ASHOK SHYAM JAISING,BENGALURU, KARNATAKA vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 23(1), RANGE 199(1), MUMBAI, PIRAMAL CHAMBERS, LALBAUG, MUMBAI, MAHARASHTRA

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ITA 2203/MUM/2026Status: DisposedITAT Mumbai18 September 2026AY 2016-201718 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the lower authorities had not properly examined the commercial aspects of the loan, such as its source, terms, interest rate, and purpose. Therefore, the matter was restored to the Assessing Officer for fresh adjudication.

What were the facts?

The assessee received a loan of ₹1,50,00,000 from a company in which he was a shareholder. The Assessing Officer treated this loan as a deemed dividend under Section 2(22)(e) of the Income-tax Act, 1961, and this addition was confirmed by the CIT(A).

What were the issues?

Whether the loan advanced to the assessee constituted a deemed dividend under Section 2(22)(e) of the Income-tax Act, 1961, considering it was granted on commercial terms and repaid with interest.

Which sections of the Income-tax Act were involved?

Section 2(22)(e)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI

Before: SHRI OM PRAKASH KANT & SHRI ANIKESH BANERJEE

For Appellant: Shri Surendra Mohan (SR.DR.)
Hearing: 08/09/2026

PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated 22.12.2025 passed by the learned National Faceless Appeal Centre (NFAC), Delhi [hereinafter shall be referred to as ‘Ld. CIT(A)’] for A.Y. 2016-17, whereby the addition of ₹1,50,00,000/- made by the Assessing Officer under section 2(22)(e) of the Income-tax Act, 1961

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(“the Act”) was confirmed. (“the Act”) was confirmed. The grounds raised in appeal are The grounds raised in appeal are reproduced as under: reproduced as under:

1.

The Order of the Learned Commissioner of Income 1. The Order of the Learned Commissioner of Income-tax (Appeals), passed under tax (Appeals), passed under Section 250 of the Income Section 250 of the Income-Tax Act, 1961 is opposed to law, principles of natural Tax Act, 1961 is opposed to law, principles of natural justice, equity, weight of evidence, probabilities and the facts and circumstances justice, equity, weight of evidence, probabilities and the facts and circum justice, equity, weight of evidence, probabilities and the facts and circum in the Appellant's case. in the Appellant's case. 2. The Appellant denies being liable to be assessed to tax on total income as 2. The Appellant denies being liable to be assessed to tax on total income as 2. The Appellant denies being liable to be assessed to tax on total income as determined by the learned AO of INR 4,05,54,250/ determined by the learned AO of INR 4,05,54,250/- as against the total income as against the total income reported by the assessee of INR 2,55,51,950/ reported by the assessee of INR 2,55,51,950/- on the facts and circ on the facts and circumstances of the case. 3. The Learned Commissioner of Income 3. The Learned Commissioner of Income-Tax (Appeals) erred in passing the order Tax (Appeals) erred in passing the order without giving sufficient reasoning or application of mind, thus violating the without giving sufficient reasoning or application of mind, thus violating the without giving sufficient reasoning or application of mind, thus violating the principles of natural justice in the facts and circumstances of the case. principles of natural justice in the facts and circumstances of the case. principles of natural justice in the facts and circumstances of the case. 4. The Learned Commissioner of Income . The Learned Commissioner of Income-tax (Appeals) erred in law and on facts in tax (Appeals) erred in law and on facts in confirming the addition of INR 1,50,00,000/ confirming the addition of INR 1,50,00,000/-, which is being treated as deemed , which is being treated as deemed dividend under Section 2(22)(e) of the Income dividend under Section 2(22)(e) of the Income-tax Act, 1961 without dealing with tax Act, 1961 without dealing with or adjudicating the detailed submissions, evidence and judicial precedents placed the detailed submissions, evidence and judicial precedents placed the detailed submissions, evidence and judicial precedents placed on record by the Appellant, thereby violating the principles of natural justice. on record by the Appellant, thereby violating the principles of natural justice. on record by the Appellant, thereby violating the principles of natural justice. 5. The Learned Commissioner of Income 5. The Learned Commissioner of Income-tax (Appeals) erred in law in holding that tax (Appeals) erred in law in holding that the loan of INR 1,50,00,000/ the loan of INR 1,50,00,000/- advanced by M/s Teknic Electromeconics Private advanced by M/s Teknic Electromeconics Private Limited to the Appellant constituted deemed dividend under Section 2(22)(e) of the Limited to the Appellant constituted deemed dividend under Section 2(22)(e) of the Limited to the Appellant constituted deemed dividend under Section 2(22)(e) of the Income-tax Act, 1961 merely on account of the Appellant's shareholding, without tax Act, 1961 merely on account of the Appellant's shareholding, without tax Act, 1961 merely on account of the Appellant's shareholding, without appreciating that the loan was granted on co appreciating that the loan was granted on commercial terms and was not mmercial terms and was not gratuitous in nature. gratuitous in nature. 6. The Learned Commissioner of Income 6. The Learned Commissioner of Income-tax (Appeals) failed to appreciate that the tax (Appeals) failed to appreciate that the loan was sanctioned pursuant to a valid Board Resolution, carried interest at the loan was sanctioned pursuant to a valid Board Resolution, carried interest at the loan was sanctioned pursuant to a valid Board Resolution, carried interest at the rate of 10% per annum, and was repaid in fu rate of 10% per annum, and was repaid in full along with interest over a period of ll along with interest over a period of three years, thereby constituting a genuine commercial transaction. three years, thereby constituting a genuine commercial transaction. three years, thereby constituting a genuine commercial transaction. 7. The Learned Commissioner of Income 7. The Learned Commissioner of Income-tax (Appeals) erred in law in tax (Appeals) erred in law in disregarding the settled legal position that the provisions of Section 2(22)(e) of the disregarding the settled legal position that the provisions of Section 2(22)(e) disregarding the settled legal position that the provisions of Section 2(22)(e) Act apply only to gratuitous loans or advances and not towards loans granted in Act apply only to gratuitous loans or advances and not towards loans granted in Act apply only to gratuitous loans or advances and not towards loans granted in return for consideration in the form of interest or commercial expediency. return for consideration in the form of interest or commercial expediency. return for consideration in the form of interest or commercial expediency. 8. The Learned Commissioner of Income . The Learned Commissioner of Income-tax (Appeals) erred in law in holding that tax (Appeals) erred in law in holding that repayment of the loan and payment of interest are the loan and payment of interest are irrelevant for the purposes of irrelevant for the purposes of Section 2(22)(e) of the Act, contrary to binding judicial precedents relied upon by Section 2(22)(e) of the Act, contrary to binding judicial precedents relied upon by Section 2(22)(e) of the Act, contrary to binding judicial precedents relied upon by the Appellant.

