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TMI Blog2012 (11) TMI 749X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs. 72,67,605/- made by the AO u/s 2(22)(e) of the Income Tax Act . 2. Facts indicate that assessee is a private Limited company registered under the Companies Act, 1956. The assessee has filed return of income in respect of asstt. year 2007-08 on 10th October, 2007 declaring a loss of Rs. 5,914/-. The assessee is regularly assessed since long with the AO, during the year, assessee company received a sum of Rs. 2,08,50,000/- from M/s. Dugar Growth Funds (P) Ltd. for investment which the AO has added to the income of the assessee in view of provision of section 2(22)(e) of the IT Act, by observing that as Miss Pooja Jain had 31.11% of M/s. Dugar Growth Fund P. Ltd. and had 25% shareholders in M/s. Elite Farms P. Ltd., the sum advanced by M/s. Dugar Growth Funds P Ltd. to the assessee attracts the provisions of Section 2(22)(e) of the IT Act, 1961. The assessee submitted before the AO that transaction was carried out during the normal course of the business vide order sheet entry dated 16.11.2009, the assessee was asked to explain as to how transaction with M/s. Dugar Growth Funds P. Ltd. are routine and during the course of normal business, it was asked to file copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny M/s Dugar Growth P. Ltd. so no addition u/s 2(22)(e) be made in the case of the assessee and strongly relied up jurisdictional High Court decision in the case of CIT vs. Ankitech Pvt. Ltd. in ITA No. 462 of 2009 dated 11th May 2011 etc. ..and Ld. CIT(A) has deleted the impugned addition on the basis that assessee is not shareholder of the company with which transaction is involved. So applying the ratio of the decision of Delhi High Court order of Ld. CIT(A) is liable to be confirmed and appeal of the department is to be dismissed. It was prayed for the dismissal of the appeal of the revenue. 6. Ld. DR could not controvert this factual aspect but submitted that since the provision of section 2(22)(e) are attracted in the case of the shareholder Miss Pooja Jain therefore necessary direction should be passed for invoking the provisions of section 2(22)(e) in the case of the said shareholder. 7. We have heard both the sides and considered the material on record and find that the issue raised in this appeal is squarely covered in favour of the assessee by Delhi High Court s decision in the case of CIT vs. Ankitech Pvt. Ltd. and others in ITA No. 462 of 2009 with ITA Nos. 2087 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Be as it may, we may reiterated that as per this provision, the following conditions are to be satisfied : (1) The payer company must be a closely held company. (2) It applies to any sum paid by way of loan or advance during the year to the following persons : (a) A shareholder holding at least 10 of voting power in the payer company. (b) A company in which such shareholder has at least 20% of the voting power. (c) A concern (other than company) in which such shareholder has at least 20% interest. (3) The payer company has accumulated profits on the date of any such payment and the payment is out of accumulated profits. (4) The payment of loan or advance is not in course of ordinary business activities. 24. The intention behind enacting provisions of Section 2(22)(e) is that closely held companies (i.e companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be a shareholder by way of deeming provision. It is not correct on the part of the Revenue to argue that if this position is taken, then the income :is not taxed at the hands of the recipient . Such an argument based on the scheme of the Act as projected by the learned counsels for the Revenue on the basis of Sections 4,5,8, 14 and 56 of the Act would be of no avail. Simple answer to this argument is that such loan or advance, in the first place, is not an income. Such a loan or advance has to be returned by the recipient to the company, which has given the loan or advance. 27. Precisely, for this very reason, the Courts have held that if the amounts advanced are for business transactions between the parties, such payment would not fall within the deeming dividend under Section 2(22)(e) of the Act. 28. In so far as reliance upon Circular No. 495 dated 22.09.1997 issued by Central Board of Direct Taxes is concerned, we are inclined to agree with the observations of the Mumbai Bench decision in Bhaumik Colour (P) Ltd. (supra) that such observations are not binding on the Courts. Once it is found that such loan or advance cannot be treated as deemed dividend at the hands of such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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