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2008 (6) TMI 226 - AT - Income TaxDeemed dividend u/s. 2(22)(e) - AO held that more than 10 per cent. share in M/s GDPL which is a closely-held company in which the public was not substantially interested - Further, moneylending was not substantial part of the GDPL - made an addition - CIT(A) upheld the action of the AO for the application of provisions u/s. 2 (22)(e) and sustained the addition - HELD THAT:- No dispute to the fact that the assessee is holding 25 per cent share in the said M/s GDPL, meaning thereby, the assessee is having substantial interest in the said company. We find that Expln. 2 of s. 2(22)(e) is very clear according to which accumulated profits in s. 2(22)(e) shall include all profits of the company upto the date of payment of such loans/advances. Therefore, the action of the learned CIT(A) in upholding the AO's action regarding applicability of provisions of s. 2(22)(e) is justified. However, we find, since the assessee had an opening debit balance, the learned CIT(A) was justified in deleting that amount from the loan taken by the assessee. The submission of the learned counsel for the assessee that an amount to be reduced from such deeming provisions does not carry much force since the law does not give any relief for any repayment of such loan. The submission of the learned counsel for the assessee that the assessee was in the business of lending of money and provisions of s. 2 (22)(e) are not attracted also does not have any force in it since the learned counsel for the assessee could not prove that the assessee was in fact engaged in the business of moneylending and a part of the income of the assessee consists of income from such moneylending. However, for the purpose of quantifying such deemed dividend, we find in the case of M.B. Stock Holding (P) Ltd. vs. Asstt. CIT [2001 (12) TMI 190 - ITAT AHMEDABAD-B] has taken the view that for determining the deemed dividend u/s. 2(22)(e), accumulated profits are to be worked out upto the date of payment of such loan or advance in the nature of loan. We therefore, are of the opinion that the deemed dividend has to be calculated on the basis of accumulated profits upto the date of each loan/advance. Thus, we set aside the order of the learned CIT(A) and direct the AO to recompute the deemed dividend on the basis of our observations made above. The AO shall give adequate opportunity of being heard to the assessee as per law. We hold and direct accordingly. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
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