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M/s. Suresh Enterprises Pvt. Ltd. Versus Asst. Commissioner of Income-tax, Circle 3 (1) , Hubli.

2016 (8) TMI 1079 - ITAT BANGALORE

Deemed dividend u/s 2(22)(e) - Held that:- The assesseecompany i.e. Suresh Enterprises, Pvt. Ltd., is not a shareholder in Shejawadkar Builders Pvt. Ltd. Therefore, the essential condition for invoking provisions of sec.2(22)(e) is not fulfilled in this case. - The recipient of loan should be a shareholder in the companies from which loans have been received, was not taken before the lower authorities. Therefore, this issue cannot be adjudicated by this Tribunal. This contention cannot be ac .....

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CIT(DR) ORDER Per INTURI RAMA RAO, AM : This is an appeal filed by the assessee directed against the order of the CIT(A), Hubli, dated 31/07/2015 for the assessment year 2011-12. 2. The assessee raised the following grounds of appeal: 1. The order passed by the learned C I T (A) is against the facts of the case, erroneous, prejudiced and against the provisions of Section 2(22)(e) of the Income Tax Act, 1961 2. The CIT(A) order is against the facts of the case as mentioned in the Statement of Fac .....

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the SBPL is having the accumulated loss position. 4. As mentioned in page 2, of the Assessment Order; "Bare reading of the sections 2(22)(e) implies the following Any payment made by a private limited company in form of loan or advance in the below three cases can be taxed in the hands of recipient as deemed dividend to the extent the company possesses accumulated profits..." It is very clear from the above that, the company should have accumulated profit to treat the loans and advanc .....

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to be excluded from the accumulated profits before arriving at the profits to be charged u/s 2(22)(e). The additions made to the extent of ₹ 36,47,236/- is against the provisions of the Income Tax Act, 1961. 5. The word "Dividend" u/s 2(22)(e) is after providing for depreciation as mentioned below: i) General Sub-clause (e) applies when distribution of payment referred to therein are connected with accumulated profits. The undistributed income when accumulated from year to year, .....

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he phrase accumulated profits" does not mean aggregate of assessed profits but commercial profits. If certain disbursement have been disallowed in the assessment proceedings but the expenditure had in fact been incurred, they should be excluded from accumulated profits. In computing commercial profit, all the disbursement made and expenditure incurred for the purpose of business should be taken into accounts. The following are the items which are to be excluded in computing accumulated prof .....

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vidend u/s 2(22)(e) in the interest of the natural justice. PRAYER FOR STAY The appellant prays the Honourable Appellate Tribunal to stay the proceedings of collection of taxes till our case is heard and disposed off by the Honourable Appellate Tribunal in view of the financial hardship faced by the Company. PRAYER The Appellant prays the Honourable Appellate Tribunal to permit the submission of additional Grounds of Appeal and facts at the time of hearing. Your Honour is earnestly requested to .....

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of ₹ 74,30,500/-. After processing return of income u/s 143(1) of the Income-tax Act,1961 [ the Act for short], the case was taken up for scrutiny assessment and the assessment was completed u/s 143(3) of the Act vide ode dated 30th March 2014 at a total income of ₹ 1,11,23,740/-. While doing so, the AO made addition of ₹ 36,47,236/- on account of deemed dividend alleging that the assessee has received unsecured loans from following parties: i. Shejwadkar Builders Pvt.Ltd. ... .....

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here was no accumulated profits once unabsorbed depreciation is set off. The legal contention that provisions of section 2(22)(e) cannot be invoked as the assesseecompany is not a shareholder in the said companies was neither advanced nor adjudicated by the CIT(A). 5. Being aggrieved, assessee is in appeal before us in the present appeal. 5.1 Learned counsel for assessee submitted that the provisions of sec.2(22)(e) cannot be invoked in the present case as the assessee-company which received loa .....

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amount received by the assesseecompany from Shejwadkar Builders Pvt. Ltd. and Shejwadkar Construction Co. Ltd. constitutes deemed dividend in the hands of the assessee-company. There is no dispute about receipt of money from Shejwadkar Builders Pvt.Ltd. and Shejwadkar Construction Co. Ltd. The provisions of sec.2(22)(e) are reproduced below: 2(22) " dividend" includes- (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (wheth .....

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in this clause referred to as the said concern) or any payment by any such company on behalf, or for- the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; But "dividend" does not include- (i) a distribution made in accordance with subclause (c) or sub- clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate .....

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the business of the company; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub- clause (e), to the extent to which it is so set off. (iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956); (v) any distribution of shares pursuant to a demerger by th .....

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clude all profits of the company up to the date of distribution or payment referred to in those subclauses, and in subclause (c) shall include all profits of the company up to the. date of liquidation, 4but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immed .....

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ove provisions, it is clear that for invoking the provisions of section 2(22)(e), sine qua non condition is recipient of loan should be a shareholder in the companies from which loans/advances are received. From the assessment order, the share holding of the three companies was mentioned which is extracted below: From the above details, it is clear that the assesseecompany i.e. Suresh Enterprises, Pvt. Ltd., is not a shareholder in Shejawadkar Builders Pvt. Ltd. Therefore, the essential conditio .....

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to non-registered shareholders. The Hon'ble Apex Court in the case of CIT Vs. C.P. Sarathy Mudaliar (1972) 83 ITR 170 (SC) while construing the provisions of Section 2(6A)(e) of the Act, 1922 which are in pari materia with the provisions of Section 2(22)(e) of the Income-tax Act, 1961, held that the provisions governing the deemed dividend can be made applicable only in the hands of the registered shareholders. Since, admittedly, in the present case, the appellant is not a shareholder of M/ .....

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ands of the concern. The relevant part is extracted below: 30. It was also contended on behalf of the revenue that having regard to the plain words used in clause (e) 'to any concern', when the amount is paid or when any payment is made to a concern, the tax is levied on the concern and not on the shareholders. As far as this question is concerned, this Court following the judgment of the Bombay High Court in the case of Commissioner of Income Tax vs Universal Medicare (P) Limited report .....

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