Microfinish Valves Private Limited Vs ACIT (ITAT Bengalore)
No deemed dividend u/s 2(22)(e) in case loan to borrower not being shareholder in lender company
Conclusion: Since assessee was not a shareholder in lender company, therefore, AO was unjustified in taxing loan received by assessee as deemed dividend under section 2(22)(e).
Held: Assessee was a company engaged in the business of manufacture of valves. It borrowed a certain sum from M/s. MPPL. AO noticed that there were common directors in both assessee company and MPPL and therefore the borrowed sum received as advance from MPPL was liable to be added as deemed dividend u/s. 2(22)(e) in the hands of the assessee company. It was held deemed dividend under section 2(22)(e) could be assessed only in the hands of a person who was a shareholder of lender company and not in the hands of a person other than a shareholder. As assessee in the present case was not a shareholder in lender company, therefore, AO was unjustified in taxing loan received by assessee as deemed dividend under section 2(22)(e).
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is against the order dated 05.05.2017 of the CIT(Appeals), Hubli relating to assessment year 201 2-13.
2. The first issue that arises for consideration in this appeal is with regard to the action of the revenue authorities in bringing to tax a sum of Rs.4 crores as deemed dividend u/s. 2(22)(e) of the Income-Tax Act, 1961 [“the Act”].
3. The facts with regard to the above said addition are as follows. The assessee is a company engaged in the business of manufacture of valves. The assessee borrowed a sum of Rs.4 crores from M/s. Micofinish Pumps Pvt. Ltd. (MPPL). The AO noticed that there were common directors in both the assessee company and MPPL and therefore the sum of Rs. 4 crores received as advance from MPPL was liable to be added as deemed dividend u/s. 2(22)(e) of the Act in the hands of the assessee company. The following table would show the common shareholding and their share holding in the Assessee company as well as MPPL:
