No deemed dividend u/s 2(22)(e) if a company meets its business exigencies of fund requirements by borrowing from its group concerns

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No deemed dividend u/s 2(22)(e) if a company meets its business exigencies of fund requirements by borrowing from its group concerns

This was the view of Kolkata ITAT in the case of Budhia Agencies Pvt Ltd Vs DCIT
ITA No.61/Ran/2018.
The question before ITAT was whether where a company meets its business exigencies of fund requirements by borrowing from its group concerns, such transaction cannot attract provisions of deemed dividend u/s 2(22)(e).
 ITAT held in favor of assessee & Assessee’s appeal allowed.
The shirt overview of the case was as under :
The assessee-company filed the present appeal, being aggrieved by orders of the lower authorities in framing addition of Rs 16 lakhs in course of assessment.
Such addition was subsequently enhanced to Rs 18.76 lakhs.
The AO noted that the assessee had received a loan from its sister unit and the same was later paid back, while a certain amount remained to be squared of.
The Revenue treated such amount to be deemed dividend u/s 2(22)(e).
Such findings of the AO were sustained by the CIT(A).
On appeal, the Tribunal observed as under :
++ the assessee claimed that the deemed dividend addition is not sustainable in the eyes of law.
His case as per page 4 of the paper-book indicating the assessee’s ledger in the books of M/s Republic Tractor Motor Pvt. Ltd. is that it had been receiving and paying the various sums between 01.06.2012 to 15.11.2012 for meeting day to day exigency involving sister concerns only instead of a loan inviting deemed dividend addition.
This clinching aspect has gone unrebutted from the Revenue side.
 We observe in this backdrop that the mere fact that the assessee having met its business exigency of funds requirement coming from its group concerns by way of a running account does not attract deemed dividend u/s 2(22)(e) of the Act.
Case law PCIT vs. Dishman Pharmaceuticals and Chemicals Ltd. and Pradip Kumar Malhotra vs. CIT and decision in DCIT vs. Shri Amit Kumar Jain hold that the impugned deeming fiction does not come into play in the case of a running account involving group entities meeting day to day business exigency(ies) with each other’s funds.
We therefore hold that both the learned lower authorities have erred in making the impugned addition in assessee’s hands;
We also sought now from both the parties as to whether these two entities satisfy statutory requirements of stake holding or not.
We are informed that these two entities i.e the assessee herein the M/s Bhudia Agencies Pvt. Ltd. and M/s Republic Tractor Motor Pvt. Ltd. have common shareholders only.
Be that as it may, since we have deleted the impugned addition on running account ground instead of loan transactions, we refrain ourselves from dealing with this latter aspect.
The judgment would be highly relevant in case of numerous transactions including an addition towards deemed dividend.
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