Profit sharing as provided in MOU is outside the purview of section 2(22)(e)

JCIT Vs Sanjana Realcon Pvt. Ltd (ITAT Delhi)

ITAT Delhi held that profit sharing as provided in MOU cannot be treated as ‘deemed dividend’ and accordingly outside the purview of section 2(22)(e) of the Income Tax Act.

Facts-

The assessee-company is incorporated with the main objective to carry on business as a real estate developer. On perusal of the balance sheet and financial accounts of the assessee, AO observed that the assessee has undertaken certain related party transaction. It was found that the assessee has received loans from a company, namely, Landspace Construction Pvt. Ltd. (Landscape) wherein the assessee holds 20% equity share and thus holds substantial interest.

Consequently, the Assessing Officer asked the assessee to show cause as to why provisions of Section 2(22)(e) of the Act should not be applied for the receipt of the loan from the lender co. during the year.

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