as deemed dividend chargeable to tax under section 2(22)(e) if the company has accumulated profits; the provision does not by its text explicitly differentiate between interest-bearing or non-interest-bearing advances, nor between commercial/current-account transactions and gratuitous transfers. Precedent treatment - The Tribunal relied on a body of decisions and administrative guidance recognizing that transactions maintained as current accounts in the ordinary course of business, trade advances and other commercial transactions are not to be treated as 'advances' attracting section 2(22)(e). Decisions cited include Tribunal benches and High Court rulings holding that current-account dealings between related parties, where the account reflects business/commercial transactions, fall outside the scope of deemed dividend. The CBDT Circular No.19/2017 was also relied upon as authoritative administrative clarification that trade advances in the nature of commercial transactions do not fall within the ambit of the word 'advance' in section 2(22)(e). Interpretation and reasoning - The Court examined the facts: the amounts were received and recorded through a current account with a sister concern for business purposes; part of the loan was repaid during the year; interest of Rs. 6,16,800 was paid with appropriate TDS under section 194A; and the assessee had substantial interest income elsewhere during the year. There was also no instance of similar additions in earlier or subsequent years on the same transactions. On this factual matrix, the Tribunal applied settled legal principles and authorities holding that current-account/commercial advances are not deemed dividends. The Tribunal gave weight to (a) the documentary record of loan repayment and interest with TDS, (b) the commercial context (business use, current-account practice), (c) absence of consistent treatment as deemed dividend in adjoining years, and (d) precedents and administrative circular clarifying the exclusion of trade/commercial advances from section 2(22)(e). Ratio vs. Obiter - Ratio: Where amounts are advanced/received through a current account in the ordinary course of business between group concerns, evidenced inter alia by repayments, payment of interest with TDS, and consistent commercial treatment, such amounts do not constitute 'dividend' under section 2(22)(e). Obiter: Observations about the general absence of textual differentiation in the statutory provision between interest-bearing and non-interest-bearing loans are ancillary; the decision rests on the application of factual indicia and precedent distinguishing commercial/current-account transactions from gratuitous advances. Conclusions - The addition under section 2(22)(e) was unsustainable on the facts and law. The Tribunal directed deletion of the addition and allowed the appeal insofar as it challenged the substantive inclusion as deemed dividend. Issue 2: Validity of reassessment notice under section 148 (Ground not pressed) Legal framework - Section 148 authorises reopening where income has escaped assessment; jurisdictional and procedural objections to reopening can be raised where notice is invalid or jurisdiction absent. Precedent treatment - Not addressed substantively because the appellant expressly did not press this ground before the Tribunal. Interpretation and reasoning - The Tribunal recorded the appellant's endorsement that Ground No.1 (challenge to jurisdiction/validity of notice under section 148) was not pressed and accordingly dismissed that ground. No factual or legal determination was made on the merits of the validity of the reopening. Ratio vs. Obiter - Obiter: The dismissal of Ground No.1 for want of prosecution is procedural and does not constitute a judicial determination on the lawfulness of the reassessment notice. Conclusions - Ground No.1 is dismissed as not pressed; no adjudication on the validity of the section 148 notice was undertaken. Cross-references and ancillary points 1. The Tribunal expressly applied and followed the line of authority holding that current-account/commercial advances are not within section 2(22)(e), including reliance on the administrative clarification in CBDT Circular No.19/2017. 2. The presence of interest payments with TDS and repayment during the year were treated as strong indicia of commercial character and therefore material to distinguish the transaction from a distribution of accumulated profits. 3. The absence of prior or subsequent assessments treating the same transactions as deemed dividend was treated as supportive of the commercial character, and the Tribunal viewed the aggregate factual matrix as determinative. Final disposition The appeal is allowed to the extent of deleting the addition under section 2(22)(e); the ground challenging reassessment jurisdiction was not pressed and is dismissed without adjudication.