Kishori Lal Agrawal Vs CIT (Allahabad High Court)
Allahabad High Court, in a significant ruling stemming from an appeal by assessee Kishori Lal Agrawal against a decision of the Income Tax Appellate Tribunal (ITAT), has remanded a crucial aspect of a deemed dividend case back to the Tribunal. The judgment, concerning Assessment Year 2007-08, provides clarity on the interpretation of Section 2(22)(e) of the Income Tax Act, 1961, particularly regarding loans given by companies in the “ordinary course of its business.”
Case Background
The genesis of the dispute lay in interest-bearing loans taken by the assessee, Mr. Kishori Lal Agrawal, from two companies: Kukki Color Photos Pvt. Ltd. (₹ 95,225/-) and Kukki Color Prints Pvt. Ltd. (₹ 11,55,230/-). Mr. Agrawal held more than 10% of the shares in both these companies.
The Assessing Officer (AO) viewed these loans as “deemed dividends” and consequently made an addition of ₹ 12,50,445/- to the assessee’s income under Section 2(22)(e) of the Income Tax Act, 1961. The AO’s reasoning was that since the assessee held over 10% shares in companies not substantially interested in the public, and these companies possessed sufficient accumulated profits, the loans and advances should be treated as deemed dividends in Mr. Agrawal’s hands.
