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2014 (9) TMI 360 - ITAT COCHINDeemed dividend u/s 2(22)(e) – Whether credit balances in the accounts can be construed as "advance" or "loan" by these companies - Held that:- The law- makers wanted to bring to tax monies paid by closely held companies to their principal shareholders, in the guise of loans and advances to avoid payment of tax – relying upon Navneet Lal C. Jhaveri V K.K. Sen [1964 (10) TMI 16 - SUPREME Court] - the provisions of section 2(22)(e) of the Act must be made applicable where dividend disguised as loan is paid by a company - it for a fact that only due to business necessity and expediency, the assessee agreed to collect dues from customers of the company - Sec. 2(22)(e) enacted a deeming fiction whereby the scope and ambit of the word "dividend" has been enlarged to bring within its sweep certain payments made by a company as per the situations enumerated in S.2(22)(e). The Court should ascertain for what purpose the fiction is created and after ascertaining the purpose, the Court has to assume all facts which are incidental to the giving effect to that fiction - Such a deeming fiction would not be given a wider meaning than what it purports to do - Sec. 2(22)(e) has not been enacted to stifle normal business transaction carried out during the course of business - It not obviously bring within its limited purview collection of debts from customers so to ensure the speedy recovery of trade debts - the amount received by the assessee can neither be treated as loan or advance for the purposes of S. 2(22)(e) - A loan is granted for temporary use of money or temporary accommodation - basic features which characteristics, a loan transaction are conspicuous by their absence - the amount cannot be construed as a loan. The addition which was collected by the assessee on behalf of CCPL in pursuance of resolution passed by the Company and deposited in the assessee's bank account for a short period which is a temporary loan and to the extent of amount remitted to the CCPL, cannot be considered as deemed dividend in the hands of the assessee - only that portion of the amount which was unsettled as on 31-03-2009, i.e., the closing day of the Company's account for F.Y. 2008-09, is to be considered as deemed dividend in the hands of the assessee under section 2(22)(e) of the I.T. Act – amount added to the income u/s. 2(22)(e), it was contended by the assessee that there are three accounts in the name of the assessee in the books of CCPL which is a temporary loan and applying the principle, the AO is directed to consider the consolidated Net balance in all the three accounts if the Accounts are in the individual capacity of the assessee, and only that outstanding balance in the books of CCPL if any, should be treated as deemed dividend in the hands of the assessee u/s. 2(22)(e) of the I.T. Act - The Account relating to the firm IRC is to be considered separately if that firm is having substantial interest in CCPL and decide afresh in accordance with law – Decided partly in favour of assessee.
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