ACIT Vs Windlass Steel Crafts LLP (ITAT Delhi)
ITAT Delhi held that deeming fiction of section 2(22)(e) of the Income Tax Act cannot be attracted when loan or advances are made to person not being shareholder. Accordingly, CIT(A) rightly deleted the addition and hence appeal filed by revenue dismissed.
Facts- Assessee was a partnership firm operating under the name and style of ‘Windlass Steel Crafts’, later which was converted into Limited Liability Partnership (LLP) w.e.f. 25.02.2014 as per the certificate of registration on conversion of LLP. During the course of assessment proceedings, the AO observed that Windlass Engineers and Services Pvt. Ltd. (WESPL) given loan to the assessee and assessee has repaid the same and assessee also declared the same in its return of income for AY 2014-15 that it has taken loan from WESPL.
AO after analyzing the provisions of section 2(22)(e) of the Act and Explanation 3 of the Act was of the view that WESPL is a closely held company, any loan or advance paid to a concern in which the shareholder holding at least 10% of the voting power then the partner is also a beneficiary entitled to 20% of the income of the partnership concern then the payer i.e. WESPL in case of having accumulated profit on the date of payment then the payment of loan/advances are not in the ordinary course of business then the provisions of section 2(22)(e) are directly applicable.
