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2014 (8) TMI 866 - AT - Income TaxDeemed dividend u/s 2(22)(e) – Closely held company or not - substantial interest - nature of transaction, loan or otherwise – Held that:- The assessee was holding 15% shares in SFL besides being one of the directors of the company - the assessee has beneficial interest in SFL as required u/s 2(22)(e) of the Act - Though the loan has been squared up during the year along with the interest but these facts are not relevant to decide whether the provisions of section 2(22)(e) can be invoked on a loan given by the company to the shareholder. As per this Schedule to the balance sheet, SFL (the company) has obtained secured loan from Bank of Baroda against hypothecation of stock on hire - stock on hire is shown separately and loan and advances are shown separately, which means stock on hire is not loans and advances. In fact, stock on hire is owned by SFL and only then, SFL can hypothecate the same to Bank and Bank had accepted stock on hire under hypothecation to Bank. - These facts go to show that in the present case, hire purchase transaction conducted by SFL is not in the nature of loan, but SFL is owning assets given on hire by it and therefore, as per the judgment of the Hon'ble Apex Court rendered in the case of Sundaram Finance Ltd. vs. State of Kerala and Other (1965 (11) TMI 123 - SUPREME COURT OF INDIA), these hire purchase transactions cannot be regarded as loan transaction, particularly when SFL is also claiming and showing assets given on hire as its own assets and such claim of the assessee is accepted by Bank of Baroda. When SFL is not engaged in the business of money lending, the transaction of the assessee by way of receiving loan of ₹ 21.02 lakhs from SFL has to be treated as deemed dividend in the hands of the present assessee – Decided against Assessee. Interest paid on loan obtained from persons u/s 40A(2)(b) – Held that:- The AO has allowed rate of interest @14% and the balance interest was disallowed - even the bank interest rate was more than 14% and the assessee has obtained the loan @15% without furnishing any security – it should be allowed keeping in view the commercial expediencies - the interest paid at 15% is allowed to the persons covered u/s 40A(2)(b) of the Act – Decided in favour of assessee. House hold expenses – Held that:- The assessee family comprised of himself, wife and two sons studying in good school of Bareilly - AO has estimated the house hold expenses at ₹ 10,000/- per month and made the addition of ₹ 42,000/- as the assessee has declared house hold expenses at ₹ 78,000/ - Keeping in view the standard of living of the assessee, ₹ 78,000/- cannot be sufficient to meet the house hold expenses – Decided against Assessee.
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