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Income Tax Officer, Ward 1 (1) , New Delhi Versus M/s AVA Merchandising Solutions P Ltd and Vica-Versa

2016 (3) TMI 454 - ITAT DELHI

Deemed dividend u/s 2(22)(e) - whether deemed dividend u/s 2(22)(e) cannot be assessed in the receipt is not the registered share holder of company advancing loan or advance, although recipient person has beneficial interest by way of share holding in both the companies? - Held that:- Jurisdictional High Court in the case of CIT V Ankitech Pvt. Ltd. and Ors. [2011 (5) TMI 325 - DELHI HIGH COURT] has held that a concern which is given loan or advance by a company cannot be treated as shareholder .....

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n the hands of a nonITA shareholder. Respectfully following the judgment of the Jurisdictional High Court, as aforesaid, we are of the considered opinion that the assessee company (M/s AVA Merchandising (P) Ltd.) not being a shareholder of the creditor company (M/s AMPL), the amount of debit balance cannot be added in the hands of the assessee company as deemed dividend u/s 2(22)(e) of the Act. Therefore, the Ld. CIT(A) was right in deleting the addition - Decided in favour of assessee - ITA No. .....

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enue s appeal reads as under:- 1. Whether on the facts and circumstances of the case, the Ld. CIT(A) was correct in deleting the addition of ₹ 2,31,58,498/-, which was made u/s. 2(22)(e) of the I.T. Act, 1961. 2. Whether on the facts and circumstances of the case, deemed dividend u/s 2(22)(e) cannot be assessed in the receipt is not the registered share holder of company advancing loan or advance, although recipient person has beneficial interest by way of share holding in both the compani .....

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ories. There were frequent debit balance by the appellant to the AMPL. The AO analyzed the shareholding pattern and observed that Sh. Amit Chopra was having 9500 out of 25000 shares of AMPL which comes to 38% of total shares. The AO also observed that AMPL was having accumulated profit of ₹ 2,37,95,261/- as opening balance and RS.1,34,53,618/- as closing balance. The AO further noticed that Sh. Amit Chopra was having 522800 out of 535250 shares of the appellant company which comes to 97.67 .....

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t both the entities i.e. the assessee company and AMPL are sundry debtors and sundry creditors in each other books of accounts and therefore, Section 2(22)(e) is not applicable. The AO came to the conclusion that since Sh. Amit Chopra is having substantial shares of both the companies and there was a constant debit balance of assessee company in the books of the AMPL, the peak of the same amounting to ₹ 2,31 ,58,498/- was taxable as deemed dividend u/s 2(22)(e). Accordingly, he made the ad .....

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s raised in the grounds of appeal. It was submitted by the learned DR that the AO has rightly assessed the income at ₹ 2,40,14,833/-. It was further submitted that AO has given cogent reasons for disallowing the addition of ₹ 2,31,91,194/- made u/s. 2(22)(e) of the I.T. Act, 1961. 6. On the contrary, Ld. Authorised Representative of the assessee has relied upon the order of the Ld. CIT(A) and stated that the order of the Ld. CIT(A) is a well reasoned order and therefore, the same may .....

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d order. For the sake of convenience the relevant paras of the findings of the Ld. CIT(A) are reproduced hereunder. 5.5 I have carefully considered the submissions of the Ld. AR and perused the order passed by the AO. I have also considered the remand report of the AO and rejoinder of the appellant on the remand report. The facts of the case are that the during the year under reference the appellant company had regular transactions with the AMPL and there was peak debit balance of ₹ 2,31 , .....

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ter 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company .....

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on of persons or a body of individuals or a company, (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern;" It is seen that the peak of debit of the appellant company in the books of the AMPL was ₹ 2,31 ,58,498/-. 5.5.1 The Courts have held that the deemed dividend u/s 2(22)(e) can be brought to tax only in the .....

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shareholder / member of the latter simply because a shareholder of the lender company holding voting power of toper cent or more therein has substantial interest in such concern. The Hon'ble High Court has further held that if the intention of the legislature was to tax such loan or advance as deemed dividend at the hands of the deeming shareholder, it would have inserted deeming provision in respect of shareholder as well. It was held that deemed dividend u/s 2(22)(e) cannot be taxed in th .....

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and the case laws cited in the impugned order, we are of the view that the assessee during the year had regular transactions with the AMPL and there was peak debit balance of ₹ 2,31,58,498/-. The AO made the addition uls 2(22)(e) on the ground that Sh. Amit Chopra has 38% shareholding in AMPL and 97% shares in the appellant company. We further force in the finding of the Ld. CIT(A) that deemed dividend u/s 2(22)(e) can be brought to tax only in the hands of the registered shareholders of .....

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an or advance by a company cannot be treated as shareholder / member of the latter simply because a shareholder of the lender company holding voting power of toper cent or more therein has substantial interest in such concern. We further note that the Hon'ble High Court has further held that if the intention of the legislature was to tax such loan or advance as deemed dividend at the hands of the deeming shareholder, it would have inserted deeming provision in respect of shareholder as well. .....

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