ITAT Mumbai: Loans not deemed dividends. Interest relief granted.

The ITAT Mumbai allowed the appeal of the assessee, determining that the loans received should not be treated as deemed dividend under section 2(22)(e) as the transaction fell under the money-lending business exemption. Additionally, the ITAT ruled in favor of the assessee regarding the charging of interest under sections 234B and 234D, noting that the assessment order had only directed interest under sections 234B and 234C, leading to relief being granted on this ground.

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Issues involved:
The judgment involves issues related to the treatment of loans received by the assessee as deemed dividend under section 2(22)(e) and the charging of interest under sections 234B and 234D.

Treatment of loans as deemed dividend under section 2(22)(e):
The assessee objected to the order upholding the treatment of loans received from M/s. Palghar Steels Private Limited as deemed dividend under section 2(22)(e). The Assessing Officer noted the loan received and directed the assessee to show cause why it should not be taxed as deemed dividend. The assessee argued for exemption under clause (ii) below section 2(22) as the loan was part of the company's money-lending business. The CIT(A) held that the major income of the assessee was from interest and questioned if money lending was a substantial part of the business. The assessee cited various legal decisions and the memorandum of association to support its case. The ITAT allowed the appeal, considering money lending as a business transaction not covered by section 2(22)(e).

Charging of interest under sections 234B and 234D:
The second ground of appeal was against the charging of interest under section 234D. The assessee's Representative argued that the assessment order only directed to charge interest under sections 234B and 234C. The ITAT accepted this plea as correct and allowed the appeal on this ground. The next ground regarding interest under section 234B was considered consequential, and the Assessing Officer was directed to provide relief accordingly.

In conclusion, the ITAT Mumbai allowed the appeal of the assessee regarding the treatment of loans as deemed dividend and the charging of interest under sections 234B and 234D.

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