Case Law Details
ACIT Vs Krishna Coil Cutters Pvt. Ltd. (ITAT Ahmedabad)
On facts, it has emerged that the lender company has charged interest on the advances made to the assessee company. In the circumstances, the Hon’ble Calcutta High Court in the case of Pradip Kumar Malhotra vs. CIT (2011)338 ITR 538(Cal) has observed that advances given by the lender was not for the individual benefit of the shareholder but for business purposes and therefore such transactions would not fall within the sweep of deeming fiction created under s.2(22)(e) of the Act. This reason on a standalone basis is sufficient to exclude the applicability of Section 2(22)(e) of the Act on the money received by the assessee.
We also simultaneously find merit in the other line of argument advanced on behalf of the assessee. It is case of the assessee than money lent to the assessee was received in the ordinary course of business for fulfillment of business supply through consolidated negotiation. It is also demonstrated by the assessee that similar advance was obtained in the earlier years right from AY 2010-11 where assessee was not a shareholder in the lender company at all. It is also simultaneously the case of the assessee that the lender company was substantially engaged in money lending activity. Furthermore, the lender company has charged interest on the loans advanced to the assessee. In these facts, the case of the assessee is squarely covered by the decision of the Hon’ble Gujarat High Court in Pr. CIT v Mohan Bhagwatprasad Agrawal [2020] 115 taxmann.com 69 (Gujarat) & CIT Vs. Parle Plastics Ltd. (2011) 332 ITR 63 (Bombay). Section 2(22)(e) of the Act requires money so lent to be only ‘substantial part’ of business and in contrast to the ‘principal business’ as wrongly assumed by the AO.
Thus, seen from any angle, no addition could be made by way of deemed dividend in the case of the assessee as rightly held by the CIT(A) on the factual backdrop. We thus see no error in the first appellate order in all three appeals captioned above.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
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