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9.

The Learned Commissioner of Income 9. The Learned Commissioner of Income-tax (Appeals) failed to appreciate that the tax (Appeals) failed to appreciate that the interest paid by the Appellant on the loan was offered to tax and assessed as t paid by the Appellant on the loan was offered to tax and assessed as t paid by the Appellant on the loan was offered to tax and assessed as income in the hands of M/s Teknic Electromeconics Private Limited in the relevant income in the hands of M/s Teknic Electromeconics Private Limited in the relevant income in the hands of M/s Teknic Electromeconics Private Limited in the relevant Assessment Years, clearly establishing that the transaction was beneficial to the Assessment Years, clearly establishing that the transaction was beneficial to the Assessment Years, clearly establishing that the transaction was beneficial to the Company and not a dis Company and not a distribution of accumulated profits. 10. The Learned Commissioner of Income 10. The Learned Commissioner of Income-tax (Appeals) erred in law in concluding tax (Appeals) erred in law in concluding that the loan was for the personal benefit of the Appellant without recording any that the loan was for the personal benefit of the Appellant without recording any that the loan was for the personal benefit of the Appellant without recording any finding that the loan represented a colourable device or a d finding that the loan represented a colourable device or a disguised distribution of isguised distribution of accumulated profits. accumulated profits. 11. The Learned Commissioner of Income 11. The Learned Commissioner of Income-tax (Appeals) failed to appreciate that tax (Appeals) failed to appreciate that the mere existence of accumulated profits and substantial shareholding, without the mere existence of accumulated profits and substantial shareholding, without the mere existence of accumulated profits and substantial shareholding, without establishing that the loan was in the nature of a d establishing that the loan was in the nature of a dividend, is insufficient to invoke ividend, is insufficient to invoke the provisions of Section 2(22)(e) of the Act to categorize the transaction as a the provisions of Section 2(22)(e) of the Act to categorize the transaction as a the provisions of Section 2(22)(e) of the Act to categorize the transaction as a 'deemed dividend'. 12. The Learned Commissioner of Income 12. The Learned Commissioner of Income-tax (Appeals) erred in law in relying tax (Appeals) erred in law in relying upon judicial precedents which are distingui upon judicial precedents which are distinguishable on facts and in ignoring the shable on facts and in ignoring the binding decisions cited by the Appellant holding that commercial loans do not fall binding decisions cited by the Appellant holding that commercial loans do not fall binding decisions cited by the Appellant holding that commercial loans do not fall within the mischief of Section 2(22)(e) of the Act. within the mischief of Section 2(22)(e) of the Act. 13. The Appellant denies himself to be liable to be charged to any tax or interest 13. The Appellant denies himself to be liable to be charged to any tax or interest 13. The Appellant denies himself to be liable to be charged to any tax or interest consequent to the impugned addition, which under the facts and circumstances of nsequent to the impugned addition, which under the facts and circumstances of nsequent to the impugned addition, which under the facts and circumstances of the case deserves to be cancelled. the case deserves to be cancelled. 14. The Learned Commissioner of Income 14. The Learned Commissioner of Income-tax (Appeals) erred in law in upholding tax (Appeals) erred in law in upholding the initiation of penalty proceedings under Section 271(1)(c) of the Income-tax Act, the initiation of penalty proceedings under Section 271(1)(c) of the initiation of penalty proceedings under Section 271(1)(c) of 1961, which is premature, unwarranted and contrary to law. 1961, which is premature, unwarranted and contrary to law. 15. The Appellant craves leave to add, alter, delete or substitute any of the 15. The Appellant craves leave to add, alter, delete or substitute any of the 15. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above. grounds urged above. 16. In the view of the above and other grounds that may be urged at the time of 16. In the view of the above and other grounds that may be urged at the time 16. In the view of the above and other grounds that may be urged at the time the hearing of the appeal, the Appellant prays that the appeal may be allowed in the hearing of the appeal, the Appellant prays that the appeal may be allowed in the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity. the interest of justice and equity. 2. The assessee has challenged the addition principally on the The assessee has challenged the addition principally on the The assessee has challenged the addition principally on the ground that the loan of ₹1.50 crores received from M/s TEKNIC ground that the loan of received from M/s TEKNIC Electromeconics Pvt. Ltd. was a genuine commercial transaction, nics Pvt. Ltd. was a genuine commercial transaction, nics Pvt. Ltd. was a genuine commercial transaction, sanctioned pursuant to a Board resolution, carrying interest at 10% sanctioned pursuant to a Board resolution, carrying interest at 10% sanctioned pursuant to a Board resolution, carrying interest at 10% per annum and subsequently repaid along with interest. It is per annum and subsequently repaid along with interest. It is per annum and subsequently repaid along with interest. It is contended that the loan was granted for acquisition of a residential contended that the loan was granted for acquisition of a residential contended that the loan was granted for acquisition of a residential

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apartment for the directors in accordance with the company’s policy ment for the directors in accordance with the company’s policy ment for the directors in accordance with the company’s policy and was not a gratuitous advance by reason of the assessee’s and was not a gratuitous advance by reason of the assessee’s and was not a gratuitous advance by reason of the assessee’s shareholding. The assessee has further contended that the shareholding. The assessee has further contended that the shareholding. The assessee has further contended that the company earned interest on the loan, which was offered to tax, and company earned interest on the loan, which was offered to tax, and company earned interest on the loan, which was offered to tax, and that similar loans were available to employees who did not have any milar loans were available to employees who did not have any milar loans were available to employees who did not have any substantial interest in the company. The assessee has also substantial interest in the company. The assessee has also substantial interest in the company. The assessee has also challenged the finding that the loan was for his personal benefit and challenged the finding that the loan was for his personal benefit and challenged the finding that the loan was for his personal benefit and relied upon various judicial precedents in support of its contention. relied upon various judicial precedents in support of its contenti relied upon various judicial precedents in support of its contenti

3.

