INCOME TAX ACT, 1961

Section 2(22)(e)

Dividend - Deemed dividend - Loans and advances in ordinary course of business of money lending -

AO made a disallowance as deemed dividend under section 2(22)(e) as the assessee was having 11.61% of share holding in M/s. Shreem Design & Infrastructure Pvt. Ltd. ('SDIPL') and 22.81% share holding in M/s. Aatrey Infrastrucutre Pvt. Ltd. ('AIPL').,the companies in which public were not substantially interested. AO, therefore, held that provisions of section 2(22)(e) are applicable in the case of the present assessee as the assessee had obtained loan and advances from the aforesaid companies. AO made addition in respect of SDIPL AIPL to the extent of accumulated profit treating the same to be the deemed divided. Thereafter the same was added to the total income of both the assessees. The appeal filed by the respondent-assessee before the CIT(A) was dismissed. Tribunal deleted the addition.Held: It is clear that as the assessee was holding more than 10% of the shares in both the companies, the provisions of section 2(22)(e) would come into play. However, the section further provides that the dividend does not include any advances or loan made to a share holder by the company in the ordinary course of business where lending of money is a substantial part of the business of the company. In the present case. It was not in dispute that both the companies were having money lending as the substantial part of their business. Therefore, the Tribunal had rightly held that no addition can be made by way of deemed dividend in the case of the assessee.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

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