2025 (10) TMI 294 - AT - Income Tax

Inter-corporate deposits with interest held not taxable under section 2(22)(e); Revenue's addition deleted and assessee's appeal allowed

ITAT (Del) held that the impugned sum constituted inter-corporate deposits bearing interest and did not attract deeming under section 2(22)(e). Relying on ... Deemed dividend u/s 2(22)(e) - inter-corporate deposits - Scope of CBDT’s circular no. 19/2017 HELD THAT:- We are of the considered view that once the assessee’s stand from the day one is that the impugned sum represents inter-corporate deposits, which has neither been rebutted by the AO nor in the lower appellate discussions, case law CIT Vs. Subhkam Monetary Services (P.) Ltd [2014 (8) TMI 1263 - BOMBAY HIGH COURT] holds that such intercorporate deposits do not attract section 2(22)(e) of the Act. All this is indeed coupled with the fact that the above former entity had also charged interest as well. We thus conclude in light of the CBDT’s circular no. 19/2017 as well as PCIT Vs. Dwarka Prasad Aggarwal, [2024 (4) TMI 607 - SC ORDER] that such commercial transactions are very well out of the ambit of the impugned deeming fiction. We accordingly reject the Revenue’s vehement contention supporting the impugned addition which is hereby deleted in very terms. Assessee’s appeal is allowed. Assessee, holding 34.67% in Biggesto Technologies and 21.08% in Kushang Technologies Pvt. Ltd., disputed addition under section 2(22)(e) of the Income-tax Act of Rs.1,29,53,126 arising from inter-corporate deposits (ICDs) of Rs.2.34 crores made by Kushang to Biggesto. Assessing Officer and lower appellate authority treated the ICDs as deemed dividend. Tribunal, proceeding ex parte for the assessee, accepted the assessee's consistent plea that the sum constituted inter-corporate deposits supported by charging of interest. Reliance was placed on CIT v. Subhkam Monetary Services (P.) Ltd., CBDT Circular No.19/2017 and PCIT v. Dwarka Prasad Aggarwal (2024) where it was held that such ICDs 'do not attract section 2(22)(e)' and that these are commercial transactions outside the 'ambit of the impugned deeming fiction.' Consequently, the addition under section 2(22)(e) was deleted and the appeal allowed.