No Deemed Dividend If Assessee was not a Shareholder at the Time of Advance: ITAT [Read Order]

Deemed Dividend - ITAT - Taxscan

The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that deemed dividend cannot be applied when the assessee was not a shareholder at the time of the advance.

Assessee is a partnership firm started to be engaged in the business of cotton ginning, pressing and manufacturing.

During the course of assessment proceedings, AO noticed that assessee had received a loan from Mahesh Ginning Pvt. Ltd., in which both the partners of the firm i.e., Goverdhandash H. Tayal and Gopal Hazarimal Tayal held 18.19% share each. He also noticed that assessee firm had only two partners holding 50% share each. AO was therefore of the view that the transaction of receipt of loan by the assessee qualified as dividend u/s 2(22)(e) of the Act.

The Tribunal noted that it is an undisputed fact that assessee had received a loan from Mahesh Ginning Pvt. Ltd., in which both the partners of the assessee also held 18.19% shares each.

“We find that Ld.CIT(A) while deciding the issue in favour of the assessee has given a finding that the chief ingredient of Sec.2(22)(e) of the Act is that one should be a shareholder on the date on which the advance was made. Though the advances were made out of the profits of the lending company the assessee was not the registered shareholder and beneficial interest was not existing. She, therefore, following the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Universal Medicare Private Limited (supra) and other decisions cited in the order, has held that the receipt of loan cannot be contemplated as deemed dividend u/s 2(22)(e) of the Act. Before us, Revenue has not pointed out any contrary binding decision in its support. We, therefore, find no reason to interfere with the order of Ld.CIT(A),” the Tribunal said.

Subscribe Taxscan Premium to view the Judgment
taxscan-loader