TaxTMI 
TaxTMI 
2018 (8) TMI 1251
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....t out by the Assessing Officer in the Assessment Order. (ii) The Learned CIT(A) has erred on facts and in law in deleting the disallowance made by the Assessing Officer on account of exemption under section 10AA of the Income Tax Act, 1961, without properly appreciating the fact that business of assessee was merely a continuation of the old business and thereby violating the primary conditions of eligibility of exemption u/s. 10AA of the Act. (iii) The Learned CIT(A) has erred on facts and in law in deleting the addition of Rs. 6,95,52,3457- u/s. 2(22)(e) r.w.s.56 of the Income Tax Act, 1961 without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer. (iv) The Learned CIT(A) has erred on facts and in law in deleting the addition of Rs. 6,95,52,345/- u/s. 2(22)(e) r.w.s.56 of the Act, holding that the assessee was not shareholder of the lender company and by placing reliance upon the decision of Mumbai Tribunal in the case of ACIT vs Bhaumik Colours 92009) SOT (Mum SB) ignoring the intent of Legislation as envisaged in CBDT circular No 495 dated 22.09.1987." 3. The brief facts of the case extracted from ITA No. 5549/Mum/2014 ....
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.... disallowance of deemed dividend under Section 2(22)(e) of the Act, the assessee submitted that it has received intercorporate loans from two of its money lending concerns in the normal course of business and the AO has incorrectly appraised the facts to make addition under Section 2(22)(e) of the Act. 5. The CIT(A), after considering the submissions of the assessee, deleted the addition made by the AO towards disallowance of deduction claimed under Section 10AA of the Act, by following his predecessor's order in assessee's own case for assessment years 2007-08 and 2008-09 by holding that the assessee has fulfilled all conditions specified under Section 10AA of the Act, to claim the benefit of deduction, therefore the AO was incorrect in disallowing deduction claimed under the said section without appreciating the fact that setting up a new business in a different name does not amount to splitting/reconstruction of already existing business. In so far as addition made towards deemed dividend under Section 2(22)(e) of the Act, the CIT(A) held that the issue has been considered by the Hon'ble Bombay High Court in the case of Universal Medicare Pvt. Ltd. vs. CIT 190 Taxman 144 wh....
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.... all eligible for the benefit u/s 10AA, that the AO made detailed inquiry while completing scrutiny assessment in that regard, hat in the next Asst. Year 2007-08, the AO further enquired about the eligibility for availing the benefit u/s. 10AA, that the assessee had suitably replied point by point to the queries raised by the AO, that in subsequent assessment years 2010-11 and 2011-12, it was allowed its claim u/s. 143(3). For the three AY.s. 2007-08 to 2009-10 he denied the assessee benefit of 10AA. We find that the basis for denying the deduction was that the AO was of the opinion that the unit was established by restructuring or splitting of old unit. We further find that he has not elaborated as to how had he reached at the above conclusion. Secondly, he has not taken into consideration the new machinery purchased by the assessee during the year. We have gone through the bills of machinery purchased by the assessee during the year under consideration. From the bills forming part of the paper book, it is clear that the assessee had purchased machinery of substantive value and therefore without any evidence we are not ready to agree with the AO that the assessee had used old mach....
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....ons of Section 2(22)(e) of the Act are not attracted but the AO without appreciating this fact has made addition only on the ground that the assessee is having beneficial shareholding in the two lender companies. The lender companies are involved in money lending business activity, therefore this transaction come within the ambit of Explanation provided to Section 2(22)(e) of the Act. In this regard relied upon various judicial precedents, including the decision of the Hon'ble Bombay High Court in the case of CIT vs. Universal Medicare Ltd. (2010) 324 ITR 263. The assessee also relied upon the decision of the ITAT Special Bench in the case of ACIT vs. Bhaumik Colour Pvt. Ltd. (2009) 313 ITR (AT) 146. 11. The learned D.R., on the other hand, submitted that the learned CIT(A) was erred in deleting the addition made by the AO without appreciating the fact that provisions of Section 2(22)(e) of the Act, will hit to any loans and advances taken from a company where one of the shareholders is holding more than 10% beneficial interest. Therefore it is incorrect on the part of the CIT(A) to take a view that only registered shareholder takes loan from a company then provisions of Secti....
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....f a company is not a registered shareholder in lending company, once the payment is received by a firm or company who is shareholder in lending company has substantial interest, the payment made to such company shall construed as deemed dividend in the hands of the company or firm as per Explanation (3) to Section 2(22)(e) of the Act. The relevant portion of the order is extracted below: - "Section 2(22)(e) creates a fiction, thereby bringing any amount paid otherwise than as a dividend into the net of dividend under certain circumstances. It gives an artificial definition of 'dividend'. It does not take into account that dividend which is actually declared or received. The dividend taken note of by this provision is a deemed dividend and not a real dividend. Loan or payment made by the company to its shareholder is actually not a dividend. In fact, such a loan to a shareholder has to be returned by the shareholder of the company. It does not become income of the shareholder. Notwithstanding the same, for certain purposes, the Legislature has deemed such a loan or payment as 'dividend' and made it taxable at the hands of the said shareholder. It is, therefore, not in ....