2024 (4) TMI 314 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - As alleged assessee has received a loan from company wherein he is holding 32.83% equity shares - HELD THAT - Assessee has not withdrawn any loan during the year under consideration and the outstanding balance on each closing day is credit balance during the year. Since there is no debit balance in any closing day of the year under consideration we deem it fit and proper to delete the additions proposed by the Assessing Officer under Section 2(22)(e) of the Act. Payment to RHPL and SSPDPL there is no doubt that the assessee hold substantial interest in RHPL and SSPDPL and also hold a substantial shares in MMLPL and also MMLPL has accumulated profits during the close of the assessment year - The provisions of Section 2(22)(e) of the Act is attracted if any advances or loan given directly to the shareholder or to a concern in which the shareholder is having a substantial interest or any payment by such company in which assessee is having a substantial interest on behalf of or for the individual benefit of any such shareholder. From the above definition we infer that the payment made to the concern in which the assessee is having a substantial interest and in turn above such concerns makes a payment to the assessee direct / indirect benefit of the assessee the provisions of Section 2(22)(e) of the Act are attracted. In the given case the assessee has demonstrated that no doubt the concern in which assessee is having substantial interest has received certain funds from the company and it was utilized by them for their own business purposes and none of the funds received by those companies in which the assessee is having substantial interest has made any payments directly or indirectly to the benefit of the assessee. Therefore the payment received by RHPL and SSPDPL are utilized by them for the purpose of their own business. Therefore provisions of Section 2(22)(e) of the Act cannot be invoked in this case. Accordingly Ground No.2 raised by the assessee is allowed.

Summary

Issues Involved:
1. Deemed Dividend u/s 2(22)(e) of the Income-tax Act, 1961.
2. Deemed Rent u/s 23(1) of the Income-tax Act, 1961.

Summary:

Issue 1: Deemed Dividend u/s 2(22)(e)
The assessee, Managing Director of M/s. Muchhala Magic Land Pvt. Ltd. (MMLPL), received a loan of Rs. 60,18,566/- from MMLPL, where he holds 32.83% equity shares. The Assessing Officer (AO) observed that MMLPL had accumulated profits of Rs. 5,25,64,264/- and invoked Section 2(22)(e) of the Income-tax Act, 1961, treating the loan as deemed dividend. Additionally, loans given by MMLPL to M/s Ritika Hotels Pvt. Ltd. (RHPL) and M/s. Sai Shiva Property Developers Pvt. Ltd. (SSPDPL) were also treated as deemed dividends since the assessee held substantial interest in these companies.

The assessee contended that the transactions were part of a running account and not loans. The Tribunal observed that the assessee did not withdraw any loan during the year, and the outstanding balance was a credit balance. Therefore, the additions proposed by the AO u/s 2(22)(e) were deleted.

Regarding loans to RHPL and SSPDPL, the Tribunal noted that the funds were utilized for business purposes and not for the benefit of the assessee. Hence, the provisions of Section 2(22)(e) could not be invoked.

Issue 2: Deemed Rent u/s 23(1)
The assessee argued against the addition of Rs. 2,64,242/- as deemed rent for vacant premises. However, this ground was not pressed by the assessee during the hearing and was dismissed.

Conclusion:
The appeal was partly allowed, with the Tribunal deleting the additions related to deemed dividends u/s 2(22)(e) and dismissing the ground related to deemed rent u/s 23(1).