2023 (2) TMI 87 - AT - Income Tax

Deemed divided u/s 2(22) - CIT(A) was convinced that the assessee had availed advance pursuant to business transaction and therefore was outside the ambit of provisions of section 2(22)(e) - HELD THAT - The first appellate authority while deleting the addition has drawn support from the decision of the Calcutta High Court in the case of Pradeep Kumar Malhotra 2011 (8) TMI 16 - CALCUTTA HIGH COURT and also in the case of Creative Dyeing and Printing P Ltd 2009 (9) TMI 43 - DELHI HIGH COURT . Since the first appellate authority has deleted the addition in true appreciation of the facts supported by judicial decisions we do not find any reason to interfere with the findings of the ld. CIT(A). Decided against revenue.

Summary

Issues:
Appeal against deletion of addition u/s 2(22)(e) of the Income-tax Act, 1961.

Analysis:
The appeal and cross objections were filed against the order of the ld. CIT(A) relating to the Assessment Year 2014-15. The Revenue contended that the ld. CIT(A) erred in deleting the addition of Rs. 5 crores under section 2(22)(e) of the Act, treating it as a valid business agreement. The assessee did not press the cross objections, leading to their dismissal.

During scrutiny assessment, it was observed that an advance given to the assessee by a closely held company could be treated as deemed dividend. The assessee argued that the advance was part of a business arrangement involving a corporate guarantee and a loan agreement. The Assessing Officer found technical discrepancies in the board resolution and conducted further inquiries due to common shareholding between the companies.

The ld. CIT(A) considered the submissions and evidence provided by the assessee, including a confirmation from the parent company and board resolutions. It was established that the advance was obtained as part of a legitimate business transaction, falling outside the scope of section 2(22)(e) of the Act. The collateral security and corporate guarantee provided by the assessee were crucial for securing a bank loan, as evidenced by the bank's sanction letter.

The ld. CIT(A) relied on judicial precedents, including decisions of the Calcutta High Court and the Delhi High Court, to support the deletion of the addition. The appellate authority's decision was based on a thorough analysis of the facts and legal principles, leading to the dismissal of both the Revenue's appeal and the assessee's cross objections.

In conclusion, the ITAT Delhi upheld the ld. CIT(A)'s decision to delete the addition under section 2(22)(e) of the Act, emphasizing the genuine business nature of the transaction and the supporting evidence provided by the assessee. The order was pronounced on 01.02.2023, dismissing both the Revenue's appeal and the assessee's cross objections.