INCOME TAX ACT, 1961

Section 2(22)(e)

Dividend - Deemed dividend under section 2(22)(e) - Assessee received funds on more than 50 times from AOPL - Advances in ordinary course of business

Appellant, Asian Business Connections Private Limited ('ABCPL'), was a company incorporated under the Companies Act, 1956 and was mainly engaged in the business of making strategic investments. ABCPL was a holding company for group companies. During the course of assessment proceedings AO observed that the assessee company had shown huge amounts as unsecured loan from various parties including Rs. 428,50,73,821 from M/s. Advantage Overseas Pvt. Ltd. (AOPL) in which its share holding was 85%. AO referred to the replies of the assessee that the company did not have any income other than investment in fixed deposit and also that the company was a holding company which invested in its subsidiary and did not have any other income. AO concluded that when it had no business then there was no question of taking such huge trade advance of Rs. 428.50 crores. The AO held that this amount was nothing but an unsecured loan taken from AOPL. AO was of the view that the conditions of section 2(22)(e) are duly fulfilled and the alleged amount had been shown as unsecured loan by the assessee itself and therefore addition for deemed dividend under section 2(22)(e) was called for. Observations of the AO were duly confirmed by CIT(A).Held: The total transaction was commercial in nature and have been entered in the ordinary course of business by AOPL as duly authorised in the 'other objects' of the Memorandum of Association of the Company, in order to maximise its profits and there was no iota of evidence which proves that there was an intention of avoidance of dividend distribution tax which can attract the provision of deemed dividend. Therefore making the addition under section 2(22)(e) for deemed divident was uncalled for since the transaction falls in the list of payments which are not considered as divident as provided under sub-clause(ii) of section 2(22)(e). Addition for deemed dividend at Rs. 297.75 crores (approx.) made by the AO under section 2(22)(e) was therefore, deleted.

Relied:Ravindra Fotedar v. ACIT (2017) 85 Taxmann.com 314 (Mum) : 2017 TaxPub(DT) 4276 (Mum-Trib), Saamag Developers (P.) Ltd. v. Asstt. CIT (2018) 90 Taxmann.com 20 (Del-Trib.) : 2018 TaxPub(DT) 610 (Del-Trib), Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT (1997) 93 Taxman 502 (SC) : 1997 TaxPub(DT) 1304 (SC), Taparia Tools Ltd. v. Jt. CIT (2015) 55 Taxmann.com 361 (SC) : 2015 TaxPub(DT) 1438 (SC), Asstt. CIT v. Creative Dyeing & Printing Pvt. Ltd. (2009) 184 Taxmann.com 483 (Del) : (2009) 184 Taxman 483 (Del-HC) : 2009 TaxPub(DT) 2060 (Del-HC), CIT v. Gayatri Chakravorty (2018) 94 taxmann.com 244 (Cal-HC) : 2018 TaxPub(DT) 3141 (Cal-HC) and M.A. Rao v. DCIT (2016) 67 Taxmann.com 15 (Visakhapatnam) : 2016 TaxPub(DT) 766 (Visakhapatnam-Trib).

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