TaxTMI 
TaxTMI 
2018 (7) TMI 1545
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....e Income Tax Act, 1961 (hereinafter referred as the Act). The original assessment in this case was completed u/s. 143(3) of the Act on 14.11.2012 at returned income at Rs. 7,19,410/-. Notice u/s. 148 of the Act was issued on 24.1.2013, after recording reasons and objections were filed by the assessee were also disposed of vide order dated 17.2.2013. Notice u/s. 142(1) of the Act alongwith questionnaire was issued on 20.12.2013. In response to the same, the A.R. of the assessee attended the proceedings from time to time and filed the necessary details/ clarifications. The AO reassessed the income of the assessee Rs. 1,10,19,412/- after making addition of Rs. 1,03,00,000/- as deemed dividend u/s. 2(22)(e) of the Act vide his order dated 11.3.2014 passed u/s. 148 of the Act. Against the reassessment order dated 11.3.2014, the assessee appealed before the Ld. CIT(A), who vide his impugned order dated 1.9.2014 deleted the addition u/s. 2(22)(e) of the Act on the ground that the said amount was advanced for the business purposes and hence a commercial transaction not covered within the meaning of deemed dividend u/s. 2(22)(e) of the Act. 4. Aggrieved with the ld. CIT(A)'s order, the R....
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....d as deemed dividend in hands of P and S in proportion to their shareholdings. 5. Addl CIT Vs Shri Chandrakant V Gosalia [2015]-TIQL- 1187-lTAT-MUM where Hon'ble ITAT Delhi held that mere repayment of money borrowed by the shareholder will not escape him from the provisions of section 2(22)(e), and thus, it can be treated as deemed dividend. 6. Sunil Kapoor Vs CIT f2015l 63 taxmann.com 97 (Madras)/[2015] 235 Taxman 279 (Madras) where Hon'ble Madras High Court held that where assessee, holding 60 per cent shares of a company, took personal loan from accumulated surplus of said company, said amount would be treated as deemed dividend under section 2(22)(e), after reducing therefrom amount repaid by assessee during year 7. Shashi Pal Aqarwal Vs CIT T20151 54 taxmann.com 289 (Allahabad)/[2015] 229 Taxman 307 (Allahabad)/[2015] 370 ITR 720 (Allahabad) where Hon'ble Allahabad High Court held that where lending of money was not part of business of lending companies, loan/advance given to assessee-shareholder would be treated as deemed dividend under section 2(22)(e) 8. Star Chemicals (P.) Ltd Vs CIT T72 Taxman 279. 203 ITR 11,....
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....mount was advanced for the business purposes and hence a commercial transaction not covered within the meaning of deemed dividend under section 2(22)(e) of the Act. 5. It was explained to the AO that the companies have received the money for its business purposes and hence a commercial transaction. The AO has quoted the explanation at Pg 10 para (g) and Pg 12 para (b) where records as under: Page 10 "(g) To Sum up M/s Super Plastic Coats Limited had advanced (advance against Business transaction and Material amounting to Rs. 1.0 Crores) to Northern Strips Limited and M/s Northern Strips Limited had advanced against business transactions amounting to Rs. 3.0 Lacs to Allied Poles India Limited and not the assessee whose case is supposed to be reassessed under section 147 read with Section 148 of the Act. It may be placed on record that Section 2(22)(e) of the Act provided the payment to the assessee who is registered Share holder not in the case of assessee who had not received the payment." Page 12 (b) It may be placed on record that M/s Super Pastic Coats Private Limited and M/s Northern Strips Limited are engaged in similar tra....
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.... tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons, who manage such closely held companies, should not arrange their affairs in a manner that they assist the shareholders in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan. [Para 10.4]. Keeping the aforesaid rule in mind, the word 'advance', which appears in the company of the word 'loan', can only mean such advance which carries with it an obligation of repayment. Trade advance, which is in the nature of money transacted to give effect to a commercial transaction, would not fall within the ambit of the provision of section 2(22)(e). This interpretation would alloy the rule of purposive construction with noscitur a sociis.[Para 10.9]" 9. Further reliance in this regard is placed on the following judgments: * Delhi High Court in the case of CIT v. Sunil Sethi in ITA No. 569/2009 dated 03.02.2010 After hearing the counsel for the appellant / revenue, we are una....
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....of CIT v. Arvind Kumar Jain in ITA No. 589 of 2011 dated 30.09.2011 Deemed Dividend - Trading transaction - Treatment of unsecured loan given to shareholder of company (holding 50% of shares) as deemed Dividend - Held that:- the amount was not in the nature of 'advance' or 'loan' and in fact there was a business transaction between the assessee and company and the amount reflected running business relationship and there was a running account maintained by the assessee showing those transactions as in the books of accounts, though the amount was shown as "unsecured loan". - It is trite law that mere nomenclature of entry in the books of accounts is not determinative of the true nature of transaction. See Commissioner of Income Tax Vs. India Discount Co. Ltd. (1969 - TMI - 5158 - SUPREME Court) - the payment made were the result of trading transaction between the parties and the amount was not given by way of loan or advance. - Decided against the revenue. * ITAT Agra Bench in the case of Krishan Murari Lai Agarwal v. DCIT [2013] 59 SOT 136 Deemed dividend u/s 2(22)(e) - Disallowance u/s 56 rws 2(22)(e) - Commercial transaction vers....
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.... impugned order passed by the revenue authorities as well as the written submissions/synopsis and the case laws relied upon from both sides. The brief facts of the case is that M/s Northern Strips Pvt. Ltd. received Rs. 1 Crore from M/s Super Plastic Coats Ltd. and M/s Northern Strips Pvt. Ltd. had advance an amount of Rs. 3 lacs to M/s Allied Poles India Ltd. during the assessment year. The Assessee is holding 47.86% of shares in Northern Strips Pvt. Ltd. and further 29.79% shares in M/s Super Plastic Coats Ltd.. M/s Super Plastic Coats Ltd. is holding 99.40% shares of M/s Allied Poles India Ltd. and Assessee holds 0.05% shares of M/s Allied Poles India Ltd. Therefore, the AO has held that by virtue of holding in M/s Super Plastic Coats Ltd., the assessee holds substantial interest in Allied Poles India Ltd. and therefore, the provisions of section 2(22)(e) of the Act are applicable in the hands of the assessee of the loan of Rs. 1 Crore received by M/s Northern Strips Pvt. Ltd. and Rs. 3 lacs by M/s Allied Poles India Ltd. Looking at the brief nature of transaction, it is important to note that the amount of Rs. 1 Crore was received by M/s Northern Strips Pvt. Ltd. from M/s Super....
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....t when the Company got back its funds on the same day, it cannot fall into the definition of the deemed dividend. Therefore, the issue is squarely covered in favour of the Assessee by the above decision of the Hon'ble Bombay High Court confirming the views of the Coordinate Bench. 7.1 Ld. DR has heavily relied on the decision of Miss P. Sarada vs. CIT 144 CTR 209. We have carefully gone through that decision and find that in that particular case the Hon'ble Supreme Court has held that when the loans are given to the parties on various dates and subsequently when adjustment of accounts was made on the last day of the accounting year would not alter the position that assessee received notional dividends on various dates and therefore, the Hon'ble Supreme Court held that the same is covered under the definition of deemed dividend. In that particular case the assessee has withdrawn a sum of Rs. 93,027/- from 03.7.1972 to 22.3.1973. The letter dated 03.4.1972 was relied upon written by another party that the above amount given as a loan to that assessee may be debited to the extent of Rs. 1 lakh from his account and consequently there was no outstanding of the concerned assessee on t....