INCOME TAX ACT, 1961

Section 2(22)(e)

Dividend - Deemed dividend - Advance made by one closely held company to another - Assessee having substantial shareholding on both companies, however, not on the date of making advance

Assessee was having more than 10% shareholding in two closely held companies CCNPL and JCTPL. AO noticed that CCNPL advanced unsecured loan to JCTPL to the extent of Rs. 17 crores AO show caused assessee, as to why amount of loan advanced to the extent of accumulated profits not to be held as deemed dividend as envisaged by section 2(22)(e) and taxed under 'Income from other sources' under section 56 in the hands of assessee as he was having substantial shareholding in both the transacting companies.Held: one could file belated return with ROC and, if annual return was late as in case of assessee, then same could be filed along with 'late fee' as applicable, as was done by assessee and, as such, for all intents and purposes, it was a valid original annual return and legally enforceable document. In assessee's case though return intimating sale of shares had been filed late with ROC, however, since the same was accepted by ROC along with late fee as per rules, hence same was legally valid and enforceable document and the effective date of transfer of shares was 8-5-2012. As assessee was not having substantial share holding in CCNPL and 99.9% shares of CCNPL were held by JCTPL, by which CCNPL had become subsidiary of JCTPL, funds transferred by subsidiary to holding did not come under the purview of deemed dividend under section 2(22)(e) and therefore, addition made by AO could not be sustained.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

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