Delhi ITAT: deleting the addition made u/s 2(22)(e) was upheld

 

Issue: Loan advanced to a group company which is neither a registered shareholder nor a beneficial owner: Applicability of provisions of 'deemed dividend' under section 2(22)(e)

During the year under consideration, the assessee had received unsecured loan of Rs.5,99,55,000 from M/s Ritesh Spinning Mills Ltd. (‘RSML’), which bears interest of Rs.76,19,342 and was paid by the assessee thereon. Learned Assessing Officer was of the opinion that the loan advanced by RSML to the assessee is liable to taxed as deemed dividend under section 2(22)(e), on the ground that Mr. Sanjiv Arora is a common shareholder holding substantial interest in both the companies i.e., RSML and the assessee. Asessee pleaded before the Ld. CIT(A) that that the action of the learned Assessing Officer in bringing to tax Rs.3,27,71,164 as deemed dividend under section 2(22)(e) in the hands of the assessee was erroneous and legally unsustainable because the provisions of section 2(22)(e) were not applicable to the case of assessee inasmuch as neither the assessee company is a shareholder in RSML, nor there was any common shareholder holding the requisite percentage of shares in both companies. Ld. CIT(A) accepted the same. He further observed that the deemed dividend, if any, would otherwise be taxable in the hands of common shareholder in terms of the decision of Hon’ble Delhi High Court in CIT v. Ankitech.