The Delhi bench of Income Tax Appellate Authority (ITAT) recently held that advance given to protect business interest of assessee –company did not attract provisions of deemed dividend under section 2(22)(e) Income Tax Act 1961.
Assesee Bineeta Singh, taken loan from BTB Marketing Pvt. Ltd., against residential property of Shri Rahul Singh, who also a Director of BTB Marketing Pvt. Ltd. and make a collateral security on that said loan also the guarantors was BTB Marketing Pvt. Ltd., Mr. Rahul Singh, and Mrs. Bineeta Singh.
Thereafter the loan was taken by BTB RetailPvt. Ltd against the residential property of Shri Rahul Singh. Both of the companies book of accounts shows the details of loan taken by the members of the company.
After the assessment assessing officer makes addition upon the loan amount taken by the assesee.Against the order assese filed the appeal before the ITAT.
Ajay Wadwa, counsel for the assessee contended that provisions of section 2(22)(e) would be applicable in respect of gratuitous loans and advances given by the company which were enjoyed on account of shareholding and the said section would not be applicable to cases where the loan or advance was given as a consideration for any other advantage conferred upon the company by such shareholder.
Praveen Sidharth counsel for the revenue submits that Assessing officer was right invoking the provisions of section 2(22)(e) of the Income Tax Act 1961, as the day on which BTB Retail Pvt. Ltd., advance an amount to assessee the company was having reserve and surplus more than the amount advanced, therefore the assessing officer was right in holding that all the conditions stipulated under section 2(22)(e) of the Act are fulfilled to the impugned loan/advance given to the assessee.
Section 2(22)(e) of the Income Tax Act 1961, deals with deemed dividend, as per the section deemed dividend means loan or advances extended by the company to the people who are closely related to the company.
After considering both contention the division bench of the ITAT compraising Chandra Mohan Garg, (Judicial Member) and Narendra Kumar Billaiya, (Accountant Member) allowed the appeal filed by the assessee and observed that
“If such loan or advances are given to such shareholders as a consequence of any further consideration which is beneficial to the company received from such shareholders then in such advance or loan cannot be said to be deemed dividend within the ambit of section 2(22)(e) of the Act.”
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