TaxTMI 
TaxTMI 
2016 (3) TMI 1202
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....he provisions of section 2(22)(e) were attracted in case of the said loan amount, the Assessing Officer required the assessee to show-cause as to why the same should not be added to her total income treating the same as deemed dividend. In reply, various contentions were raised by the assessee to challenge the applicability of section 2(22)(e) to the loan amount received by her from M/s. Surya Business Pvt. Limited. The Assessing Officer, however, did not find merit in the said contentions and after giving reasons to reject the same in the assessment order, he made an addition of Rs. 64,55,800/- to the total income of the assessee on account of deemed dividend under section 2(22)(e) of the Act. 4. The addition made by the Assessing Officer on account of deemed dividend under section 2(22)(e) was disputed by the assessee, in the appeal filed before the ld. CIT(Appeals) and the submissions made before the Assessing Officer were reiterated on behalf of the assessee in support of her case. The ld. CIT(Appeals), however, did not find the same to be acceptable except in respect of one aspect whereby he found the accumulated profit of M/s. Surya Business Pvt. Limited at the relevant poin....
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....ii) such share holder should be beneficial owner of shares holding not less than ten percent of the voting power. In the case of the appellant, both these conditions are satisfied as the company M/s. Surya Business Pvt. Ltd. has made payment to the appellant by way of advance or loan and the public is not substantially interested in the said company. The shareholder i.e. the appellant is holding more than ten percent of the voting power in the said company. Therefore, I am of the opinion that the provisions of section 2(22)(e) are applicable in the case of appellant. The amount of advance or loan will not be treated as deemed dividend within the meaning of section 2(22)(e) provided any of the conditions mentioned in clauses (i) to (v) of section 2(22)(e) is satisfied. The appellant has contended before the AO as well as before me that, in her case, clause (ii) of section 2(22)(e) is applicable and hence the AO was not justified in taxing the amount of loan and advance from M/s Surya Business Pvt. Ltd. as deemed dividend. Clause (ii) of section 2(22)(e) reads as under- "Any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its busin....
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....s total turnover of Rs. 29,85,30,665/- works out to 3.2% only. Thus, it could be totally unjustified to assume that the company was carrying on the business of money lending. In view of above facts, it is held that the AO was justified in arriving at the conclusion that the company M/s Surya Business Pvt. Ltd. was not engaged in the business of money lending and that lending of money is not a substantial part of the business of the company. And therefore, the provisions of section 2(22)(e)(ii) are not applicable in the case of the appellant. I uphold the view taken by the AO. During the course of appellate proceedings, it was contended by the appellant that the addition, if at all is to be made u/s. 2(22)(e), cannot exceed the sum of Rs. 17,89,923/- being the actual amount of loan outstanding as on 31-3-2006 after merging accounts of individual and the proprietary concerns located at Kolkata and Jorhat, It was further submitted by the appellant that under no circumstances, the amount of addition u/s 2(22)(e) could exceed the accumulated profits of the company which was Rs. 49,01,812/-. Addition of Rs. 64,55,800/- is therefore, in any case, basically wrong and outside the provisio....
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....section 2(22)(e), it is observed that the judicial pronouncements cited by the ld. counsel for the assessee clearly support the case of the assessee. 6. In the case of Pradip Kumar Malhotra reported in 338 ITR 538 cited by the ld. counsel for the assesese, it was held by the Hon'ble Calcutta High Court that the phrase "by way of advance or loan" appearing in section 2(22)(e) must be construed to mean those advances or loans, which a shareholder enjoys for simply on account of being a partner, who is the beneficial owner of shares, but if such loan or advance is given to such shareholder as a consequence of any further consideration, which is beneficial to the Company, received from such shareholder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. It was held that gratuitous loan or advance given by a Company to those classes of shareholders thus would come within the purview of section 2(22)(e) but not the cases where the loan or advance is given in return to an advantage conferred upon the Company by such shareholder. In the case of ACIT -vs.- M/s. Zenon (India) Pvt. Limited, a loan taken by the assessee was treated by the As....