The Income Tax Appellate Tribunal (ITAT), Delhi Bench ruled that if money lending is a part of the business, no addition could be made.
The assessee, M/s. M.L. Singhi & Associates (P) Ltd. challenged the addition under section 68 of the Income Tax. Act, 1961 on account of unexplained share capital/premium.
The Counsel for the Assessee submitted that provisions of Section 2(22)(e) of the Income Tax Act are not applicable in the case of assessee as the assessee is a NBFC Company registered with RBI and assessee company is mainly in the business of lending of money to different Companies.
He has submitted that Exception(ii) to Section 2(22)(e) provides that dividend does not include (-) “any advance or loan made to the shareholder by a Company in the ordinary course of its business where the lending of money is the substantial part of the business of the Company.” He has, therefore, submitted that where lending of money was a substantial part of business of the company, loan advanced by it to its shareholders, would not be taxed as deemed dividend under section 2(22)(e).
The coram consists of O.P. Kant and Bhavnesh Saini noted that assessee is mainly engaged in the finance business for giving loans and advances and earn interest thereon, would clearly prove that assessee is mainly in the business of lending of money to others, therefore, the business transaction would not attract the provisions of Section 2(22)(e) of the Income Tax Act and as such the case of the assessee would fall to the exception provided in sub-clause-(ii) of Section 2(22)(e) of the Income Tax Act, 1961.
Therefore, the ITAT set aside the Orders of the authorities below and deleted the addition.
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