The Tax Publishers2021 TaxPub(DT) 0100 (Ahd-Trib)

INCOME TAX ACT, 1961

Section 2(22)(e)

For applicability of section 2(22)(e) it was required that assessee-company must be a shareholder in the company from whom the loan or advance had been taken and it did not provide that any shareholder in the assessee company who had taken any loan or advance from another company in which such shareholder was also a shareholder having substantial interest, therefore, addition made by AO on account of deemed dividend was deleted.

Dividend - Deemed dividend under section 2(22)(e) - Assessee took loan from two companies having common shareholder -

Assessee-company had obtained unsecured loan from G Securities Pvt. Ltd. AO noticed that the main shareholder of assessee-company was also holding substantial shareholder in G Securities Pvt. Ltd. from whom assessee had obtained the loan. It was also noticed from the annual account of assessee-company that there was accumulated profit of Rs. 13,21,198 as on 31-3-2012. AO observed that section 2(22)(e) prohibites advancing of loan to the persons/entities having common shareholders with substantial interest in the closely-held company having accumulated profit. Therefore, AO had treated the loan amount up to the extent of accumulated profit of Rs. 13,21,198 as deemed dividend and added to the total income of assessee under section 2(22)(e). Held: For the applicability of section 2(22)(e), it was required that assessee-company must be a shareholder in the company from whom the loan or advance had been taken and it did not provide that any shareholder in the assessee company who had taken any loan or advance from another company in which such shareholder was also a shareholder having substantial interest. Since the facts of the case of assessee were squarely covered by the decisions of Mahavir Inducto Pvt. Ltd. [(TA No. 890 of 2011; judgment dated 13-1-2017) : 2017 TaxPub(DT) 1369 (Guj-HC)], the impugned addition was deleted.

Followed:Pr. CIT v. Mahavir Inducto Pvt. Ltd. in ITA No. 890 of 2011, dated 12-01-2017.

REFERRED : Asstt. CIT v. Leela Ship Recyling Pvt. Ltd. vide ITA No. 1658/Ahd/2012 dated 12-3-2020.

FAVOUR : In assessee's favour.

A.Y. : 2012-13


INCOME TAX ACT, 1961

Section 37

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