· During the year under consideration, assessee obtained a sum of Rs.15,76,77,411/- from M/s Bright Advertising (P) Ltd., in which she had 25.24% equity stake. This company had disclosed Rs.1,92,85,832/- as general reserve and Rs.1,17,97,802/- as surplus profit during the year. Therefore, the AO made the addition of Rs.3,10,83,635/- [1,92,85,832 + 1,17,97,802] holding the said amount to be the deemed dividend as per the provisions of section 2(22)(e) of the Act.
· The CIT(A) deleted the addition made by the AO by holding that the said sum did not represent any loan or advance so as to attract the provisions of deemed dividend, but the same were merely transactions in mutual or current account.
· The Appeal filed by the Revenue before ITAT was also dismissed on similar factual findings.
· The Counsel for the Revenue argued that mere inflow of funds from the company to the assessee by itself attracted the deeming provisions of section 2(22)(e) of the Act.
· The counsel for the assessee submitted that the transactions between the assessee and the company bore the character of mutual running or current account. It was further submitted that concurrent findings in this regard were also made by the CIT(A) and the ITAT after appreciating the evidences filed by assessee.
· The High Court took note of the fact that the ITAT had analyzed the ledger account of the company with regard to the payment made and received from the assessee. The High Court also took note of the fact that the Tribunal had given categorical findings to the fact that mutual transactions were carried out between the assessee and the company throughout the year, and at some points the company was the beneficiary of the sums given by the assessee while at another point of time during the previous year, the assessee was the beneficiary of the sums given by the company.
· Thus, the Court concluded that the transactions were only of the nature of a running or current account which created independent obligations and were not the transactions of loan or advance, which created obligations only on the other side.
· Therefore, the Court held that the payment of the sum by the company to the assessee could not be treated as deemed dividend distributed out of profits.
For further reading, refer the attachment.
Further Reading