Briefly stated, the assessee, an individual, filed his return of Briefly stated, the assessee, an individual, filed his return of Briefly stated, the assessee, an individual, filed his return of income declaring total income of ₹2,55,51,950/-. income declaring total income of . The return of income filed by the assessee was processed under Section 143(1) of income filed by the assessee was processed under Section 143(1) of income filed by the assessee was processed under Section 143(1) of the Income Tax Act, 1961 (in short ‘the Act’). the Income Tax Act, 1961 (in short ‘the Act’). During During relevant time, the assessee was the Managing Director and a shareholder of M/s the assessee was the Managing Director and a shareh the assessee was the Managing Director and a shareh TEKNIC Electromeco TEKNIC Electromeconics Pvt. Ltd. Subsequently, the Assessing Subsequently, the Assessing Officer received information that the assessee held 31.43% of the Officer received information that the assessee held 31.43% of the Officer received information that the assessee held 31.43% of the shares of the said company and that, during the relevant financial shares of the said company and that, during the re shares of the said company and that, during the re year, the company had advanced a loan of ₹1.50 crore year, the company had advanced a loan of 1.50 crores to him. The Assessing Officer noticed that all the conditions as stipulated in fficer noticed that all the conditions as stipulated in fficer noticed that all the conditions as stipulated in provisions of section 2(22)(e) including said company having reserve provisions of section 2(22)(e) including said company having reserve provisions of section 2(22)(e) including said company having reserve and surplus and not engage and surplus and not engaged in the business of granting loans and siness of granting loans and advances and therefore said loan or advances given to assessee was advances and therefore said loan or advances given to assessee was advances and therefore said loan or advances given to assessee was liable to be treated as liable to be treated as deemed dividend as per provisions of section dividend as per provisions of section 2(22)(e) of the Act. Accordingly, the ld Assessing O ld Assessing Officer issued notice under section 148 of the Act on 30th March 2021 asking the notice under section 148 of the Act on 30th March 2021 asking the notice under section 148 of the Act on 30th March 2021 asking the

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assessee to file return of income within 30 days of receipt of the assessee to file return of income within 30 days of receipt of the assessee to file return of income within 30 days of receipt of the said notice. The Assessing officer in the impugned assessment order ssessing officer in the impugned assessment order ssessing officer in the impugned assessment order has reproduced the extract of the reasons has reproduced the extract of the reasons recorded. recorded. In compliance, the assessee filed the return of incom the assessee filed the return of income declaring total income of e declaring total income of Rs.2,56,94,660/- and thereafter statutory notices under the Act and thereafter statutory notices under the Act and thereafter statutory notices under the Act were issued and served upon the assessee. were issued and served upon the assessee.

3.1 During the reassessment proceedings, the assessee exp During the reassessment proceedings, the assessee exp During the reassessment proceedings, the assessee explained that the company had advanced ₹1.50 crore to him and 1.50 crore to him and ₹50 lakh to that the company had advanced his wife Mrs. Poonam Jaisingh, both being directors, and that the his wife Mrs. Poonam Jaisingh, both being directors, and that the his wife Mrs. Poonam Jaisingh, both being directors, and that the entire amount of ₹2 crore 2 crores was repaid in monthly was repaid in monthly installments, together with interest, over a period extending from financial year together with interest, over a period extending from fi together with interest, over a period extending from fi 2015-16 to financial year 2018 16 to financial year 2018-19. It was submitted that the loans 19. It was submitted that the loans were sanctioned in the ordinary course pursuant to the company’s were sanctioned in the ordinary course pursuant to the company’s were sanctioned in the ordinary course pursuant to the company’s policy for providing such assistance to directors/employees for policy for providing such assistance to directors/employees for policy for providing such assistance to directors/employees for purchase of residential accommodation; that int purchase of residential accommodation; that interest was charged erest was charged at 10% per annum; that the company earned interest of ₹32.32 at 10% per annum; that the company earned interest of at 10% per annum; that the company earned interest of lakh on the aggregate loans; and that such interest was offered to lakh on the aggregate loans; and that such interest was offered to lakh on the aggregate loans; and that such interest was offered to tax. It was submitted that the loan was in the normal course of the tax. It was submitted that the loan was in the normal course of the tax. It was submitted that the loan was in the normal course of the business since this kind of the loan was o business since this kind of the loan was offered to all the employees ffered to all the employees including non-beneficial owners/employees who did not have beneficial owners/employees who did not have beneficial owners/employees who did not have substantial interest in the company. It was submitted that assessee substantial interest in the company. It was submitted that assessee substantial interest in the company. It was submitted that assessee director had not received any favor from the company or taken any director had not received any favor from the company or taken any director had not received any favor from the company or taken any undue advantage of the interest fre undue advantage of the interest free loan, but contrary substantial e loan, but contrary substantial interest of approximately Rs. 24,24,323 during the period spread in interest of approximately Rs. 24,24,323 during the period spread in interest of approximately Rs. 24,24,323 during the period spread in

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four financial years was paid as per the loan ledger account four financial years was paid as per the loan ledger account four financial years was paid as per the loan ledger account enclosed. It was claimed that interest paid by the assessee was enclosed. It was claimed that interest paid by the assessee was enclosed. It was claimed that interest paid by the assessee was offered to tax by the assessee offered to tax by the assessee as income, but on the other hand, as income, but on the other hand, assessee claimed the said deduction of interest paid on borrowed assessee claimed the said deduction of interest paid on borrowed assessee claimed the said deduction of interest paid on borrowed capital under section 24(b) under the head ‘income from house capital under section 24(b) under the head ‘income from house capital under section 24(b) under the head ‘income from house property’. It was accordingly contended that the transaction was property’. It was accordingly contended that the transaction was property’. It was accordingly contended that the transaction was supported by commercial consi supported by commercial consideration and could not be regarded deration and could not be regarded as a gratuitous payment. These submissions and reliance placed on as a gratuitous payment. These submissions and reliance placed on as a gratuitous payment. These submissions and reliance placed on various decisions, however, were not accepted by the Assessing various decisions, however, were not accepted by the Assessing various decisions, however, were not accepted by the Assessing Officer, who made an addition of ₹1.50 crores under section 2(22)(e) Officer, who made an addition of under section 2(22)(e) in the assessment compl in the assessment completed under section 147 on 22/03/2022 eted under section 147 on 22/03/2022 and assessed the total income at Rs.4,05,51,950/ and assessed the total income at Rs.4,05,51,950/-

4.

The learned CIT(A) confirmed the addition principally on the The learned CIT(A) confirmed the addition principally on the The learned CIT(A) confirmed the addition principally on the reasoning that the assessee held 31.43% shares in the company, reasoning that the assessee held 31.43% shares in the company, reasoning that the assessee held 31.43% shares in the company, the company possessed accumulated profits the company possessed accumulated profits and the assessee had and the assessee had received a loan of ₹1.50 crore 1.50 crores. The learned CIT(A) further observed . The learned CIT(A) further observed that the company was not in the business of granting loans; that that the company was not in the business of granting loans; that that the company was not in the business of granting loans; that the loan was utilised for acquisition of a residential property; and the loan was utilised for acquisition of a residential property; and the loan was utilised for acquisition of a residential property; and that payment of interest or subsequent repayment of the loan was that payment of interest or subsequent repayment of the loan was that payment of interest or subsequent repayment of the loan was immaterial for determining the applicability of section 2(22)(e). The rmining the applicability of section 2(22)(e). The rmining the applicability of section 2(22)(e). The learned CIT(A) accordingly held that the loan was for the personal learned CIT(A) accordingly held that the loan was for the personal learned CIT(A) accordingly held that the loan was for the personal benefit of the substantial shareholder and confirmed the addition. benefit of the substantial shareholder and confirmed the addition. benefit of the substantial shareholder and confirmed the addition. The relevant finding of ld CIT(A) is reproduced The relevant finding of ld CIT(A) is reproduced as under as under:

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“ 6.4 The contention of the appellant and the assessment order are considered tention of the appellant and the assessment order are considered tention of the appellant and the assessment order are considered carefully. Also considered the case laws on which both placed reliance. It is carefully. Also considered the case laws on which both placed reliance. It is carefully. Also considered the case laws on which both placed reliance. It is noticed that the appellant along with his wife availed a housing loan from noticed that the appellant along with his wife availed a housing loan from noticed that the appellant along with his wife availed a housing loan from company M/s Teknic Electromeconics Pvt company M/s Teknic Electromeconics Pvt Ltd wherein the appellant is a Ltd wherein the appellant is a Managing Director and also hold shares at 31.43% during the year. The appellant Managing Director and also hold shares at 31.43% during the year. The appellant Managing Director and also hold shares at 31.43% during the year. The appellant contended that the loan amount was obtained from the company in which the contended that the loan amount was obtained from the company in which the contended that the loan amount was obtained from the company in which the appellant is having beneficial owner of shares in excess of 10 percent. The appellant is having beneficial owner of shares in excess of 10 percent appellant is having beneficial owner of shares in excess of 10 percent appellant claimed that he had repaid the loan amount along with interest appellant claimed that he had repaid the loan amount along with interest appellant claimed that he had repaid the loan amount along with interest thereon. The appellant has submitted that this kind of loan offered to all thereon. The appellant has submitted that this kind of loan offered to all thereon. The appellant has submitted that this kind of loan offered to all employees including non employees including non-beneficial owners/employees who do not have beneficial owners/employees who do not have substantial interest in the compan substantial interest in the company but there is no merit in the contention of the y but there is no merit in the contention of the appellant in this regard as the subsidized loan given to other employees who do appellant in this regard as the subsidized loan given to other employees who do appellant in this regard as the subsidized loan given to other employees who do not have substantial interest will be added as benefits/perquisites u/s 17(1) of not have substantial interest will be added as benefits/perquisites u/s 17(1) of not have substantial interest will be added as benefits/perquisites u/s 17(1) of the Act. Moreover, it is found that the compan the Act. Moreover, it is found that the company is not in the business of granting y is not in the business of granting loans and advances and no TDS has been deducted on so called alleged interest loans and advances and no TDS has been deducted on so called alleged interest loans and advances and no TDS has been deducted on so called alleged interest payment by assessee to company, which was must as per IT Act. Hence, it is payment by assessee to company, which was must as per IT Act. Hence, it is payment by assessee to company, which was must as per IT Act. Hence, it is immaterial whether interest paid or not on the loan availed in view of the immaterial whether interest paid or not on the loan availed in vie immaterial whether interest paid or not on the loan availed in vie provisions of section 2(22)(e) of the Act. provisions of section 2(22)(e) of the Act.

6.4.1 The provisions of section 2(22)(e) of the Act are extracted below: The provisions of section 2(22)(e) of the Act are extracted below: The provisions of section 2(22)(e) of the Act are extracted below:

(e) any payment 23 by a company, not being a company in which the (e) any payment 23 by a company, not being a company in which the (e) any payment 23 by a company, not being a company in which the public are substantially interested, of any sum (whether as repre public are substantially interested, of any sum (whether as repre public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) 24(made after the 31st day part of the assets of the company or otherwise) 24(made after the 31st day part of the assets of the company or otherwise) 24(made after the 31st day of May, 1987, by way of advance or loan 25 to a shareholder 25, being a of May, 1987, by way of advance or loan 25 to a shareholder 25, being a of May, 1987, by way of advance or loan 25 to a shareholder 25, being a person who is the beneficial owner of shares (not being shares entitled to a person who is the beneficial owner of shares (not being shares entitled to a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend fixed rate of dividend whether with or without a right to participate in whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any profits) holding not less than ten per cent of the voting power, or to any profits) holding not less than ten per cent of the voting power, or to any concem in which such shareholder is a member or a partner and in which concem in which such shareholder is a member or a partner and in which concem in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause ref he has a substantial interest (hereafter in this clause ref he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the said concern)] or any payment by any such company on behalf, or for the said concern)] or any payment by any such company on behalf, or for the

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individual benefit, of any such shareholder, to the extent to which the individual benefit, of any such shareholder, to the extent to which the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits 26; company in either case possesses accumulated profits 26; company in either case possesses accumulated profits 26;

27[(f) any payment by a company on purc 27[(f) any payment by a company on purchase of its own shares from a hase of its own shares from a shareholder in accordance with the provisions of section 68 of the shareholder in accordance with the provisions of section 68 of the shareholder in accordance with the provisions of section 68 of the Companies Act, 2013 (18 of 2013) 28;] Companies Act, 2013 (18 of 2013) 28;]

but "dividend" does not include but "dividend" does not include-

(i) a distribution made in accordance with sub (i) a distribution made in accordance with sub-clause (c) or sub clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of any share issued for full cash consideration, where the holder of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the of the share is not entitled in the event of liquidation to participate in the of the share is not entitled in the event of liquidation to participate in the surplus assets; surplus assets;

29 [(ia) a distribution made in accordance with sub 29 [(ia) a distribution made in accordance with sub-clause (c) or sub clause (c) or sub-clause (d) in so far as s (d) in so far as such distribution is attributable to the capitalised profits of uch distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders the company representing bonus shares allotted to its equity shareholders the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, 30[and before the 1st day of April, after the 31st day of March, 1964, 30[and before the 1st day of April, after the 31st day of March, 1964, 30[and before the 1st day of April, 1965]:]

(ii) any advance or loan made to a share (ii) any advance or loan made to a shareholder 31 [or the said concern) by holder 31 [or the said concern) by a company in the ordinary course of its business 32, where the lending of a company in the ordinary course of its business 32, where the lending of a company in the ordinary course of its business 32, where the lending of money is a substantial part of the business of the company; money is a substantial part of the business of the company; money is a substantial part of the business of the company;

32a [(iia) any advance or loan between two group entities, where, 32a [(iia) any advance or loan between two group entities, where, 32a [(iia) any advance or loan between two group entities, where,-

(A) one of the group (A) one of the group entity is a "Finance company" or a "Finance entity is a "Finance company" or a "Finance unit"; and unit"; and

(B) the parent entity or principal entity of such group is listed on (B) the parent entity or principal entity of such group is listed on (B) the parent entity or principal entity of such group is listed on stock exchange in a country or territory outside India other than the stock exchange in a country or territory outside India other than the stock exchange in a country or territory outside India other than the country or territory outside India as may be specified by the Board country or territory outside India as may be specifie country or territory outside India as may be specifie in this behalf; in this behalf;

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(iii) any dividend paid by a company which is set off by the company (iii) any dividend paid by a company which is set off by the company (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated against the whole or any part of any sum previously paid by it and treated against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub as a dividend within the meaning of sub-clause (e), to the extent to which it clause (e), to the extent to which it is so set off;

(iv) 33[***]

34[(v) any distribution of shares pursuant to a demerger by the resulting 34[(v) any distribution of shares pursuant to a demerger by the resulting 34[(v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not company to the shareholders of the demerged company (whether or not company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).] there is a reduction of capital in the demerged company).] there is a reduction of capital in the demerged company).]

Explanation 1. Explanation 1.-The expression "accumulated profits", wherever it occurs in lated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1st day of this clause, shall not include capital gains arising before the 1st day of this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day April, 1946, or after the 31st day of March, 1948, and before the 1st day April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. of April, 1956.

Explanation 2. Explanation 2.-The expression "accumulated profits" in sub n sub-clauses (a), (b), (d) and (e). shall include all profits of the company up to the date of (d) and (e). shall include all profits of the company up to the date of (d) and (e). shall include all profits of the company up to the date of distribution or payment referred to in those sub distribution or payment referred to in those sub-clauses, and in sub clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, (c) shall include all profits of the company up to the date of liquidation, (c) shall include all profits of the company up to the date of liquidation, 35[but shall not, where the liquidation is consequent on the compulsory hall not, where the liquidation is consequent on the compulsory hall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or acquisition of its undertaking by the Government or a corporation owned or acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, controlled by the Government under any law for the time being in force, controlled by the Government under any law for the time being in force, include any profits of the company prior to t include any profits of the company prior to three successive previous years hree successive previous years immediately preceding the previous year in which such acquisition took immediately preceding the previous year in which such acquisition took immediately preceding the previous year in which such acquisition took place).

36[Explanation 2A. 36[Explanation 2A.-In the case of an amalgamated company, the In the case of an amalgamated company, the accumulated profits, whether capitalised or not, or loss, as the ca accumulated profits, whether capitalised or not, or loss, as the ca accumulated profits, whether capitalised or not, or loss, as the case may be, shall be increased by accumulated be, shall be increased by accumulated profits, whether capitalised or not, profits, whether capitalised or not, of the amalgamating company on the date of amalgamation.] of the amalgamating company on the date of amalgamation.] of the amalgamating company on the date of amalgamation.]

37[Explanation 3. 37[Explanation 3.-For the purposes of this clause,-

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(a) "concern" means a Hindu undivided family, or a firm or an as (a) "concern" means a Hindu undivided family, or a firm or an as (a) "concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company; of persons or a body of individuals or a company;

(b) a person shall be deemed to have a substantial interest in a concern, (b) a person shall be deemed to have a substantial interest in a concern, (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year 38, other than a company, if he is, at any time during the previous year 38, other than a company, if he is, at any time during the previous year 38, beneficially entitled to not less than twenty per beneficially entitled to not less than twenty per cent of the income of such cent of the income of such concem ;]

384 [(c) "Finance Company 386" and "Finance Unit38b shall have the same 384 [(c) "Finance Company 386" and "Finance Unit38b shall have the same 384 [(c) "Finance Company 386" and "Finance Unit38b shall have the same meaning as assigned respectively to them in clauses (e) and (f) of sub meaning as assigned respectively to them in clauses (e) and (f) of sub meaning as assigned respectively to them in clauses (e) and (f) of sub- regulation (1) of regulation 2 of the International Financial Services Cent regulation (1) of regulation 2 of the International Financial Services Cent regulation (1) of regulation 2 of the International Financial Services Centres Authority (Finance Company) Regulations, 2021 made under the Authority (Finance Company) Regulations, 2021 made under the Authority (Finance Company) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019): International Financial Services Centres Authority Act, 2019 (50 of 2019): International Financial Services Centres Authority Act, 2019 (50 of 2019): Provided that such Finance Company or Finance Unit, is set up as a global Provided that such Finance Company or Finance Unit, is set up as a global Provided that such Finance Company or Finance Unit, is set up as a global or regional corporate treasury centre for or regional corporate treasury centre for undertaking treasury activities or undertaking treasury activities or treasury services as per the relevant regulations made by the International treasury services as per the relevant regulations made by the International treasury services as per the relevant regulations made by the International Financial Services Centres Authority established under section 4 of the Financial Services Centres Authority established under section 4 of the Financial Services Centres Authority established under section 4 of the said Act;

(d) "group entity", "parent entity" and "principal entity" shal (d) "group entity", "parent entity" and "principal entity" shal (d) "group entity", "parent entity" and "principal entity" shall be such entities which satisfy such conditions as prescribed in this behalf;] entities which satisfy such conditions as prescribed in this behalf;] entities which satisfy such conditions as prescribed in this behalf;]

6.4.2 Since the said loan is given to the appellant who is having substantial 6.4.2 Since the said loan is given to the appellant who is having substantial 6.4.2 Since the said loan is given to the appellant who is having substantial interest in the company holding shares at 31.43% and company is having interest in the company holding shares at 31.43% and company is having interest in the company holding shares at 31.43% and company is having sufficient accumulated sufficient accumulated profits and giving loans is nowhere related to business of profits and giving loans is nowhere related to business of company, the said loan is squarely covered u/s 2(22)(e) of the Act and should be company, the said loan is squarely covered u/s 2(22)(e) of the Act and should be company, the said loan is squarely covered u/s 2(22)(e) of the Act and should be added. Also, reliance is placed on the following judgements: added. Also, reliance is placed on the following judgements:

(i) CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC) (i) CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC) (i) CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC)

(ii) i) CIT v. Mukundray K. Shah [2007] 290 ITR 433 (SC) (ii) i) CIT v. Mukundray K. Shah [2007] 290 ITR 433 (SC) (ii) i) CIT v. Mukundray K. Shah [2007] 290 ITR 433 (SC)

COM (iii) Gopal and Sons (HUF) v. CIT [2017] 391 ITR 1 (SC) COM (iii) Gopal and Sons (HUF) v. CIT [2017] 391 ITR 1 (SC) COM (iii) Gopal and Sons (HUF) v. CIT [2017] 391 ITR 1 (SC)

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(iv) CIT v. National Travel Services [2018] 401 ITR 154 (SC) (iv) CIT v. National Travel Services [2018] 401 ITR 154 (SC) (iv) CIT v. National Travel Services [2018] 401 ITR 154 (SC)

