Maheshbhai Niranjanbhai Vyas Vs DCIT (ITAT Ahmedabad)
Loan Received Against Director’s Personal Guarantees is Not Deemed Dividend — CBDT Circular 19/2017 & Earlier CIT(A) Order Followed; Sec. 2(22)(e) Addition Deleted
In this appeal, Maheshbhai Niranjanbhai Vyas challenged the reassessment addition of ₹13,46,792/- made as deemed dividend u/s 2(22)(e). The Assessee, holding more than 10% shares in Nandsai Steel Pvt. Ltd., had received a loan during AY 2014-15. Based on this, the AO reopened the assessment u/s 148 on 23.07.2018. The Assessee filed the return admitting the original income. The AO treated the loan as deemed dividend to the extent of accumulated profits and made an addition of ₹13.46 lakh.
Before CIT(A), the Assessee demonstrated that the company had availed cash credit limits from Bank of Baroda, which were sanctioned against his personal guarantee, his LIC policies, his immovable properties, and guarantees also provided by his wife. The funds received from the bank were used by the company in business, and the Assessee’s loan was merely drawn out of such bank borrowings backed by his personal assets. It was argued that such transactions fall outside the deeming fiction of section 2(22)(e).
CIT(A), however, rejected the claim & upheld the AO’s addition.
Before the Tribunal, the Assessee relied on the CIT(A)’s own order for AY 2013-14 involving identical facts, where the addition u/s 2(22)(e) had been deleted. The Tribunal reproduced the earlier CIT(A)’s 2013-14 order, which applied CBDT Circular No. 19/2017 (dated 12.06.2017) clarifying that trade advances, commercial transactions, or amounts flowing out of bank loans secured by the shareholder’s personal guarantee do not constitute deemed dividend. The earlier CIT(A) also relied on several judicial precedents including:
— Pradip Kumar Malhotra (Cal HC)
— G. Sreevidya (ITAT Chennai)
— Atul Engineering Udyog (Allahabad HC)
— Dipesh Lalchand Shah (ITAT Ahmedabad)
Since the facts in the present year (2014-15) were identical — personal guarantees securing bank loan, loan drawn from such borrowed funds, business exigency — the Tribunal held that the principle applies squarely. The Tribunal also noted that Revenue had not appealed against the CIT(A)’s favourable order for AY 2013-14, and therefore that finding had attained finality.
Thus, the addition u/s 2(22)(e) for AY 2014-15 was held unsustainable in law. The Tribunal deleted the entire deemed dividend addition.
The appeal was allowed in full.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee as against the appellate order dated 31.07.2025 passed by the Commissioner of Income Tax (Appeals)-12, Ahmedabad arising out of the reassessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2014-15.
