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2015 (9) TMI 657 - ITAT BANGALORE

2015 (9) TMI 657 - ITAT BANGALORE - [2015] 40 ITR (Trib) 250 (ITAT [Bang]) - Deemed dividend u/s 2(22)(e) - CIT(A) deleted the addition - Held that:- We agree with the findings of the Commissioner of Income-tax (Appeals) that the payments made by the assessee on behalf of the company, for its business purposes and the reimbursement thereof to the assessee by the said company cannot be treated as deemed dividend under section 2(22)(e) of the Act. However, it is seen from the paper book filed by t .....

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the assessee as deemed dividend under section 2(22)(e) of the Act. - Decided partly in favour of revenue for statistical purposes. - ITA No.916/Bang/2013 - Dated:- 17-4-2015 - SHRI PRAMOD KUMAR AND SMT. P. MADHAVI DEVI, JJ. For the Appellant : Shri P.Dhivahar, JCIT(DR). Respondent by: Shri S.Parthasarathi, Advocate ORDER Smt. P. Madhavi Devi (Judicial Member).- This appeal by the Revenue is against the order of the Commissioner of Income-tax (Appeals) -III, Bangalore, dated March 20, 2013 delet .....

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ved that the assessee has drawn a loan/advance of ₹ 1,53,42,534 from M/s. Synergia Consultant Pvt. Ltd., wherein he is a director holding 50 per cent. shares. He also observed that the assessee- company has accumulated profit of ₹ 22,66,96,403 during the year. Therefore, he observed that the provisions of section 2(22)(e) of the Act are attracted and the advances received from the company have to be treated as deemed dividend in the hands of the assessee. In view of the same, a show- .....

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the payments were apportioned to the respective accounts. It was submitted that during the relevant financial year, the transfer of funds has been done from and to both entities for short-term business requirements and therefore the transactions do not come under the purview of section 2(22)(e) of the Act. The Assessing Officer was, however, not convinced by the assessee's contention and held that in the account of the assessee in the books of the company always showed debit balance which w .....

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sions of section 2(22)(e) are not applicable to the assessee's case. Against the relief given by the Commissioner of Income-tax (Appeals), the Revenue is in appeal before us. 4. The learned Departmental representative, while supporting the order of the Assessing Officer submitted that the account of the assessee in the books of account also showed that the loans or advances were towards personal expenses of the assessee. Therefore, according to him, the Commissioner of Income-tax (Appeals) h .....

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(Appeals) has rightly appreciated that the assessee was making payments on behalf of the company which was being reimbursed to him and therefore the expenditure was clearly in the nature of business expenditure for the purpose of business of the company and the assessee has not gained any personal benefit out of the same. Further he placed reliance upon the judgment of the hon'ble Karnataka High Court in the case of Bagmane Constructions P. Ltd. v. CIT I. T. A. No. 473 of 2013, dated Septemb .....

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a director and also a 50 per cent. shareholder of the company M/s. Synergia Consultant Pvt. Ltd. It is also not in dispute that there were debit and credit entries in the ledger account of the assessee in the books of account of the company. The assessee's contention that the assessee has made payments on behalf of the company using his credit card which have been reimbursed by the company by credit entries in his ledger account has not been rebutted by the Revenue. We find that the Commiss .....

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ference : "27. In this background when we look at the aforesaid provision, it is clear that any payment made by a company by way of advance or loan has to be understood in the context of the object with which the said provision is introduced. Though the Legislature has introduced 'advance' as well as 'loan' which are two different words, the meaning of each of those words have to be understood in the context in which they are used. Each word takes its colour from the other. .....

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gether they are understood to be used in their cognate sense. They take as it were their colour from each other, that is, the more general is restricted to a sense analogous to a less general. In the case of a loan, money is advanced generally on payment of interest. In other words the loan advanced has to be repaid with interest. In the case of an advance also, the element of repayment is there but such a repayment may be with interest or without interest. Therefore, when the said two words are .....

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tly would benefit the company advancing the loan, such advance cannot be brought within the word 'advance' used in the aforesaid provision. The trade advance which is in the nature of money transacted to give effect to commercial transactions would not fall within the ambit of the provisions of section 2(22)(e) of the Act. 28. In this context, it is useful to refer to the judgment of the apex court in the case of Life Insurance Corporation of India v. Retired LIC Officers Association [20 .....

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profit which ought to have been paid to the shareholders as the dividend paid to a sister concern for the purpose of acquisition of capital assets or as a consideration for the goods received which is required for carrying on the business, it would not fall within the definition of section 2(22)(e) of the Act as the object was not to pay the said amount to the share holders after avoiding payment of dividend distribution tax under section 115-O of the Act. In that view of the matter, it is not .....

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. The question of looking into the afore said provision would arise only when all the conditions prescribed in clause (e) of sub-section (2) of section 22 are complied with. If a pay ment is made by way of trade or business, advance or loan, clause (e) of sub-section (2) of section 22 of the Act is not at all attracted and the question of applying the aforesaid clause (ii) would not arise and therefore, we do not see any substance in the said contention. 30. It was also contended on behalf of th .....

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