(v) Jaykumar B. Patil vs JCIT [2025] 177 taxmann.com 431 (Bombay) (v) Jaykumar B. Patil vs JCIT [2025] 177 taxmann.com 431 (Bombay) (v) Jaykumar B. Patil vs JCIT [2025] 177 taxmann.com 431 (Bombay)

6.4.3 In view of the above factual matrix and following judicial pronouncements, I ew of the above factual matrix and following judicial pronouncements, I ew of the above factual matrix and following judicial pronouncements, I am of the considered view that the loan is given purely for the personal benefit of am of the considered view that the loan is given purely for the personal benefit of am of the considered view that the loan is given purely for the personal benefit of substantial shareholder who is having substantial interest in the company i.e the substantial shareholder who is having substantial interest in the company i.e the substantial shareholder who is having substantial interest in the company i.e the appellant and not for any business purpose of the company. These loans were for for any business purpose of the company. These loans were for for any business purpose of the company. These loans were for buying house property for appellant i.e substantial shareholder and nowhere buying house property for appellant i.e substantial shareholder and nowhere buying house property for appellant i.e substantial shareholder and nowhere connected to business of company. In fact, provisions of Sec.2(22)(e) were connected to business of company. In fact, provisions of Sec.2(22)(e) were connected to business of company. In fact, provisions of Sec.2(22)(e) were introduced to curb such type of practices o introduced to curb such type of practices only. Therefore, the AO has rightly nly. Therefore, the AO has rightly invoked the provisions of section 2(22) (e) of the Act and the addition of invoked the provisions of section 2(22) (e) of the Act and the addition of invoked the provisions of section 2(22) (e) of the Act and the addition of Rs.1,50,00,000/- is confirmed. Thus, the grounds raised in this regard are is confirmed. Thus, the grounds raised in this regard are is confirmed. Thus, the grounds raised in this regard are dismissed.”

5.

Before us, the learned Counsel reiterated that the loan Before us, the learned Counsel reiterated that the loan Before us, the learned Counsel reiterated that the loan was not a gratuitous payment made merely because the assessee was a a gratuitous payment made merely because the assessee was a a gratuitous payment made merely because the assessee was a substantial shareholder. It was submitted that the company had substantial shareholder. It was submitted that the company had substantial shareholder. It was submitted that the company had charged interest at the prevailing rate and had consequently derived charged interest at the prevailing rate and had consequently derived charged interest at the prevailing rate and had consequently derived a corresponding financial benefit. The learned Counsel referred to a corresponding financial benefit. The learned Counsel a corresponding financial benefit. The learned Counsel the Board resolution under which the loan was sanctioned. The the Board resolution under which the loan was sanctioned the Board resolution under which the loan was sanctioned learned counsel referred to paper book page 110 which is a ledger learned counsel referred to paper book page 110 which is a ledger learned counsel referred to paper book page 110 which is a ledger account of the assessee in the book account of the assessee in the books of company TEKNIC s of company TEKNIC Electromeconics Private Limited. Further, he referred to paper book nics Private Limited. Further, he referred to paper book nics Private Limited. Further, he referred to paper book pages 60 to 62 having detail of interest and principal amount paid pages 60 to 62 having detail of interest and principal amount paid pages 60 to 62 having detail of interest and principal amount paid by the assessee to the company. by the assessee to the company. According to him, the transaction According to him, the transaction was supported by consideration and commercial expediency and, was supported by consideration and commercial expediency and, was supported by consideration and commercial expediency and, therefore, fell outside the mischief of section 2(22)(e). Reliance was efore, fell outside the mischief of section 2(22)(e). Reliance was efore, fell outside the mischief of section 2(22)(e). Reliance was principally placed upon the judgment of the Hon’ble Calcutta High principally placed upon the judgment of the Hon’ble Calcutta High principally placed upon the judgment of the Hon’ble Calcutta High

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Court in Pradeep Kumar Malhotra v. CIT, 338 ITR 538 (Cal.), Pradeep Kumar Malhotra v. CIT, 338 ITR 538 (Cal.), Pradeep Kumar Malhotra v. CIT, 338 ITR 538 (Cal.), and the decision of the Coordinate Bench of the Kolkata Tribunal in and the decision of the Coordinate Bench of the Kolkata Tribuna and the decision of the Coordinate Bench of the Kolkata Tribuna Sangeeta Jain v. ITO, ITA No. 1817/Kol/2009, for A.Y. 2006- Sangeeta Jain v. ITO, ITA No. 1817/Kol/2009, for A.Y. 2006 Sangeeta Jain v. ITO, ITA No. 1817/Kol/2009, for A.Y. 2006 07.

6.

The learned Departmental Representative, on the other hand, The learned Departmental Representative, on the other hand, The learned Departmental Representative, on the other hand, supported the orders of the lower authorities and submitted that supported the orders of the lower authorities and submitted that supported the orders of the lower authorities and submitted that the statutory conditions of section 2(22)(e) stood satisfied, namely, the statutory conditions of section 2(22)(e) stood satisfied, the statutory conditions of section 2(22)(e) stood satisfied, the assessee was a beneficial shareholder holding more than 10% of the assessee was a beneficial shareholder holding more than 10% of the assessee was a beneficial shareholder holding more than 10% of the voting power, the lending company possessed accumulated the voting power, the lending company possessed accumulated the voting power, the lending company possessed accumulated profits and the company was not engaged in the business of money- profits and the company was not engaged in the business of money profits and the company was not engaged in the business of money lending. The learned Departmental Representative accordingly lending. The learned Departmental Representative accordi lending. The learned Departmental Representative accordi supported the addition. supported the addition.

7.

We have considered the rival submissions and perused the We have considered the rival submissions and perused the We have considered the rival submissions and perused the material available on record. The undisputed facts are that the material available on record. The undisputed facts are that the material available on record. The undisputed facts are that the assessee held 31.43% shares in the lending company; the company assessee held 31.43% shares in the lending company; the company assessee held 31.43% shares in the lending company; the company possessed accumulated profits; the com possessed accumulated profits; the company was not engaged in pany was not engaged in the business of money the business of money-lending; and a sum of ₹1.50 crore was 1.50 crore was advanced to the assessee during the relevant previous year. Thus, advanced to the assessee during the relevant previous year. Thus, advanced to the assessee during the relevant previous year. Thus, the basic statutory conditions attracting consideration under the basic statutory conditions attracting consideration under the basic statutory conditions attracting consideration under section 2(22)(e) are prima facie present. section 2(22)(e) are prima facie present.

