Pawa International Pvt Ltd Vs ACIT (ITAT Delhi)
The appeal filed by Pawa International Pvt Ltd (the assessee) is against the order dated 13.09.2023 by NFAC, Delhi. The primary contention of the assessee is that the CIT(A) erred in confirming the addition of Rs. 53,80,84,475 on account of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The key argument is that the assessee company is not a shareholder, and therefore, the provisions of Section 2(22)(e) should not apply.
Facts of the Case:
- The return of income filed on 27.10.2015 was selected for scrutiny through CASS (Computer Assisted Scrutiny Selection).
- The Assessing Officer (AO) considered the shareholding pattern and accumulated profits of various companies.
- The AO treated the loans provided by closely held companies as deemed dividends under Section 2(22)(e) to the extent of accumulated profits.
Arguments Before the Authorities:
- The assessee contended that it is not a shareholder in the impugned company, and hence, Section 2(22)(e) should not apply.
- The AO believed that all companies providing funds were closely held, and therefore, the loans should be treated as dividends to the extent of accumulated profits.
- The CIT(A) upheld the AO’s decision.
Legal Interpretation:
- The counsel for the assessee argued that the legal fiction created under Section 2(22)(e) enlarges the definition of dividend but should not be extended further to broaden the concept of shareholders.
- Citing the decision of the Hon’ble Jurisdictional High Court of Delhi in Ankitech Private Limited (340 ITR 14), it was emphasized that the legal fiction should not be stretched beyond its intended purpose.
- The Hon’ble Supreme Court’s decision in Madhur Housing and Development Company (401 ITR 152) affirmed this principle.
Decision of the Income Tax Appellate Tribunal (ITAT):
Paid content
Become a Basic or Premium Member, or log in if you are already a Basic or Premium member.
