ACIT, CHENNAI vs. M/S. SPHERA MINERALS PVT. LTD., CHENNAI

This appeal of the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-VI, Chennai, dated 30.08.2013 and pertains to assessment year 2006-07.

Sh. Joe Sebastian, the Ld. Departmental Representative, submitted that the only issue arises for consideration is with regard to addition made by the Assessing Officer under Section 2(22)(e) of The Ld. D.R. pointed out that the assessee-company has received `6,42,25,343/- from its sister concern M/s Trimex Industries Private Limited. According to the Ld. D.R., both, the assessee-company as well as its sister concern M/s Trimex Industries Private Limited, have common shareholders and Directors. Therefore, according to the Ld. D.R., the provisions of Section 2(22)(e) of the Act is squarely applicable. Referring to the assessment order, the Ld. D.R. pointed out that the assessee-company entered into agreement with third parties and the sister concern has also entered into agreement with third parties for purchasing iron ore. According to the Ld. D.R., the assessee-company under the pretext of receiving advance money from sister concern for purchasing of iron ore, received the advance in violation of Section 2(22)(e) of the Act. According to the Ld. D.R., even though the assessee claims that the transaction between the assessee and its sister concern was commercial in nature, no such commercial requirement was established. Therefore, the receipt of advance of `6,42,25,343/- has to be considered as deemed dividend. Hence, the CIT(Appeals) is not justified in allowing the claim of the assessee.

On the contrary, Shri B.S. Purushotham, the Ld. representative for the assessee, submitted that the assessee- Limited. Therefore, according to the Ld. representative, there is no question of applying the provisions of Section 2(22)(e) of the Act in the hands of the assessee. Even otherwise, according to the Ld. representative, the advance was paid by the sister concern for purchasing iron ore. Therefore, there was commercial transaction between the assessee and M/s Trimex Industries Private Limited.

We have considered the rival submissions on either side and perused the relevant material on record. It is not in dispute that the assessee-company is not a shareholder in M/s Trimex Industries Private Limited. Section 2(22)(e) of the Act clearly says that any payment made by a company by way of advance or loan to a shareholder or to the benefit of the shareholder, it has to be treated as deemed dividend under Section 2(22)(e) of the Act. Dividend has to be assessed only in the hands of the shareholders. If the payment was made on behalf of the shareholder or benefit of the shareholder, the assessment has to be made only in the hands of the shareholder on whose benefit the advance was made as deemed dividend under Section 2(22)(e) of the Act. In this case,

In the result, the appeal of the Revenue is dismissed.