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Sri Subhash Chandra Agarwal Versus Addl. CIT, Nizamabad Range, Nizamabad

2016 (10) TMI 544 - ITAT HYDERABAD

Dividend dividend u/s 2(22)(e) - Held that:- In this case, assessee directly withdrew the money from another company and said outstanding amount to M/s. Amit Cottons Pvt. Ltd., was settled by way of transfer entries between the two companies but ultimately, as per the provisions of Section 2(22)(e), it is paid on behalf of assessee by such company. Therefore, it is within the purview of the provisions of Section 2(22)(e). In view of that, we affirm the order of CIT(A) to the extent of amount con .....

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ated 04-03-2013. The issue in appeal is whether an amount of ₹ 50 Lakhs confirmed by the CIT(A) will come within the purview of Section 2(22)(e) of the Income Tax Act [Act]. Assessee has raised the following grounds: 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the order of re-assessment passed u/s. 143(3) r.w.s. 147 of the I.T. Act, 1961. 2. The invocation of jurisdiction u/s. 147 of the Act was wrong and erroneous in as much as the requisit .....

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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 ₹ 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. Brief .....

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essee has a share holding more than 10% in the said company. Considering that the amount advanced to the Director would constitute deemed dividend within the meaning of Section 2(22)(e) of the Act, a notice u/s. 148 of 16-12-2008 issued to bring to tax this amount. In the consequential proceedings completed after giving due opportunity to assessee, the AO has considered the entire amount of ₹ 1,24,92,795/- as deemed dividend by discussing the provisions of the Act. It was the assessee s co .....

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dend during the year. With reference to the balance amount of ₹ 50 Lakhs, it was submitted that assessee has received an amount of ₹ 50 Lakhs from another company M/s. Amit Cottons Pvt. Ltd., and there were only transfer entries in the hands of the M/s. K.G.F. Cottons Pvt. Ltd., and so the above sum also cannot be considered as deemed dividend . Ld. CIT(A) after referring the matter to the AO for verification and obtaining the report thereon, accepted that the opening balance cannot .....

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td., the argument of the appellant that this loan was received by the company from other company, therefore, Sec. 2(22)(e) is not applicable and not acceptable because the company has received loan from another company or 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 rec .....

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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. Smt. Savithiri Sam [236 ITR 1003] (Mad). Referring to the last para .....

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another fiction and construe a payment as equivalent to a constructive payment. In this view of the matter, we are not Inclined to accept the arguments advanced on behalf of the Revenue and following the decision fn G.R. Govindarajulu Naidu vs. CIT (supra), we answer the reference In the affirmative and against the Revenue . 4. It was the contention that since the entry is only as transfer entry in the books of M/s. K.G.F. Cottons Pvt. Ltd., same cannot be considered as amount paid by the compan .....

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22)(e). It was further submitted that there is no dispute with reference to possessing accumulated profits and assessee being share-holder of the above company having more than substantial interest as prescribed. 6. We have considered the rival submissions. There is no doubt that the company has advanced moneys to assessee. Part of it which was opening balance was deleted by the CIT(A) and he has confirmed the amount of ₹ 42,92,164/- out of ₹ 50 Lakhs advanced by M/s. Amit Cottons Pv .....

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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 ₹ 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 th .....

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rtificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not ; (c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not ; (d) any distribution to it .....

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, 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 on behalf, or for t .....

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n so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965 ; (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ; (iii) any dividend paid by a company which is set off by the company agai .....

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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, .....

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this clause,- (a) "concern" means a Hindu undivided family, or a firm or an association 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 ; 6.2. As can be seen from the above, it is also a sort of indirect payment which is covered by the provisions of Sec. 2(2 .....

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