Case Law Details
Brief Facts
The facts related to this issue in brief are that the AO, during the course of assessment proceedings noticed that the assessee had taken an advance of Rs. 10,00,000/- from M/s. Precision Stock and Credit Pvt. Ltd. in which Shri Jasbir Singh held 22,000 out of 1,03,500 shares i.e. a beneficial holding of 21% shares with voting right. He further, observed that Shri Jasbir Singh had holding of 24.52% in assessee’s company and that the balance sheet of M/s Precision Stock and Credit Pvt. Ltd. revealed that it had an accumulated profit of Rs. 579203/- in the beginning of year, thus, satisfying the conditions of applicability of Section 2(22)(e) of the Act. The AO asked the assessee to explain as to why the amount of advance received to the extent of accumulated profits of M/s Precision Stock and Credit Pvt. Ltd. may not be taxed as deemed dividend as per the provisions of Section 2(22)(e) of the Act.
Assessee Contention
The Assessee submitted that the advance was received against the land which was in the nature of normal business transaction, M/s Precision Stock and Credit Pvt. Ltd. had no accumulated profits and the advance was given only out of share premium available with that company which could not be termed as part of accumulated profit as such the provisions of section 2(22)(e) of the Act were not applicable. Besides the assessee submitted that since the assessee company was not a share holder of M/s Precision Stock and Credit Pvt. Ltd. and just because of a common share holder the addition u/s 2(22)(e) of the Act cannot be made.
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