TaxTMI 
TaxTMI 
2025 (6) TMI 965
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....e of Reliance Petro Products Private Ltd vs Commissioner of Income Tax, Ahmedabad. 4. The Appellant therefore prays that the addition of Rs. 16,00,000/- made u/s 2(22)(e) of the act by the assessing officer and confirmed by the Id. CIT (Appeals) may please be deleted. 5. The appellant craves leave to add, amend, alter and or delete any of the grounds of appeal as advised from time to time." 2. At the outset, the Ld. Counsel for the assessee submitted that ground No. 3 of the appeal was not arising from facts of the case and was raised inadvertently, hence same was not pressed. Accordingly, the ground no. 3 of the appeal is dismissed as infructuous. 3. Briefly stated facts of the case are that the assessee is an individual whose primary source of income is salary, earned in the capacity of Director in various companies. For the assessment year under consideration, the assessee filed his return of income on 22.09.2006, declaring total income of Rs. 62,000/-. The return was processed under section 143(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). Subsequently, based on information received from the ITO, Ward-5(1)-3, Mumbai, it came to l....
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....M/s King Prawns Ltd. from IDBI Bank. This contention was also rejected by the AO, who proceeded to treat the entire amount of Rs. 16,00,000/- as deemed dividend under section 2(22)(e) of the Act in the hands of Mr. Ajay S. Dhumal. 4. On further appeal, the Ld. CIT(A) also rejected the contention of the assessee of holding 9% shareholding in Darshan Impex Pvt. Ltd. The relevant finding of the Ld. CIT(A) is reproduced as under: "5. I have considered the facts of the case. There is no doubt that as per return of income filed in case of M/s Darshan Impex Private Ltd. for assessment year 2006-07, the assessee is holding 50% share in the equity capital of the company. Similarly, the assessee is holding shares in case of M/s K.P. Power Pvt. Ltd. The assessee claimed that the figures of share holding in the return was incorrect and he was holding only 9% of the share capital. However, the facts remains that even with the ROC, the assessee did not disclosed his share holding pattern on 18.11.2011 and only on this date the assessee has filed some kind of return it was ROC from assessment year 2003-04 onwards. Accordingly, the above returns filed with the assessee is an afterthoug....
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....quity 100 10 1,000 50 Total 200 2,000 100 LIST OF SHARE HOLDERS AS ON 1999 To 2000 Sr. No Name of shareholder Type of Share No of shares held Nominal value of shares Amount (Rs) % of Holding 1 Narayandas Badyani Equity 1,300 10 13,000 13 2 navinchandra Patel Equity 1,300 10 13,000 13 3 N.B.H.Kulkarni Equity 1,300 10 13,000 13 4 Satish Rao Deshmukh Equity 1800 10 18,000 18 5 Surekha Dhumal Equity 3000 10 30,000 30 6 lla Anand Rao Patel Equity 1,300 10 13,000 13 Total 10,000 10,00,000 100 LIST OF SHARE HOLDERS AS ON 2004 to 2007 Sr. No Name of shareholder Type of Share No of shares held Nominal value of shares Amount (Rs) % of Holding 1 Surekha Dhumal Equ....
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....entures from IDBI in a onetime settlement (OTS) arrangement to bail out M/s King Prawns Pvt. Ltd. The payment of Rs. 15,00,000/- not only served to protect the business interest of M/s KP Power Pvt. Ltd. but also safeguarded its substantial investment of Rs. 96,00,000/- as of 31.03.2006, especially in light of potential coercive recovery actions by IDBI. The Ld. Counsel also submitted additional evidence, including a copy of the agreement between the State of Maharashtra and M/s King Prawns Pvt. Ltd., and permissions from the Land Revenue Department and other concerned authorities allowing the use of land for installation of windmills. It was requested that, in the interest of justice, these documents be admitted as additional evidence and that the matter be remanded to the file of the Assessing Officer to consider the assessee's claim of business expediency in the payment of Rs. 15,00,000/- to M/s Darshan Impex Pvt. Ltd. 6. On the other hand, the Learned Departmental Representative (Ld. DR) relied upon the findings of the lower authorities and submitted that, with respect to the assessee's shareholding, no credible evidence had been furnished to substantiate the claim that ....
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....rovision, being a legal fiction, deems certain types of payments as 'dividend' subject to the satisfaction of conditions enumerated therein. 7.1 Section 2(22)(e) of the Act, in essence, stipulates that any payment by a company, not being a company in which the public are substantially interested, made after 31st May 1987 by way of loan or advance- (i) to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend, whether with or without a right to participate in profits), holding not less than ten percent of the voting power in such company; (ii) or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest; (iii) or any payment made by such company on behalf, or for the individual benefit, of any such shareholder- shall be treated as 'deemed dividend' to the extent of the accumulated profits of the company. 7.2 The second proviso below Section 2(22)(f), carves out an exception to section 2(22)(e) of the Act. It provides that 'dividend' shall not include any advance or loan made to a shareholder or to the said concern by a company in ....
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....t be a closely held company, i.e., not one in which the public are substantially interested; (ii) The payment must be made by way of loan or advance during the relevant year to any of the following: o (a) A registered shareholder holding not less than 10% of the voting power in the payer company; o (b) A concern (other than a company) in which such shareholder has a substantial interest, i.e., at least 20% of the income of the concern; o (c) A company in which such shareholder holds not less than 20% of the voting power; (iii) The payer company must possess accumulated profits on the date of such payment and the payment must be made out of such profits; (iv) The payment must not be in the ordinary course of business of the company, and the lending of money must not be a substantial part of the company's business. 7.7 The Hon'ble Bombay High Court in the case of Duttaprasas Kamat vs Vs ACIT(supra) has further noted provisions of Companies Act, 1956 specifying the term beneficial owner and requirement of maintaining register under the provisions of Companies Act, 1956, and observed that the register of members is the authoritat....