7.1 The controversy before us, therefore, turns upon the nature The controversy before us, therefore, turns upon the nature The controversy before us, therefore, turns upon the nature and character of the payment and, in particular, the assessee’s and character of the payment and, in particular, the assessee’s and character of the payment and, in particular, the assessee’s contention that the loan was a genuine commercial transaction contention that the loan was a genuine commercial transaction contention that the loan was a genuine commercial transaction

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supported by consideration and was not a gratuitous advance made supported by consideration and was not a gratuitous advance made supported by consideration and was not a gratuitous advance made to him merely on account of his shareholding. him merely on account of his shareholding. The learned Counsel has placed reliance on Pradeep Kumar Pradeep Kumar 7.2 The learned Counsel has placed reliance on Malhotra (supra). In that case, the assessee, a substantial ). In that case, the assessee, a substantial ). In that case, the assessee, a substantial shareholder, had permitted his property to be mortgaged for shareholder, had permitted his property to be mortgaged for shareholder, had permitted his property to be mortgaged for enabling the company to obtain enabling the company to obtain bank finance. The advance bank finance. The advance subsequently made by the company was held by the Hon’ble subsequently made by the company was held by the Hon’ble subsequently made by the company was held by the Hon’ble Calcutta High Court to be compensation for the benefit which the Calcutta High Court to be compensation for the benefit which the Calcutta High Court to be compensation for the benefit which the assessee had conferred upon the company by allowing his property assessee had conferred upon the company by allowing his property assessee had conferred upon the company by allowing his property to remain under mortgage. The Court, in th to remain under mortgage. The Court, in that factual setting, held at factual setting, held that an advance given as a consequence of consideration beneficial that an advance given as a consequence of consideration beneficial that an advance given as a consequence of consideration beneficial to the company could not be regarded as a gratuitous loan falling to the company could not be regarded as a gratuitous loan falling to the company could not be regarded as a gratuitous loan falling within section 2(22)(e) The decision in Sangeeta Jain Sangeeta Jain (supra), as within section 2(22)(e) relied upon by the learned Counsel, follows the aforesaid principle. relied upon by the learned Counsel, follows the aforesaid principle. relied upon by the learned Counsel, follows the aforesaid principle. The ratio of these decisions is not that every interest-bearing loan to The ratio of these decisions is not that every interest The ratio of these decisions is not that every interest a substantial shareholder falls outside section 2(22)(e). The a substantial shareholder falls outside section 2(22)(e). The a substantial shareholder falls outside section 2(22)(e). The determinative consideration is whether the payment was made in determinative consideration is whether the paymen determinative consideration is whether the paymen return for an identifiable advantage or consideration accruing to the return for an identifiable advantage or consideration accruing to the return for an identifiable advantage or consideration accruing to the lending company or was, in substance, a gratuitous financial lending company or was, in substance, a gratuitous financial lending company or was, in substance, a gratuitous financial benefit extended to the shareholder. benefit extended to the shareholder.

7.3 In the present case, the factual foundation is materially In the present case, the factual foundation is materially In the present case, the factual foundation is materially different. The loan was admittedly advanced to the assessee for The loan was admittedly advanced to the assessee for The loan was admittedly advanced to the assessee for acquisition of a residential apartment for his personal use. No acquisition of a residential apartment for his personal use. No acquisition of a residential apartment for his personal use. No material has been brought on record to establish that the assessee material has been brought on record to establish that the assessee material has been brought on record to establish that the assessee

ITA 2203/MUM/2026 14 Ashok Shyam Jaising

had conferred any corresponding commercial advantage upon the had conferred any corresponding commercial advantage upon the had conferred any corresponding commercial advantage upon the company comparable to the mortgage/security arrangement in mparable to the mortgage/security arrangement in mparable to the mortgage/security arrangement in Pradeep Kumar Malhotra (supra). The fact that interest was Pradeep Kumar Malhotra The fact that interest was charged on the loan is a relevant circumstance, but cannot, by charged on the loan is a relevant circumstance, but cannot, by charged on the loan is a relevant circumstance, but cannot, by itself, conclusively establish that the payment was made in itself, conclusively establish that the payment was made in itself, conclusively establish that the payment was made in furtherance of the busine furtherance of the business interests of the company. ss interests of the company. Further, the bank statement of the company TEKNIC Electromechanics Pvt. Ltd., bank statement of the company TEKNIC Electromechanics Pvt. Ltd., bank statement of the company TEKNIC Electromechanics Pvt. Ltd., available on paper book page 61 to 77, placed available on paper book page 61 to 77, placed before us shows that before us shows that the amounts advanced to the assessee and his wife were sourced the amounts advanced to the assessee and his wife were sourced the amounts advanced to the assessee and his wife were sourced from the company’s overdraft account, on which the company itself overdraft account, on which the company itself overdraft account, on which the company itself incurred interest. This fact has not been revealed either before the This fact has not been revealed either before the This fact has not been revealed either before the AO or before the learned CIT(A). The claim of the learned counsel for AO or before the learned CIT(A). The claim of the learned counsel for AO or before the learned CIT(A). The claim of the learned counsel for the assessee that company has been benefited by way of the assessee that company has been benefited by way of the assessee that company has been benefited by way of consideration received, but facts are the contrary. It is the assessee eceived, but facts are the contrary. It is the assessee eceived, but facts are the contrary. It is the assessee whom is benefitted and not the company, as the company has whom is benefitted and not the company, as the company has whom is benefitted and not the company, as the company has borrowed the money and therefore assessee borrowed the money and therefore assessee’s company was required to pay the interest on the said sum also. This aspect, required to pay the interest on the said sum also. required to pay the interest on the said sum also. which bears directly which bears directly upon the alleged commercial benefit to the upon the alleged commercial benefit to the company, was neither examined by the Assessing Officer nor company, was neither examined by the Assessing Officer nor company, was neither examined by the Assessing Officer nor considered in its proper factual perspective by the learned CIT(A). considered in its proper factual perspective by the learned CIT(A). considered in its proper factual perspective by the learned CIT(A). The material also indicates that the assessee derived a personal The material also indicates that the assessee derived a personal The material also indicates that the assessee derived a personal benefit from the loan benefit from the loan without providing any guarantee or entering without providing any guarantee or entering into any agreement or providing security or post into any agreement or providing security or post-dated check and dated check and also received benefit deduction also received benefit deduction of interest against rental income against rental income liable to tax under the head “Income from House Property”. Thus, the head “Income from House Property”. Thus, the head “Income from House Property”. Thus,

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the question whether the transaction, viewed in its entirety, ether the transaction, viewed in its entirety, ether the transaction, viewed in its entirety, constituted a commercially expedient constituted a commercially expedient transaction for the benefit of transaction for the benefit of the company requires factual examination. the company requires factual examination. The learned counsel The learned counsel drew our attention to our attention to clause 43 of the Memorandum of A of the Memorandum of Association of the company, which reads as under which reads as under:

