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2019 (8) TMI 701

..... ayal held 18.19% share each and assessee firm had only two partners holding 50% share each - HELD THAT:- It is an undisputed fact that assessee had received loan from Mahesh Ginning Pvt. Ltd., in which both the partners of the assessee also held 18.19% shares each. CIT(A) while deciding the issue in favour of the assessee has given a finding that the chief ingredient of Sec.2(22)(e) of the Act is that one should be a shareholder on the date on which the advance was made. Though the advances were made out of the profits of the lending company but the assessee was not the registered shareholder and beneficial interest was not existing. She therefore, following the decision of CIT Vs. Universal Medicare Private Limited [2010 (3) TMI 323 - BOMB .....

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..... sessee. Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us and has raised the following grounds : 1. Whether on the facts and in the circumstances of the case, the Ld.CIT(A)-1, Nashik was justified in allowing unexplained money of ₹ 2,20,44,732/- u/s 2(22)(e) of the Income Tax Act, 1961. 2. Whether on the facts and in the circumstances of the case, the Ld.CIT(A)-1, Nashik was justified in allowing deemed dividend of ₹ 2,20,44,732/- u/s 2(22)(e) of the Income Tax Act, 1961 when the CBDT Circular No.495 of 1987 explains the provisions made by the Finance Act, 1987 that the deemed dividend salary tax in the hands of concern. 3. The order of the CIT(A) may be vacated and that of the Assessing Officer may be rest .....

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..... hat the delay in filing the C.O be condoned. Ld.D.R. did not seriously object to the prayer of condonation. 5. On the issue of condonation of delay of C.O., we have gone through the affidavit filed by the partner of assessee s firm and heard the Ld.D.R. After considering the reasons stated in the affidavit, we are of the view that the delay in filing the C.O., has been satisfactorily explained. In view of these facts, we condone the delay and admit the C.O. for hearing. 6. We first proceed with Revenue s appeal in ITA No.245/PUN/2017 for A.Y. 2013-14. 6.1. All the grounds being inter-connected are considered together. 7. During the course of assessment proceedings, AO noticed that assessee had received loan from Mahesh Ginning Pvt. Ltd., in .....

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..... holds share in the name of its partners. If a company advances money to the firm in which partners hold shares of that company would the provision of section 2(22)(e) be triggered. 4.5. The present issue is, therefore, a question of fact, which involves a legal fiction. The courts have explained and laid down certain tests which needs to be applied keeping in view the facts of each case. There is no dispute with regard to the tests in the present appeal. As stated above, Sec. 2(22)(e) is a deeming provision which creates a legal fiction. It is judicially settled that a legal fiction cannot be interpreted to work injustice and a statutory fiction cannot be extended beyond its purpose. There is no dispute that the subject matter of payment c .....

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..... icare Private Limited (2010) 324 ITR 263. The decision of Impact Containers has also been upheld by Bombay High Court. Therefore, in absence of above ingredients, the advance made by Mahesh Ginning Pvt. Ltd. to M/s Bhawani Shankar Ginning Factory to carry out its business cannot be treated as deemed dividend in the hands of the appellant u/s 2(22)(e). Therefore, it is held that no payment as contemplated u/s 2(22)(e) has been made by the closely held company to the appellant firm. There is contrary decision of Delhi High Court in National Travel Services wherein it has been held that for purpose of deemed dividend u/s 2(22)(e) firm is shareholder though shares are held in name of partners. However, following the binding judicial precedents .....

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..... rom Mahesh Ginning Pvt. Ltd., in which both the partners of the assessee also held 18.19% shares each. We find that Ld.CIT(A) while deciding the issue in favour of the assessee has given a finding that the chief ingredient of Sec.2(22)(e) of the Act is that one should be a shareholder on the date on which the advance was made. Though the advances were made out of the profits of the lending company but the assessee was not the registered shareholder and beneficial interest was not existing. She therefore, following the decision of the Hon ble Bombay High Court in the case of CIT Vs. Universal Medicare Private Limited (supra) and other decisions cited in the order, has held that the receipt of loan cannot be contemplated as deemed dividend u/ .....

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