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2021 (8) TMI 718 - AT - Income TaxDisallowance u/s. 2(22)(e) - assessee has received unsecured loan and assessee company from whom it has obtained unsecured loan there were two common directors - HELD THAT - During the course of assessment on verification, the AO noticed that assessee has obtained unsecured loan from M/s. Cygnet Infotech Pvt. Ltd. and in both the companies there was common directors having share holding not less than 10% of the voting power. Without reiterating the facts AO was of the view that any payment in the nature of an advance or loan by a closely held company in which a share holder holds more than 10% of voting to any concern in which such share holder has a substantial interest is deemed as dividend, therefore, amount of unsecured loan given by Cygnet Infotech Pvt. Ltd. to the assessee company was treated as deeded dividend u/s. 2(22)(e) of the act on account of a common share holder holding more than 10% of voting power in these concerns. With the assistance of ld. representatives , we have gone through the judicial pronouncements of the Co-ordinate Benches of ITAT on the similar issue. Since the assessee company was not registered share holder in the company from whom the loan was obtained therefore no addition can be made as deemed dividend in the hands of the assessee company merely because there was a common shareholder in the payee company and the assessee company. Therefore, we do not find any error in the decision of the ld. CIT(A). Accordingly, the appeal of the revenue is dismissed.
Issues Involved:
1. Deletion of disallowance of ?2,70,50,000/- made by the Assessing Officer under section 2(22)(e) of the Income Tax Act, 1961. Detailed Analysis: 1. Deletion of Disallowance under Section 2(22)(e): The primary issue in this case was whether the amount of ?2,70,50,000/- received as an unsecured loan from M/s. Cygnet Infotech Pvt. Ltd. should be treated as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The Assessing Officer observed that there were two common directors in both the assessee company and the lender company, with substantial shareholding in both. Specifically, Shri Niraj Hutheesing held 45% shares in the assessee company and 72% in the lender company, while Smt. Chatura Hutheesing held 45% shares in the assessee company and 1% in the lender company. The Assessing Officer argued that since Shri Niraj Hutheesing had more than 10% voting power in the lender company and substantial interest in the assessee company, the loan should be treated as deemed dividend under section 2(22)(e). However, the assessee contended that the provision of section 2(22)(e) applies only if the recipient is a shareholder in the lender company, which was not the case here. The assessee cited various judicial pronouncements, including CIT vs. Ankitech (P.) Techn Pvt. Ltd. and CIT vs. Daisy Packers Pvt. Ltd., to support their argument that the loan should not be treated as deemed dividend. The CIT(A) allowed the appeal of the assessee, noting that the assessee company was not a shareholder in the lender company, and therefore, the loan could not be treated as deemed dividend under section 2(22)(e). The CIT(A) referred to the decision of the Hon’ble Gujarat High Court in CIT vs. Daisy Packers Pvt. Ltd. and the Hon’ble Supreme Court’s decision in the case of CIT vs. Ankitech Pvt. Ltd., which upheld that the deemed dividend provision applies only to shareholders of the lender company. During the appellate proceedings before the ITAT, the Departmental Representative supported the Assessing Officer's order, while the Authorized Representative for the assessee submitted various judicial decisions that supported the CIT(A)’s decision. The ITAT reviewed the facts and judicial precedents and concluded that since the assessee company was not a shareholder in the lender company, the loan could not be treated as deemed dividend under section 2(22)(e). The ITAT noted that the issue was covered by several judicial pronouncements, including the decisions of the Hon’ble Gujarat High Court in CIT vs. Daisy Packers Pvt. Ltd. and the Hon’ble Supreme Court in CIT vs. Ankitech Pvt. Ltd. The ITAT also referred to similar cases decided by the Coordinate Benches of the ITAT, such as Precimetal Cast Pvt. Ltd. vs. ITO, where it was held that for the applicability of section 2(22)(e), the recipient must be a shareholder in the lender company. Since the assessee company was not a shareholder in the lender company, the ITAT upheld the CIT(A)’s decision to delete the addition made by the Assessing Officer under section 2(22)(e). Conclusion: The ITAT dismissed the revenue’s appeal and upheld the CIT(A)’s decision to delete the disallowance of ?2,70,50,000/- made by the Assessing Officer under section 2(22)(e) of the Income Tax Act, 1961. The ITAT concluded that the deemed dividend provision under section 2(22)(e) applies only to shareholders of the lender company, and since the assessee company was not a shareholder in the lender company, the loan could not be treated as deemed dividend.
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