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2019 (3) TMI 1106 - AT - Income TaxDeemed dividend addition u/s 2(22)(e) - assessee is neither a registered nor beneficial shareholder - advanced received from company - Two partners of the assessee firm Kishore S Golani and Ravi S. Golani were holding shares in the lender company i.e. M/s. Golani Construction India Pvt. Ltd. to the extent 15% & 16.67% - HELD THAT - This is also undisputed that these shareholders have bought the shares in the lender company on their own absolute right and not on behalf of the firm. Now the issue before us whether the loan advanced by the M/s. Golani Construction India Pvt. Ltd. of ₹ 2.10 crores to the assessee firm could be considered as deemed dividend under section 2(22)(e) to the extent the lender company has accumulated reserved and surpluses. It is clear from the above that the firm M/s. Golani Brothers is neither a registered shareholder nor a beneficial shareholder in the M/s. Golani Construction India Pvt. Ltd. - we are of the opinion that the provisions of section 2(22)(e) of the Act are not applicable to the assessee and accordingly AO is directed to delete the addition
Issues Involved:
1. Addition of ?1,29,61,420 as deemed dividend under Section 2(22)(e) of the Income Tax Act. 2. Bogus purchases to the tune of ?4,09,657. Issue-wise Detailed Analysis: 1. Addition of ?1,29,61,420 as Deemed Dividend under Section 2(22)(e) of the Income Tax Act: Background: The assessee filed a return of income for the assessment year 2011-12, which was revised later. The case was selected for scrutiny, and during the assessment, it was observed that the assessee had taken a loan of ?2,10,00,000 from its sister concern, M/s. Golani Construction India Pvt. Ltd. The AO treated this loan as deemed dividend under Section 2(22)(e) of the Income Tax Act, leading to an addition of ?1,95,84,133. Appellate Proceedings: The CIT(A) partly allowed the appeal, sustaining the addition to the tune of ?1,29,61,420, based on the accumulated profits of the lender company as on 31.03.2010. Arguments by Assessee: The assessee contended that the deemed dividend provisions under Section 2(22)(e) were not applicable as the assessee was neither a registered shareholder nor a beneficial shareholder of M/s. Golani Construction India Pvt. Ltd. The assessee relied on several judicial decisions, including CIT vs. Ankitech P. Ltd. and CIT vs. Impact Containers (P.) Ltd., which established that the provisions of Section 2(22)(e) apply only if the recipient is both a registered and beneficial shareholder. Arguments by Revenue: The Revenue argued that the loan given to the assessee, a partnership firm whose partners were shareholders in the lender company, should be assessed under Section 2(22)(e) of the Act. The Revenue relied on various judicial precedents supporting their stance. Tribunal's Analysis: The Tribunal noted that the assessee firm was neither a registered shareholder nor a beneficial shareholder in the lender company. The Tribunal reviewed several judicial decisions, including those from the Supreme Court and various High Courts, which consistently held that for Section 2(22)(e) to apply, the recipient must be a registered and beneficial shareholder. Judicial Precedents Cited: - CIT vs. Ankitech P. Ltd. (2011) 199 Taxman 341 (Del. HC) - CIT vs. Impact Containers (P.) Ltd. (2014) 48 taxmann.com 294 (Bombay) - CIT vs. Sarva Equity (P.) Ltd. (2014) 44 taxmann.com 28 (Karnataka HC) - CIT vs. AR Magnetics (P.) Ltd. (2014) 220 taxman 209 (Delhi HC) - CIT vs. Daisy Packers (P) Ltd. (2014) 220 taxman 331 (Guj HC) Conclusion: The Tribunal concluded that in light of the legal precedents and the fact that the assessee was neither a registered nor beneficial shareholder, the provisions of Section 2(22)(e) were not applicable. Consequently, the addition of ?1,29,61,420 made on account of deemed dividend was directed to be deleted. 2. Bogus Purchases to the Tune of ?4,09,657: Background: The issue of bogus purchases amounting to ?4,09,657 was raised by the assessee. Proceedings: During the hearing, the assessee's representative submitted that this ground was not pressed. Conclusion: The Tribunal dismissed this ground as not being pressed. Final Judgment: The appeal of the assessee was partly allowed. The addition of ?1,29,61,420 as deemed dividend under Section 2(22)(e) was deleted, and the issue of bogus purchases was dismissed as not pressed.
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