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TMI Blog2019 (3) TMI 1243X X X X Extracts X X X X X X X X Extracts X X X X ..... of the decision of Gopal And Sons, HUF vs CIT [2017 (1) TMI 331 - SUPREME COURT] wherein held that even if HUF is not a registered shareholder in lending company, advances / loans received by HUF is taxable as deemed dividend u/s 2(22)(e) if karta shareholder has substantial interest in HUF. There is no dispute with regard to this legal proposition rendered by the Hon’ble Supreme Court. To that extent, the findings of facts recorded by the CIT(A) are incorrect. Fact remains that the assessee has succeeded in his attempt on the issue of business exigency, where the assessee has filed complete details to prove that the transactions between the assessee and the lending company is arising out of normal commercial transactions for purchase of goods. Therefore, we are of the considered view that the AO was erred in treating loans received from lending company as deemed dividend u/s 2(22)(e) - Decided against revenue. - ITA No 3206/Mum/2017 - - - Dated:- 18-12-2018 - Shri Mahavir Singh (Judicial Member) And Shri G Manjunatha (Accountant Member) For the Appellant : Shri Manoj Kumar For the Respondent : Shri G.C. Lalka ORDER PER G MANJUNATHA, AM : This appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2)(e) shall not be invoked, to tax loans and advances received from M/s Arbes Tools Pvt Ltd as deemed dividend. In response to notice, the assessee has submitted that the amount received from M/s Arbes Tools Pvt Ltd is normal business transactions as the assessee is having regular business transactions with the company for purchase of materials, therefore, the normal business transactions cannot be considered within the provisions of section 2(22)(e) of the Act. The AO, after considering relevant submissions of the assessee and also by following certain judicial precedents, held that there is no merit in the arguments of the assessee that this is a business transaction on account of purchases as the assessee has failed to prove how loans and advances classified in the balance-sheet in the name of the assessee is related to purchase transactions. The AO further observed that the business exigencies of the group companies have no bearing on the amount received from the company which is in the nature of loans which comes under the provisions of section 2(22)(e) of the I.T. Act, 1961. Accordingly, he made addition of ₹ 97,79, 278 u/s 2(22)(e) of the Act. 3. Aggrieved by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 367 ITR 666. While dealing with the issue of deemed dividend categorically held that section 2(22)(e) cannot be invoked where the assessee is not a share holder of lending company. Further, the Hon'ble Bombay High Court CIT-vs- Jignesh P. Shah I.T.A. No. 197 of 2013 (Bombay High Court) If the assessee is not a shareholder of lending co, section 2(22)(e) does not apply. 6.3 The Hon'ble Delhi High Court in the case of CIT vs. Creative Dyeing Printing (P) Ltd. 184 Taxman 483 (Delhi) is held that under section 2(22)(e), the amount advanced for a business transaction would not fall within the definition of Deemed dividend . The Hon'ble Bombay High Court in the case of CIT vs. Nagindas N.Kapadia 177 ITR 393 Bombay is held that business transaction are outside the purview of section 2(22)(e). In other words, if the amount advanced does not bear the characteristics of loans and advances, section 2(22)(e) is not applicable. The Hon'ble Supreme Court in the case of CIT v. N.S.N. Jewellers (P) Ltd. (2C16) 285 CTR 80 (Supreme Court) is held as under:- Assessee company had received a sum by way of loan or advance form SIPL. As two shareholders of SIPL had a benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Bombay High Court has applied the principle of consistency on similar facts in Gopal Purohit's case (supra). It is held that principle of consistency has to be applied where facts are identical. On identical facts, there is no such addition u/s.2(22)(e) of the I.T.Act were made neither in past nor in the subsequent year. 5. The Ld.DR submitted that the Ld.CIT(A) was erred in deleting addition made by the AO towards deemed dividend u/s 2(22)(e) of the Act, without appreciating the factual and legal matrix clearly brought out by the AO. The Ld.CIT(A) even failed to consider the fact that the assessee firm is holding more thn 20% share in the lender company through two of its partners. Therefore, in view of the decision of Hon ble Supreme Court in the case of Gopal And Sons, HUF 391 ITR 1 (SC) where it was held that even if HUF is not a registered shareholder of lending company, advances / loans from HUF is taxable as deemed dividend u/s 2(22)(e), if karta shareholder has substantial interest in HUF. 6. The Ld. AR for the assessee, on the other hand, strongly supporting the order of the Ld.CIT(A), submitted that the Ld.CIT(A) has rightly appreciated the fact in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taxable as deemed dividend, is devoid of merit in view of the decision of Hon ble Supreme Court in the case of Gopal And Sons, HUF vs CIT (supra), where the Hon ble Supreme Court held that even if HUF is not a registered shareholder in lending company, advances / loans received by HUF is taxable as deemed dividend u/s 2(22)(e) if karta shareholder has substantial interest in HUF. There is no dispute with regard to this legal proposition rendered by the Hon ble Supreme Court. To that extent, the findings of facts recorded by the Ld.CIT(A) are incorrect. But, fact remains that the assessee has succeeded in his attempt on the issue of business exigency, where the assessee has filed complete details to prove that the transactions between the assessee and the lending company is arising out of normal commercial transactions for purchase of goods. Therefore, we are of the considered view that the AO was erred in treating loans received from lending company as deemed dividend u/s 2(22)(e) of the Act, in the hands of the assessee. The Ld.CIT(A) has rightly in deleted addition made by the AO and hence, we are inclined to uphold the findings of Ld.CIT(A) and dismiss the appeal filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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