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The Commissioner of Income Tax Bareilly And Another Versus M/s Associated Metals Co. Ltd.

2017 (12) TMI 369 - ALLAHABAD HIGH COURT

Deemed dividend addition u/s 2(22)(e) - Held that:- From the plain reading of Section 2(22)(e) it transpires the legislature seeks to tax certain payments made by specified persons as deemed dividend by treating such payments to be dividend payment on notional basis. Mere issuance of a cheque that was subsequently cancelled and returned without ever being ever presented for encashment and without any money having been paid against the same to the assessee it could never constitute payment of any .....

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ment and it could not have inferred notional or deemed dividend on a notional payment in absence of express intention to that effect expressed by the legislature. - Thus in absence of satisfaction of statutory precondition of "payment" of "any sum", to the assessee the provision of Section 2(22)(e) was never attracted. - Decided in favour of the assessee. - Income Tax Appeal No. 532 of 2011 - Dated:- 1-12-2017 - Hon'ble Bharati Sapru And Hon'ble Saumitra Dayal Singh, JJ. For the Appe .....

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in the circumstances of the case, the amount of ₹ 3,80,00,000/- could be treated as a deemed dividend within the meaning of Section 2(22)(e) of the Act? (3) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in deleting the addition of ₹ 3,80,00,000/- made by the A.O. as deemed dividend u/s 2(22)(e) of the Act?" At the very outset, learned counsel for the revenue states that the question no.2 covers the entire controversy raised by the r .....

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t balance of ₹ 3,76,26,009/- of GIL on account of a cheque having been issued by GIL to Vasulinga Sugar & General Mill Ltd. That cheque had not been accepted by the said Vasulinga Sugar & General Mill Ltd. and returned back to GIL. However, the reversal/rectification entries were made in the next financial year and, therefore, the entries did not represent any real transaction of payment of money. It was only an accounting entry. However, the Assessing Officer had rejected the expl .....

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t March, 1995. However, the assessee has stated that a cheque of ₹ 3,80,00,000/- was issued by GIL to Vasulinga Sugar and General Mills Limited being cheque no. 129000 dated 28th March, 1995, on Bank of India. There is no dispute to the fact that the said cheque was cancelled and was never presented for payment as is evidence from page no.4 of the paper book filed by the ld. D.R. Now the question comes as to whether entries made by the assessee in its books of account showing the balance i .....

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ower. In the case before us, there is no dispute to the fact that there was no actual out flow of money as the cheque was not presented for payment. Since in the case before us, there is no out flow of fund from the lender to the borrower, the question of repayment of the loan or advance before the end of the accounting year or at any future date does not arise and the mere entry made in the books of account by the assesse showing as credit on the basis of the cheque issued, which was not encash .....

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earned counsel for the assessee submits that the provision of Section 2(22)(e) of the Act is a deeming provision. It can apply only upon fulfilment of statutory conditions mentioned therein. No amount can be treated as deemed dividend unless there is actual payment. Having considered the argument so advanced, we note Section 2(22)(e) of the Act reads as below:- "2. In this Act, unless the context otherwise requires,- (22) dividend includes:- (a)......... (b)........ (c)........ (d)....... ( .....

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concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereinafter 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;" (emphasis supplied) From the plain reading of Section 2(22)(e) it transpires the legislature seeks to tax certain payments made by specified perso .....

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act the cheque was subsequently cancelled and returned, the provision of Section 2(22)(e) never got attracted to the facts of the case for a simple reason that no amount of money was ever received by the assessee. To apply a notional provision of the statute the revenue should have shown to exist actual fact of payment and it could not have inferred notional or deemed dividend on a notional payment in absence of express intention to that effect expressed by the legislature. In this regard, we fu .....

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