TaxTMI 
TaxTMI 
2025 (2) TMI 1397
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....(3) of the Act accepting the total income returned by the assessee. 2.1. Subsequently, on verification of the assessment record, it was noticed that the assessee is a shareholder and director in a closely held company named M/s. Amrik Singh and Sons Crane Service Pvt. Ltd. (hereinafter referred to as "company"), wherein he held 10% of its shares. It was further noticed that the assessee has taken unsecured loan of Rs. 62.58 crores from the above said company and the said company was having reserves and surplus of Rs. 45.18 crores. Hence, the AO took the view that the loan taken by the assessee is required to be assessed as "deemed dividend" u/s 2(22)(e) of the Act. Accordingly, he entertained the belief that the income has escaped assessment in the hands of the assessee for AY 2016-17. Accordingly, the AO reopened the assessment of that year by issuing notice u/s. 148 of the Act on 31-03-2021. In response thereto, the assessee filed the return of income belatedly on 10-12-2021 declaring the very same earlier total income of Rs. 94.42 lakhs. The assessee did no e-verify the said return and accordingly, the AO treated the return of income filed by the assessee as a invalid return.....
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....ect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ; (ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965; (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off; (iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956); (v) any distribution of shares pursuant to a demerger by the resulting compa....
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.... certain exceptions, i.e., the payments mentioned in clause (i) to (v) are not treated as deemed dividend. 5. In the instant case, there is no dispute that the "company" is a closely held company and the assessee is holding 10% of its shares. Hence, the provisions of sec.2(22)(e) of the Act would be attracted, if the assessee takes any loan from the company and the said loan is liable to be assessed as deemed dividend. However, the loan taken by the assessee exceeds the amount of accumulated profit, then the deemed dividend will be restricted to the extent of the amount of accumulated profits. In the instant case, the loan amount has exceeded the amount of accumulated profits and hence, the AO has restricted the deemed dividend to the extent of accumulated profits in terms of sec. 2(22)(e) of the Act. 6. However, it is the contention of the assessee that he has not taken any loan or advance for his personal benefit from the above said company and these loan transactions were undertaken for the purposes of business of the above said company. The purpose and nature of transactions undertaken between the assessee and the above said company were explained by the assessee as under....
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....anted relief to the assessee by placing reliance on the decision rendered by Hon'ble High Court of Calcutta in the case of Pradip Kumar Malhotra vs. CIT (supra) and also the decision rendered by Hon'ble High Court of Karnataka in the case of CIT vs. N S Narendra (supra). However, both the decisions did not consider the decision rendered by Hon'ble Supreme Court in the case of Smt Tarulata Shyam vs. CIT (1977)(108 ITR 345)(SC), wherein it was held that the repayment of loan will not affect the operation of sec.2(22)(e) of the Act. The Ld.DR also relied upon the Circular No.19/2017 dated 12-6-2017 issued by CBDT, wherein the CBDT has accepted the decisions rendered by Hon'ble High Courts that the trade advances given to a shareholder will not attract the provisions of sec.2(22)(e) of the Act. The Ld D.R submitted that, in the instant case, the assessee has not received any trade advance. Accordingly, he contended that the loan taken by the assessee cannot be considered as trade transactions falling outside the purview of sec.2(22)(e) of the Act. The Ld D.R further submitted that the Ld CIT(A) has admitted certain additional evidences and did not confront them with the assessing offic....
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....ard rival contentions and perused the record. With regard to the contention of violation of provisions of Rule 46A of I T Rules, we find that there are merits in the submissions made by Ld A.R. As noticed earlier, the present assessment proceedings are reassessment proceedings only. The original assessment of the year under consideration has been completed by the AO u/s 143(3) of the Act. During the course of original assessment proceedings, the AO has asked for the details of bank accounts of the assessee as well as the details of income declared under the head "income from other sources", vide two notices issued u/s 142(1) of the Act, referred above. In response thereto, the assessee has furnished the details of bank account maintained with HDFC bank, the details of fixed deposits made with that bank and also the assessee has specifically stated that the interest expenditure claimed u/s 57(iii) of the Act against interest income received from bank was in respect of advance received from the company. A perusal of the assessment order passed in the original assessment proceedings would show that the AO has specifically stated that the assessee is a director in M/s Amrik Singh & Son....
