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Issues involved: Taxing of deemed dividend u/s 2(22)(e) based on accumulated profit.
The appeal was filed by the assessees against the order of the learned CIT(A)-I, Indore, dated 1.10.2009. The only ground pressed by the ld. Counsel for the assessee was that the ld. CIT(A) was not justified in affirming the addition on account of deemed dividend on the basis of accumulated profit. The undisputed fact in the case was that the assessee firm was not a shareholder of the lender company, but its partners were directors of the company from whom the loan had been received by the assessee firm. The Special Bench categorically held that deemed income can be assessed only in the hands of a person who is a shareholder of a lender company and not in the hands of persons other than a shareholder. It was further clarified that for the loan to fall under the deeming provisions of sec. 2(22)(e) of the Act, the assessee must be both a registered as well as beneficial shareholder of the lender company. Therefore, based on the facts presented and the decision of the Special Bench, the appeal of the assessee was partly allowed. In conclusion, the Tribunal ruled in favor of the assessee, highlighting that the loan received could not be brought to tax net as deemed dividend u/s 2(22)(e) in the hands of the assessee firm, as it was neither a registered shareholder nor a beneficial shareholder of the company from whom the loan was received. The decision was based on the interpretation of the law as laid down by the Special Bench and the specific circumstances of the case.
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