Inter Banking Accounts Transactions between Group Companies can’t be treated as ‘ Deemed Dividend ’: ITAT [Read Order]

The Mumbai bench of Income Tax Appellate Tribunal (ITAT) decided that since the transaction carried between two group companies were carried as inter-banking accounts transaction then the amount cannot be treated as deemed dividend.

The bench including Judicial Member Amarjith Singh and Accountant Member R.C Sharma was considering the case of Neha Homes Pvt Ltd versus DCIT wherein bench held so.

In instant case, Assessee is a company engaged in the business of real estate construction who received a loan from equator investment Pvt Ltd and the loan amount repaid during the year. Both the Assessee and the lender company called EIPL ae part of Gundecha group of business.

Assessing Officer by observing the aforesaid facts made addition under section 2(22)e up to the amount of reserve and surplus earned by the Assessee-company. CIT (A) confirmed the decision of AO against which Assessee is in appeal before this tribunal.

The bench heard the rival contentions and cited some judicial pronouncement which is identical to the fact and also reproduced the provision of section 2(22)e of the Income Tax Act.

The counsel for Assessee raised a contention that the main business of EIPL is giving loans and advances and also an investment company which extended its service of financial assistance. so their activities did not fall into the definition of dividend and the aforesaid provision is not maintainable.

The bench relied on the decision of Gujarat High Court in the case of Schutz Dishman Biotech (P) Ltd where it has been held that any transaction happened as current accommodation entries then they cannot be termed as loans and advances for the purpose of deemed income.

While observing the shareholding pattern of EIPL ITAT understood that the said Assessee-NHBPL doesn’t hold the share of EIPL. Accordingly, the bench observed as “both receipts and payments is taking place in inter-banking accounts the same cannot be regarded as Loans and Advances as contemplated u/s 2(22)(e) and thus no addition could be made as Deemed Dividend.”