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TMI Blog2013 (11) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... - on account of alleged unaccounted and unexplained transfer of fund by M/s. Naresh Kumar & Co. found in the seized materials from the Vice President of that Group, without taking into consideration the evidences of the appellant company in support of its contention about the entries relating to the amount having duly been entered in the books of the appellant company." 3. We have heard rival submissions and gone through facts and circumstances of the case. Brief facts leading to the above issue are that the assessee filed its return of income on 07.08.2009 disclosing loss of Rs.11,76,320/-. A search and seizure was carried out on the business and residential premises of Naresh Kumar & Co. group of cases, which the assessee is also a part and in pursuance to this search notices under sections 153A, 143(2) and 142(1) of the Act were issued and consequent assessment was completed. As regards to the first issue during the year under consideration, the assessee company received money from Naresh Kumar & Co. and also certain expenses were incurred on behalf of assessee by Naresh Kumar & Co.. According to assessee, these amounts were recorded in the books of account of the assessee as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cient evidence to prove the claim as bona fide, we are inclined to accept the same. In our view, these are not unexplained, rather these are explained entries. We delete the addition and reverse the orders of the lower authorities. This ground of assessee's appeal is allowed. 5. The next issue in this appeal of assessee is against the order of CIT(A) confirming the addition made by u/s. 40A(3) of the Act amounting to Rs.2,23,515/-. For this, assessee has raised following ground No.3: "3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition of Rs.2,23,515/- u/s. 40A(3) of the Income-tax Act, 1961, although the appellant strongly denied the contention of the Learned A.O. about several payments having been made on different dates in contravention of the provisions of section 40A(3) of the Act, without even mentioning a single specific instance in that regard." 6. At the outset, Ld. counsel for the assessee drew our attention to the addition made by AO vide para 4 as under: "4. Cash payment: During the course of assessment it was observed that several payments on various dates were made in contravention to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as shareholder Name of shareholder % of holding No. of shares 02/04/2008 NKCPL (payment made on 26/27.03.2009) 99.96 4998 25/01/2008 Shri Naresh Kumar .02 1 25.01.2008 Shri Arjun Kumar .02 1 to 01/04/2008, Sri Naresh Kumar and Shri Arjun Kumar held shares of the appellant company equally i.e. the shareholding of each individual was 50%. Name of shareholder % of holding Sri Arjun Kumar 65 Sri Naresh Kumar 35" 10. Assessee's claim before the lower authorities are that it has never been the shareholder of Naresh Kumar & Co. Pvt. Ltd. and moreover loan was received by the assessee company on 17.09.2008 after it became subsidiary of Naresh Kumar & Co. Pvt. Ltd. on 02.04.2008. According to assessee, the loan has been given by shareholder to lender company and in such circumstances, the provisions of deemed dividend u/s. 2(22)(e) of the Act will not apply. However, the AO made addition by invoking the provisions of section 2(22)(e) of the Act being deemed dividend. 11. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of assessee by relying on the decision of Special Bench of this Tribunal in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder." The legal position as emerges from the perusal of the above referred to judicial pronouncements is that, the addition on account of deemed dividend under the provisions of section 2(22)(e) can be made only in the hands of a shareholder of the lender company and not in the hands of a person other than a shareholder. Section 2(22)(e) is attracted when a company advances any money to a shareholder or for the benefit of the shareholder. In the instant case the appellant was not the shareholder of M/s. Naresh Kumar & Co. Pvt. Ltd. rather M/s. Naresh Kumar & Co. Pvt. Ltd. was the shareholder of the appellant. In this case no money was advanced by the appellant to M/s. Naresh Kumar & Co. Pvt. Ltd., which was the shareholder of the appellant, rather money was received as advance by the appellant from its shareholder. The legal position, as discussed above, being that the addition on account of deemed dividend u/s 2(22)(e) can be made only in the hands of a shareholder of the lender company and not in the hands of a person other than a shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra), CIT v. Universal Medicare Pvt. Ltd. (supra) and the Special Bench decision in ACIT v. Bhaumík Colour P. Ltd. (supra), the addition of Rs.35,00,000/- made by the A.O. u/s.2(22)(e) is deleted. This ground of appeal is, hence, allowed." Aggrieved, now revenue is in appeal before us. 12. We find from the above facts that the assessee received an amount of Rs.35,00,000/- from Naresh Kumar & Co. Pvt. Ltd. On 17.09.2008, on which date, assessee was hundred percent subsidiary of Naresh Kumar & Co. Pvt. Ltd. From the above pattern of shareholding, it is clear that assessee was never a shareholder of Naresh Kumar & Co. Pvt. Ltd. The provisions of section 2(22)(e) are attracted, when a company makes payment to its shareholders whereas in contrast in present case payments have been made by the shareholder to the company. According to us, therefore, the provisions of section 2(22)(e) of the Act will not apply. Even otherwise this issue is squarely covered by the decision of Special Bench of this Tribunal in the case of Bhaumik Colour Pvt. Ltd., supra, wherein it is held that the deemed dividend u/s. 2(22)(e) of the Act can be assessed only in the hands of person who is a shar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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