TaxTMI 
TaxTMI 
2015 (8) TMI 82
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....a Director and shareholder in closely held company named as M/s Gemstar Construction Pvt Ltd. The AO noticed that the assessee has borrowed funds from the above said company and hence he proceeded to examine the applicability of the provisions of section 2(22)(e) of the Act on the amount borrowed by the assessee from the above said company. The AO has extracted the account copy of the assessee as available in the books of the company and the same is reproduced below: Date Particulars Debit Credit 1.4.2006 Opening balance 56,22,575 - 17.4.2006 Amt.paid towards premises deposit 50,000 - 19.4.2006 Payment for public issue RPL-IPOHNIR 62,00,000 - 24.4.2006 Amt.paid towards premises deposit ....
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....above said amount of Rs. 62.00 lakhs. It was stated that the assessee applied for public issue of RPL in his name for and on behalf of the company and the same is supported by the resolution passed by the Board of Directors. However, the assessee was allotted the shares only to the tune of Rs. 1,04,160/- and the balance amount of Rs. 60,95,840/- was refunded by M/s RPL. The refund amount was duly returned back by the assessee to the above said company. Accordingly, it was contended before the AO that the assessee has not borrowed any funds as contemplated under section 2(22(e) of the Act and hence the amount of Rs. 62 lakhs cannot be taxed as deemed dividend. With regard to the remaining amount of Rs. 18.10 lakh, the assessee submitted that....
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....s by the Director due to non-materialisation of business transaction, then the intention was not to give loan to the assessee director and that the assessee director was acting for and on behalf of the company for which proper resolution of board of directors were passed and hence the addition made as deemed dividend u/s 2(22)(e) was liable to be deleted. The main contention of the revenue is that the ratio of the decision rendered in the case of Sunil Sethi (supra) is not applicable to the facts prevailing in the instant case. 5. In the instant case, we have noticed that the assessee had received money from M/s Gemstar Construction P Ltd for the purpose of investing in the Initial Public Officer (IPO) of M/s RPL. It is not shown to the ....
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....r IPO of M/s RPL. Secondly, it was not shown that the above said company is involved in dealing in shares, i.e., it was not part of business transactions. Thirdly, the assessee was allowed to retain the shares allotted in the IPO, which militates against the explanation given by the above said company and also the resolution passed by the Board of Directors. 8. It is in the common knowledge of everyone that the allotment is done on proportionate basis in case of over subscription of public issue. When the IPO is made by reputed business houses, the IPO is usually subscribed several times and hence the allotment of shares tends to be very much lower than that applied for. Hence, the explanation of the assessee that M/s Gemstar Constructio....