LAUREN SOFTWARE P.LTD,MUMBAI vs. ITO WD 9(2)(2), MUMBAI

The only issue raised by the assessee in this appeal is against the part confirmation of addition by the Ld.CIT(A) to the : 2 : & 02/Mum/2017 tune of Rs.50,78,658/-, as made by the AO u/s.2(22)(e) of the Income Tax Act (Act).

The facts in brief are that, this is third round of litigation before the Tribunal as the ITAT vide its order dt.02-06-2006 in and 7683/Mum/2004/AY.2001-02 has restored the matter back to the file of Ld.CIT(A) for fresh adjudication and thus, the Ld.CIT(A) vide order dt.05-02-2008, confirmed the addition u/s.2(22)(e) of the Act of an amount of Rs.50,78,658/- in the hands of the assessee-company. Thereafter, the appeal was filed before the ITAT and the ITAT once again vide order dt.10-11-2010, restored the issue to the file of AO with certain directions to decide the issue by giving reasonable opportunity to the assessee. Now the AO has, after allowing opportunity to the assessee, framed the assessment u/s.143(3) r.w.s.254 of the Act vide order dt.22-10- 2012, again making the addition of Rs.74,32,885/-. According to the Ld.AO, the said addition represented the deemed dividend, within the meaning of Section 2(22)(e) of the Act, as the business of the Lauren Information Technology Pvt. Ltd., was not of money-lending and accordingly, all the conditions as envisaged by Section 2(22)(e) of the Act were satisfied and thus, justified the addition. Ld.CIT(A) partly allowed the appeal of assessee by following the decision of the Hon'ble Supreme Court in the case of CIV Vs. V.Damodaran (1980)[121 ITR 572] (SC) and thus, directed the AO to consider accumulated profit as on 01-04- 2000 for the purpose of deemed dividend and accordingly directed the AO to exclude Rs.17,29,108/- profits during the year from the accumulated profit and thus, directed the AO to sustain

Ld.CIT(A) appended a chart in para 5.6 and 5.8 and accordingly held that Rs.50,78,658/- has to be considered as deemed dividend in the hands of the assessee.

After hearing both the parties and perusing material on record, including the documents filed by the assessee in the Paper Book in support of its contentions, we observe that un- disputedly, the assessee and its sister concern, Lauren Information Technologies P. Ltd., both are sister concerns and doing business transactions with each other. We also note that the entities have advanced money to each other, without charging interest and accordingly, the authorities below have held that advances made by these entities constitute deemed dividend. However, the perusal of the order of Ld.CIT(A) and documents on record reveal that both the entities have been engaged in trading operations with each other. We also note that the substantial payment is coming over from the earlier year as opening and no disallowance was made by the Revenue qua the opening balance as deemed dividend in the earlier year. It was also stated before us that in the earlier year, the amount coming over from the earlier years was on account of trading operation only. Similarly, in the current year, we observe that major payments were made towards opening balances balance and thereafter against the various expenses and JV amounts payable. Under these circumstances, we are of the view that to hold the transactions of trading in nature entered into in the ordinary course of business as deemed dividend would be against the spirit of law as all these transactions seems to be necessitated by : 4 : & 02/Mum/2017 the business relationship between the two entities though the shareholder is common on both the entities. We have exhaustively examined and analysed the documents and the orders of lower authorities and observe that the transactions were purely out of trading transactions between the two concerns the assessee and the sister concern are entered into in the ordinary business operations and therefore does not fall within the ambit of section 2(22)(e) of the Act. Under these circumstances, we are inclined to set aside the order of the CIT(A) and direct the AO to delete the disallowance.

In the result, this appeal of assessee is allowed.

As far as this appeal is concerned, the only issue raised by the assessee in this appeal is also against the part confirmation of addition by the Ld.CIT(A) to the tune of Rs.17,29,108/-, as made by the AO u/s.2(22)(e) of the Act. Since the facts of the present case are identical to one as decided by us in (supra) and therefore our findings in the said appeal, mutatis mutandis, would apply to this appeal as well.

To sum-up, both the appeals are allowed.