No deemed dividend if assessee didn’t get benefit from loans advanced to Co. in which he was substantially interested

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No deemed dividend if assessee didn’t get benefit from loans advanced to Co. in which he was substantially interested

Jateen Madanlal Gupta
[2021] 126 taxmann.com 20 (Ahmedabad – Trib.)

Short Overview:

Section 2(22) of the Income-tax Act, 1961
 Deemed dividend (Loans or advances to shareholder)
 Assessment year 2008-09
 Whether provisions of section 2(22)(e) will be attracted in a situation where company, in which assessee was registered shareholder, advanced loans and advances to other companies in which assessee was holding substantial interest and assessee got some benefit out of such loans and advances
 Held, yes
Assessee was a shareholder and carrying voting rights of not less than 10 per cent in company JPIL
Similarly, assessee was also holding substantial interest in other entities/companies namely D and G respectively
JPIL had advanced loan to D and G – Assessing Officer treated loan amount as deemed dividend in hands of assessee on reasoning that transactions of advancing loan to companies D and G fell within purview of deemed dividend under section 2(22)(e) and made additions
 However, it was found that loans and advances were made as inter corporate deposits in ordinary course of its business which were not subject to provisions of deemed dividend as provided under section 2(22)(e)
Commissioner (Appeals) had given a clear-cut finding that there was no benefit accrued to assessee out of loans and advances given by JPIL to companies D and G
Whether therefore, Assessing Officer was to be directed to delete additions made by him
Held, yes
Section 147, read with section 2(22), of the Income-tax Act, 1961
Income escaping assessment
Non-disclosure of primary facts (General) – Assessment year 2008-09
 Whether fresh application of mind to same set of facts is not allowable in grab of section 147/148
 Held, yes
Assessing Officer sough to reopen assessment in case of assessee and at threshold had recorded that assessee was having substantial share in ‘JPIL’ which had advanced loan to two companies and assessee also held 50 per cent and 22 per cent shares in both companies, hence, entire transaction of advancing loan fell under preview of section 2(22)(e) and represented deemed dividend of assessee
However, Assessing Officer nowhere mentioned that he had new information or fresh material in possession from where he had seen such fact
 Assessing Officer had not applied his/her mind in reaching to reason to believe or formed believe in mechanical order without adducing supporting material that income of assessee had escaped assessment
 Whether therefore, reopening was made without bringing any fresh material on record and therefore, assessment framed under section 147 was to be set aside
Held, yes

Conclusions :

Where company in which assessee was registered shareholder, advanced loans and advances to other companies in which assessee was holding substantial interest, however, assessee did not get benefit out of such loans and advances, provisions of section 2(22)(e) will not be attracted
Reopening of assessment without bringing any fresh material on record, on fresh application of mind to same set of facts would not be allowable

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