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TMI Blog2016 (10) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The learned CIT(A) erred in not accepting the plea of the appellant that Rs. 50.00 lakhs was paid by M/s. Amit Cottons Pvt. Ltd. It was a transfer entry in the books of M/s. K.G.F. Cottons Pvt. Ltd., for the payment made by M/s. Amit Cottons Pvt. Ltd., hence not coming under the purview of section 2(22)(e) of the I.T. Act, 1961. As the said amount was not paid by or there was no outgoing or flow of money from M/s. K.G.F. Cottons Pvt. Ltd., transfer entry by making book entries cannot be treated as payment by way of loan by the company to the appellant for the purpose of mulcting the appellant with tax liability. 4. The Assessing Officer ought not have taxed the amount of Rs. 50 lakhs paid by M/s. Amit Cottons Pvt. Ltd., to the appellant where his shareholding is below the specified percentage of 10% which is a necessary prerequisite for bringing the appellant into tax net". 2. Briefly stated, assessee is an individual and Director in M/s. K.G.F. Cottons Pvt. Ltd. Assessee filed return of income declaring income at Rs. 9,17,325/- and agricultural income of Rs. 50,000/-. The return filed on 05-04-2007 was processed u/s. 143(1). In the course of assessment proceedings in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from bank, does not change the impact of Sec. 2(22)(e). As per the provisions of Sec. 2(22)(e), the loan advanced by the company to the shareholders having more than 10% share holding then the provisions of Sec. 2(22)(e) are applicable. In the present case, the assessee has received loan from M/s.KGF Cottons Pvt. Ltd., thus, the question that the company M/s.KGF has received loan from another company or from any bank is immaterial. The concerned question is that the company M/s.KGF Cottons Pvt. Ltd. has advanced loan to. the assessee, therefore, this argument of the appellant is rejected. In totality of the facts & circumstances, the addition made by the A.O. is confirmed to the extent of Rs. 1,24,92,795/- 82,00,631 which comes to Rs. 42,92,1641/- and the balance amount is deleted. Thus, the ground of appeal is partly allowed". 3. It was the contention of the Ld. Counsel that the said amount was not directly paid by M/s. K.G.F. Cottons Pvt. Ltd., but pertains to a transfer entry made towards payments received from M/s. Amit Cottons Pvt. Ltd. Therefore, in the absence of cash payment, the same cannot be considered as 'deemed dividend'. Ld. Counsel relied on the decision of CIT Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 6.1. Even though he is having voting power of less than 10% in the said M/s. Amit Cottons Pvt. Ltd., however, the said outstanding balance in the books of M/s. Amit Cottons Pvt. Ltd., has been transferred by way of journal entries in the books of M/s. K.G.F. Cottons Pvt. Ltd. Even though, it was contended that these were only transfer entries, we can not accept that argument as there is a constructive payment to assessee to an extent of Rs. 50 Lakhs, which cannot be disputed. Instead of assessee directly drawing from the company where he has substantial share holding, assessee must have taken recourse to drawing from M/s. Amit Cottons Pvt. Ltd., and that liability was transferred to other company by way of journal entries. The provisions of Section 2(22)(e) are as under: "Sec. 2.......... (22) "dividend" includes- (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company ; (b) any distribution to its shareholders by a company of debentures, debenturestock, or deposit certificates in any form, whether with or without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company). Explanation 1.-The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2.-The expression "accumulated profits" in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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