TMI Blog2012 (8) TMI 995X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 2(22) (e) is applicable in view of the fact that the common directors of both the assessee (the borrower) and Giriraj Developers Pvt. Ltd. (the lender) namely Shri Chhaganbhai Hribhai Patel and Shri Jaydevbhai C. Patel holds substantial shores in both the companies and that the company advancing the loan possess accumulated profits to be tune of ₹ 1,16,88,106/-. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in restricting the disallowance out expenses amounting to ₹ 1,03,908/- on account of mess expenses, labour charges and leveling and loading expenses to ₹ 50,000/- being 10% of the total expenses and deleted addition of ₹ 53,918/- as the expenses incurred by the assessee for business purpose and nonbusiness purpose could not be fully verifiable from the vouchers and bills produced by the assessee and having regard to the volume of transactions and addition made by the A.O. was reasonable. 3. Ground No.1 relates to the action of the A.O. in treating a sum of ₹ 6.50,000/- as deemed dividend in terms of Section 2(22)(e). 4. Brief facts of the case are that the A.O. noted that during the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts are quite clear and steering towards the applicability of the provisions of section 2(22)(e) in view of the fact that the common directors of both the companies namely Shri Chhaganbhai Haribhai Patel and Shri Jaydevbhai Chhaganbhai Patel the loan advancing company and the loan receiving company i.e. the assessee company holds substantial shares in both the companies and that the company advancing the loan possesses accumulated profits to the tune of ₹ 1,16,88,106/-. Accordingly, a case of revenue to tax the deemed dividend in the hands of the assessee company to the tune of ₹ 6,50,000/- prevails and the said sum of ₹ 6,50,000/- is added to the total income of the assessee. 5. In appeal the assessee has reiterated the same arguments and relied on the following case laws:- a) CIT v Raj Kumar Singh Co., 295 ITR 9, (Allahabad). b) CIT v Hotel Hilltop, 217 CTR 527, (Rajasthan) c) ACIT v Bhaumik Colour Pvt. Ltd., 118 ITD 1, ITAT (Mumbai). 6. After taking into consideration the submissions of the assessee ld. CIT(A) allowed the appeal of the assessee by observing as under:- I have considered the submissions of the Id. A.R. and the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions, such payment by the company is treated as dividend. The intention behind the provisions of s. 2(22) (e) is to tax dividend in the hands of shareholder. The deeming provision as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The intention of the legislature is therefore to tax dividend only in the hands of the shareholder and not in the hands of the concern. The basis of bringing in the amendment to s. 2(22)(e) by the Finance Act, 1987, w.e.f. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rplus of ₹ 70 lacs as on 31 st March, 1999 and it has advanced a loan to the assessee to the tune of ₹ 25 lacs. Whereas the assessee contended that he received deposit from Amigo Brushes Pvt. Ltd. and Daisy Packers Pvt. Ltd. was not a shareholder in Amigo Brushes Pvt. Ltd. The Assessing Officer by his order dated 30 th September, 2004 rejected the claim of the assessee and treated the deposits as loan and consequently deemed to be a deemed dividend under Section 2(22)(e) of the Act and accordingly computed the tax. The assessee filed appeal which was dismissed by CIT(A) on 11 th May, 2006. The assessee filed Second Appeal which has been allowed by the Tribunal on 5 th June, 2009 and the Tribunal has hold that it was not the case of the deemed dividend and it was the case of the deposits. The Tribunal further recorded finding that it was not a loan given by Amigo Brushes Pvt. Ltd. to the assessee company and it was inter-corporate deposits. However, we need not go into various questions raised by learned counsel for the parties as admittedly the assessee was not shareholder in the Amigo Brushes Pvt. Ltd. The Division Bench of this Court in Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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