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....t the disclosure of 50% shareholding in the income-tax return was an inadvertent clerical error committed by the staff of the Chartered Accountant who prepared the return. It was argued that the actual shareholding of the assessee was only 900 shares out of 10,000, constituting 9% beneficial ownership of shares carrying voting power, and thus below the threshold of 20% shareholding prescribed for substantial interest in a company. To support this assertion, the assessee placed reliance on the annual returns filed with the Registrar of Companies for the financial years 2004-05 to 2006-07, where his shareholding was recorded at 9%. 7.10 We find, however, that the annual returns relied upon by the assessee were filed only subsequent to the issuance of the showcause notice under the reassessment proceedings. The timing of such filings, coupled with their self-serving character-particularly in view of the fact that control of the company was at the relevant time vested in the assessee and his family-casts a serious doubt on their evidentiary probity. The core issue, therefore, is to ascertain which of the returns filed by M/s Darshan Impex Private Limited truly reflects the correct f....
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....d to the file of the Assessing Officer for further verification. However, in view of the assessee's unequivocal denial of the ability to furnish the requisite information, we are of the considered opinion that such a remand would be an exercise in futility and would not serve any meaningful purpose. 8. Turning to the alternative submission of the assessee, it is contended that firstly, the payment of Rs. 16,00,000/- by M/s KP Power Pvt. Ltd. to M/s Darshan Impex Pvt. Ltd. was made in the ordinary course of business, and thus does not fall within the mischief of Section 2(22)(e). Secondly, it was explained that said amount of Rs. 16.00 lakhs represents inter-corporate deposit (ICD) and thus not in the nature of loan or advance provisions of section 2(22)(e) were not applicable. 8.1 It is explained by the assessee that M/s King Prawns Ltd.-a company in which M/s KP Power Pvt. Ltd. had invested substantially-was unable to redeem certain debentures issued to IDBI Bank. M/s Darshan Impex Pvt. Ltd. agreed to acquire the debentures from IDBI, and M/s KP Power Pvt. Ltd. extended the said amount to facilitate this acquisition, in order to protect its existing investment. To substantia....
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....essee has explained above that amount of Rs. 16.00 lakhs was advanced by M/s KP Powers P ltd to M/s Darshan Impex Pvt. Ltd for redeeming /buying debentures of M/s King Prawans p Ltd from IDBI. Evidently, neither M/s KP Powers P ltd is engaged in business of money lending nor the loan/advance has been given in ordinary course of business. Thus, the assessee did not fulfill the requirement of law for get rid of the definition of deemed dividend. The additional evidence filed by the assessee also nowhere indicate that the advance was in the ordinary course of business of the lender company. The granting of permission by the state government for installing wind mills on the land allotted to M/s King Prawns p ltd was much prior to the transaction of loan/advance to Darshan Impex P ltd and was not in the ordinary course of business of power generation, whereas it is stated to be for securing the investment in M/s King prawns p ltd. 8.5 The Hon'ble Kerala High Court in the case of Thomas Philip Vs Interim Board of Settlement reorted in [2025] 174 taxmann.com 109 (Kerala) held that except for one year, the petitioner had not been able to prove that the said advances/loan were given in t....
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.... perusal of the ledger account of the depositor i.e. M/s. M/s. Dhariya Infrastructure Development Pvt. Ltd., it is noticed that the same appears to be running loan account rather than ICD account. There is no deposing documentation, no terms and conditions, no details about the interest, no details of maturity periods and no board resolution of the company for accepting the deposits were placed on record. Hence, it is not possible to infer that the depositor has given the money on his volition in the form of deposit out of his excess fund normally. 4.4 Further, for the purpose of treating the amount as "Inter Corporate Deposit", there has to be availability of funds with the lender which is not out of the borrowed funds. In fact, under the Companies Act, 1956, rules were framed which requires that before deposits are accepted, there should be advertisement for accepting the deposit. We are reproducing herewith Rule 58A of the Companies Act, 1956: "58A Deposits not to be invited without issuing an advertisement. (1) The Central Government may, in consultation with the Reserve Bank of India, prescribe the limits up to which, the manner in which and the conditions su....
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....changed to "Inter Corporate Deposit", as it continues to be loan/advances. Hence required to be taxed for the purposes of deemed dividend. We may rely upon the Jurisdictional High Court in the Durga Prasad Mandelia v. Registrar of Companies [1987] 61 Comp. Cas. 479 (Bom., has noticed the distinction between deposits and loans in the context of section 370 of the Companies Act. The Court held as under : "There can be no controversy that in a transaction of a deposit of money or a loan, a relationship of a debtor and creditor must come into existence. The terms "deposit" and "loan" may not be mutually exclusive, but nonetheless in each case what must be considered is the intention of the parties and the circumstances. In the present case, barring the assertion of the respondent that the moneys advanced by the company to the Associated Cement Companies Ltd. constitute a loan and offend section 370 of the Companies Act, there is nothing else to show that these moneys have been advanced as a "loan". In the context of the statutory provisions, the word "loan" may be used in the sense of a "loan" not amounting to a deposit. The word "loan" in section 370 must now be construed as ....