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2019 (8) TMI 701

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..... 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 - BOMBAY HIGH COURT] and other decisions cited in the order, has held that the receipt of loan cannot be contemplated as deemed dividend u/s 2(22)(e) of the Act. Before us, Revenue has not pointed out any contrary binding decision in its support. We therefore find no reason to interfere with the order of Ld.CIT(A). Thus, the grounds of the Revenue are dismissed. - ITA No.245/PUN/2017, CO No.04/PUN/20 .....

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..... 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 restored. 3. On the other hand, assessee has filed C.O. and the grounds raised by the assessee reads as under : 1. The learned CIT(A) failed to appreciate that Ld AO erred in making addition of ₹ 2,20,44,7321- u/s 2(22)(e) of the Act being loan received from Mahesh Ginning Pvt Ltd without computing accumulated profits and without recording any finding that payment of loan was from acc .....

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..... plained. 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 which both the partners of the firm i.e., Goverdhandash H. Tayal and Gopal Hazarimal Tayal held 18.19% share each. He also noticed that assessee firm had only two partners holding 50% share each. AO was therefore of the view that the transaction of receipt of loan by the assessee qualified as dividend u/s 2(22)(e) of the Act. The assessee was asked to explain as to why the transaction .....

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..... e. 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 contemplated under 2(22)(e) includes an advance, a loan, any payment on behalf of a shareholder and any payment for the benefit of a shareholder. The basic principles therefore, governing the section have been carefully examined. The chief ingredient in that section is that one should be a shareholder on the date the advance was made. In the present case, even though the advances were ma .....

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..... nt 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 the decision of jurisdictional i.e. Bombay High Court is followed. Consequently, it is held that the Assessing Officer was not justified in invoking section 2(22)(e) and making the impugned addition of ₹ 2,20,44,732/- and, therefore, the same is deleted. However, the AO is directed to take appropriate action as per the relevant provisions of the Act to tax deemed dividend in the h .....

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..... ing 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/s 2(22)(e) of the Act. Before us, Revenue has not pointed out any contrary binding decision in its support. We therefore find no reason to interfere with the order of Ld.CIT(A). Thus, the grounds of the Revenue are dismissed. 10. Now, we take up the Cross-Objection filed by the assessee in C.O. No.4/PUN/2019 for A.Y. 2013-14. 11. Before us, Ld. AR submitted that if the appeal of the Rev .....

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