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....out by the company by using the name and account of the assessee. Further, these arrangements have been made only to facilitate the business of the company and thus, they are for the purposes of business of the company. 11. There should not be any dispute that the provisions of sec.2(22)(e) of the Act would get attracted only if the transactions fall under the category of "loans or advances". Then, what should be the meaning of the "loans or advances", which is contemplated in sec.2(22)(e) of the Act is the question that should arise in the minds. We notice that the said question has been answered by the Hon'ble High Courts after considering the purpose and object of introducing sec.2(22)(e) of the Act. The Hon'ble Delhi High Court in the case of CIT v. Ankitech (P.) Ltd. [2012] 340 ITR 14/[2011] 199 Taxman 341/11 taxmann.com 100, explaining the meaning of the word "concern" found in the provisions as well as the Explanation (3), where the meaning of the said word is expressly given, held as under:- '24. The intention behind enacting the provisions of section 2(22)(e) is that closely-held companies (i.e., companies in which public are not substantially interested), ....
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....ourt agreed with the view taken by Hon'ble Calcutta High Court referred above and observed as under:- "7. A Division Bench of Calcutta High Court, while dealing with clause (e) of section 2(22) of the Act, held that the phrase 'by way of advance of loan' appearing in sub-clause (3) must be construed to mean those advances or loans which a shareholder enjoys for simply on account of 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 per cent of the voting power; 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 a shareholder, in such case, such advance or loan cannot be said to a deemed dividend without the meaning of the Act. Thus, for gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not to the cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. A similar view has been taken in &....
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....oubtful word may be ascertained by reference to the meaning of words associated with it; such doctrine is broader than the maxim Ejusdem Generis." In fact the latter maxim "is only an illustration or specific application of the broader maxim noscuntur a sociis". The argument is that certain essential features or attributes are invariably associated with the words "business and trade" as understood in the popular and conventional sense, and it is the colour of these attributes which is taken by the other words used in the definition though their normal import may be much wider. We are not impressed by this argument. It must be borne in mind that noscutur a sociisis merely a rule of construction and it cannot prevail in cases where it is clear that the wider words have been deliberately used in order to make the scope of the defined word correspondingly wider. It is only where the intention of the legislature in associating wider words with words of narrower significance is doubtful, or otherwise not clear that the present rule of construction can be usefully applied. It can also be applied where the meaning of the words of wider import is doubtful; but, where the object of the legis....
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.... word may be ascertained by reference to the meaning of words associated with it. This rule, according to Maxwell, means that, when two or more words which are susceptible of analogous meaning are coupled together they are understood to be used in their cognate sense. They take as it were their colour from each other, that is, the more general is restricted to a sense analogous to a. less general. In the case of a loan, money is advanced generally on payment of interest. In other words the loan advanced has to be repaid with interest. In the case of an advance also, the element of repayment is there but such a repayment may be with interest or without interest. Therefore, when the said two words are used in the aforesaid provision with the purpose of levying tax, if the intention of such advance or loan is to avoid payment of dividend distribution of tax under Section 115O of the Act., such a payment by a company certainly constitutes a deemed dividend. But if such a payment is made firstly not out of accumulated profits and secondly even if it is out of accumulated profits, but as trade advance as a consideration for the goods received or for purchase of a capital asset which indi....
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.... we do not see any substance in the said contention." 13. The Hon'ble jurisdictional Bombay High Court has also examined the provisions of sec.2(22)(e) of the Act in the case of CIT vs. Universal Medicare P Ltrd (2010)(324 ITR 263)(Bom), wherein it was held as under:- "8. Clause (e) of section 2(22) is not artistically worded. For facility of exposition, the contents can be broken down for analysis : (i) Clause (e) applies to any payment by a company not being a company in which the public is substantially interested of any sum, whether as representing a part of the assets of the company or otherwise made after the 31 May, 1987; (ii) Clause ( e) covers a payment made by way of a loan or advance to (a) a shareholder, being a 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 per cent of the voting power; or (b) any concern in which such shareholder is a member or a partner and in which he has a substantial interest; (iii) Clause (e) also includes in its purview any payment made by a company on behalf of or for the individual benef....
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....onal benefit, but allowed his name and bank account used by the company for complying with the terms and conditions prescribed by the bank for granting LC facility. Hence, we are of the view that the said transactions of transferring funds to the account of the assessee by way of loan, which in turn was used to make fixed deposits, which were given as security to the bank would clearly show that these transactions are not for the personal benefit of the assessee and they are commercial transactions entered for the purposes of business of the company only. Accordingly, we are of the considered view that these loans would not fall under the category of "loans or advances" intended in sec.2(22)(e) of the Act. 15. In the Circular No.19/2017 dated 12-6-2017 issued by the CBDT, it is specifically accepted that the trade advances/commercial transactions would fall outside the purview of sec.2(22)(e) of the Act. The paragraphs 2.1 and 3 of the circular are relevant here and the same read as under:- "2.1 Some illustrations/examples of trade advances / commercial transactions held to be not covered under section 2(22)(e) of the Act are as follows: i. Advances were made b....