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2022 (10) TMI 103 - AT - Income TaxDeemed dividend Addition u/s 2(22)(e) - loan advances received as assessee is a common shareholders in both the companies holding more than 10% of the shares - HELD THAT - As during the course of assessment proceedings, the respondent-assessee had not disputed that he is common shareholder in both the companies, however, contended that the provisions of section 2(22)(e) have no application, inasmuch as, the loan was advanced by M/s. Kumar Urban Developers Ltd. to M/s. Shatrunjay Construction and Developers Pvt. Ltd. in the ordinary course of its business. However, during the course of proceedings before the CIT(A), the respondent-assessee took a plea that he was not a shareholder in M/s. Shatrunjay Construction and Developers Pvt. Ltd. at the time of granting of loan by M/s. Kumar Urban Developers Ltd. to M/s. Shatrunjay Construction and Developers Pvt. Ltd. and this contention was proved by filing the shareholding pattern of the said company. Even on remand to the Assessing Officer by ld. CIT(A), the Assessing Officer also concurred with the submission of the respondent-assessee that he is not a shareholder in M/s. Shatrunjay Construction and Developers Pvt. Ltd. at the relevant point of time. CIT(A) accordingly concluded that the provisions of section 2(22)(e) have no application to the facts of the present case. This fact has not been controverted by the ld. Sr. DR. Since the order of the ld. CIT(A) is based on proper appreciation of facts and law, we do not find any infirmity in the order of the ld. CIT(A). Accordingly, the grounds of appeal raised by the Revenue stand dismissed.
Issues:
1. Applicability of section 2(22)(e) of the Income Tax Act. 2. Justification of deletion of addition made under section 2(22)(e). 3. Reliance on the letter of company secretary for change in shareholding pattern. 4. Verification of change in shareholding pattern without filing with ROC. 5. Appreciation of facts regarding change in shareholding pattern. 6. Dispute over the shareholder status in the company receiving the loan. Analysis: Issue 1: Applicability of section 2(22)(e) of the Income Tax Act The case involved a dispute regarding the applicability of section 2(22)(e) of the Income Tax Act concerning a loan given by one company to another. The Assessing Officer contended that the loan constituted a deemed dividend due to common shareholding by the respondent-assessee in both companies. However, the respondent argued that the loan was a business transaction. The ld. CIT(A) concluded that the provisions of section 2(22)(e) did not apply as the respondent was not a shareholder in the recipient company at the time of the loan, supported by the shareholding pattern. Issue 2: Justification of deletion of addition made under section 2(22)(e) The ld. CIT(A) justified the deletion of the addition made under section 2(22)(e) based on the finding that the respondent was not a shareholder in the company receiving the loan at the relevant time. This decision was supported by the shareholding pattern and the lack of evidence to prove the loan was not part of a business transaction. Issue 3: Reliance on the letter of company secretary for change in shareholding pattern The Revenue contested the reliance on the letter of the company secretary to prove the change in shareholding pattern. They argued that it was an afterthought by the respondent. However, the ld. CIT(A) accepted the letter and other evidence provided by the respondent to establish the change in shareholding, leading to the deletion of the addition under section 2(22)(e). Issue 4: Verification of change in shareholding pattern without filing with ROC The Revenue raised concerns about allowing the claim without verification of the change in shareholding pattern being filed with the Registrar of Companies (ROC). The ld. CIT(A) concluded that the evidence provided, including the shareholding pattern and returns filed with the ROC, was sufficient to establish the change in shareholding and support the deletion of the addition. Issue 5: Appreciation of facts regarding change in shareholding pattern The ld. CIT(A) correctly appreciated the facts regarding the change in shareholding pattern, considering the evidence provided by the respondent. The decision was based on a thorough analysis of the shareholding status at the time of the loan, in line with legal precedents. Issue 6: Dispute over the shareholder status in the company receiving the loan A significant point of contention was the dispute over the respondent's shareholder status in the company receiving the loan. The respondent successfully proved that they were not a shareholder at the time of the loan, leading to the dismissal of the appeal by the Revenue. In conclusion, the appellate tribunal upheld the decision of the ld. CIT(A) to delete the addition under section 2(22)(e) based on the lack of shareholding by the respondent at the time of the loan, supported by appropriate evidence and legal reasoning.
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