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2006 (7) TMI 526 - AT - Income TaxDeemed dividend - assessment completed u/s 143(3) - nature and character of the payments - loans or advances - accumulated profit - day-to-day basis - mutual, open and current account operated between the parties - HELD THAT:- It is to be seen that payments made by a company through a running account in discharge of its existing debts or against purchases or for availing services, such payments made in the ordinary course of business carried on by both the parties could not be treated as deemed dividend for the purpose of section 2(22)(e). The deeming provisions of law contained in section 2(22)(e) apply in such cases where the company pays to a related person an amount as advance or a loan as such and not in any other context. The law does not prohibit business transactions between related concerns, and, therefore, payments made in the ordinary course of business cannot be treated as loans and advances. Therefore, in the light of decision in the case of Nagindas M. Kapadia [1988 (12) TMI 89 - BOMBAY HIGH COURT]), we hold that payments made by a company in the course of carrying on of its regular business through a mutual, open and current account to a related party do not come under the purview of section 2(22)(e) of the Act. The payments are in the nature of payments other than advances and loans. The payments in the present case were made by PIL in settlement of its accounts with the assessee-company in the ordinary course of business where the assessee-company is acting as the broker of PIL in carrying on the business of purchase and sale of shares. The payments were made by PIL either in settlement of existing debts or on account. Therefore, we hold that the payments made by PIL to the assessee-company through the mutual, open and current account involved in the present case were the payments made in the ordinary course of business and, therefore, do not come under the purview of section 2(22)(e). Thus, we delete the addition made by the assessing authority as deemed dividend u/s 2(22)(e) of the Act - In result, the appeal filed by the assessee is partly allowed.
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