“(14) To lend or deposit moneys belonging to or entrusted to or at the disposal of (14) To lend or deposit moneys belonging to or entrusted to or at the disposal of (14) To lend or deposit moneys belonging to or entrusted to or at the disposal of the Company to such person or company and in particular to customers and the Company to such person or company and in particular to customers and the Company to such person or company and in particular to customers and others having dealings with the Company with or without security upon such others having dealings with the Company with or without security upon such others having dealings with the Company with or without security upon such terms as may be thought proper and to invest or otherwise employ such moneys erms as may be thought proper and to invest or otherwise employ such moneys erms as may be thought proper and to invest or otherwise employ such moneys in such manner as may be thought proper and from time to time to vary such in such manner as may be thought proper and from time to time to vary such in such manner as may be thought proper and from time to time to vary such transactions. The Company shall not carry on banking business as defined under transactions. The Company shall not carry on banking business as defined under transactions. The Company shall not carry on banking business as defined under the Banking Regulation Act the Banking Regulation Act, 1949.” having a provision for 7.4 Though, this memorandum of clause this memorandum of clause is having a provision for lending monies to persons lending monies to persons having dealing with the company, but having dealing with the company, but the business or commercial expediency does the business or commercial expediency does not not get established and that clause also cannot override the clear provision that clause also cannot override the clear provision that clause also cannot override the clear provision of section 2(22)(e) of the Act.

7.5 We also find that the assessee has relied upon the Board We also find that the assessee has relied upon the Board We also find that the assessee has relied upon the Board resolution authorising the loan. A Board resolution may establish resolution authorising the loan. A Board resolution may establish resolution authorising the loan. A Board resolution may establish that the transaction was duly authorised under the corporate that the transaction was duly authorised under the corporate that the transaction was duly authorised under the corporate framework; however, such authorisation, by itself, does not framework; however, such authorisation, by itself, does not framework; however, such authorisation, by itself, does not determine the applicability of section 2(22)(e). The statutory e applicability of section 2(22)(e). The statutory e applicability of section 2(22)(e). The statutory character of the payment has to be determined from the substance character of the payment has to be determined from the substance character of the payment has to be determined from the substance and surrounding circumstances of the transaction. Likewise, the and surrounding circumstances of the transaction. Likewise, the and surrounding circumstances of the transaction. Likewise, the assessee’s contention that similar loans were available to employees assessee’s contention that similar loans were available to employees assessee’s contention that similar loans were available to employees who were not substantial shareholders requires verification from e not substantial shareholders requires verification from e not substantial shareholders requires verification from the actual policy and comparable transactions of the company. On the actual policy and comparable transactions of the company. On the actual policy and comparable transactions of the company. On

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the material presently available, the claim has not been the material presently available, the claim has not been the material presently available, the claim has not been demonstrated with sufficient particulars. demonstrated with sufficient particulars.

7.6 In the case, we are unable to accept the proposition that the we are unable to accept the proposition that the we are unable to accept the proposition that the mere fact that the assessee is a substantial shareholder and that mere fact that the assessee is a substantial shareholder and that mere fact that the assessee is a substantial shareholder and that the company possesses accumulated profits concludes the matter the company possesses accumulated profits concludes the matter the company possesses accumulated profits concludes the matter irrespective of the true character of the transaction. Equally, the irrespective of the true character of the transaction. Equally, the irrespective of the true character of the transaction. Equally, the mere charging and receipt of interest cannot, by itself, take the ging and receipt of interest cannot, by itself, take the ging and receipt of interest cannot, by itself, take the transaction outside section 2(22)(e). transaction outside section 2(22)(e). In the instant case, the In the instant case, the assessee is not in the business of the money lending. Further, the assessee is not in the business of the money lending. Further, the assessee is not in the business of the money lending. Further, the company has not floated any scheme for all employees irrespective company has not floated any scheme for all employees irrespective company has not floated any scheme for all employees irrespective of the beneficial interest in the company. The board resolution itself the beneficial interest in the company. The board resolution itself the beneficial interest in the company. The board resolution itself may be compliance of the provisions of the Companies Act, but may be compliance of the provisions of the Companies Act, but may be compliance of the provisions of the Companies Act, but while examining the condition of section 2(22)(e) of the Act, said while examining the condition of section 2(22)(e) of the Act, said while examining the condition of section 2(22)(e) of the Act, said board resolution is of no assistance. board resolution is of no assistance. Any loan or advance, Any loan or advance, if it satisfies the conditions provided under the provision of section satisfies the conditions provided under the provision of section satisfies the conditions provided under the provision of section 2(22)(e) of the Act, then it is liable to be taxed as deemed dividend 2(22)(e) of the Act, then it is liable to be taxed as deemed dividend 2(22)(e) of the Act, then it is liable to be taxed as deemed dividend irrespective whether the Board of Directors has authorized for irrespective whether the Board of Directors has authorized for irrespective whether the Board of Directors has authorized for granting such loan or not. In the instant case, assessee is the granting such loan or not. In the instant case, asse granting such loan or not. In the instant case, asse managing director and his wife is the director, and therefore in a managing director and his wife is the director, and therefore in a managing director and his wife is the director, and therefore in a way, they both were having majority say in the board of directors way, they both were having majority say in the board of directors way, they both were having majority say in the board of directors and in position to influence the decision of Board of Director in and in position to influence the decision of Board of Director in and in position to influence the decision of Board of Director in their favour. Therefore, t their favour. Therefore, the nature of the transaction must be ansaction must be determined determined determined upon upon upon a a a proper proper proper appreciation appreciation appreciation of of of all all all relevant relevant relevant circumstances.

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7.7 In the present case, the fact that the loan was advan In the present case, the fact that the loan was advan In the present case, the fact that the loan was advanced out of the company’s overdraft facility, the corresponding interest liability the company’s overdraft facility, the corresponding interest liability the company’s overdraft facility, the corresponding interest liability borne by the company, the purpose borne by the company, the purpose for which the loan was for which the loan was sanctioned, the terms governing similar loans, if any, to other sanctioned, the terms governing similar loans, if any, to other sanctioned, the terms governing similar loans, if any, to other employees, the rate of interest charged, and the overall commercial employees, the rate of interest charged, and the overall commercial employees, the rate of interest charged, and the overall commercial rationale of the transaction require examination by the Assessing rationale of the transaction require examination by the Assessing rationale of the transaction require examination by the Assessing Officer. These aspects have not bee Officer. These aspects have not been examined in their proper n examined in their proper perspective by the lower authorities. perspective by the lower authorities. Also this fact needs to be Also this fact needs to be confronted the assessee also. confronted the assessee also.

7.8 In view of the foregoing, and without expressing any final In view of the foregoing, and without expressing any final In view of the foregoing, and without expressing any final opinion on the applicability or otherwise of section 2(22)(e), we deem opinion on the applicability or otherwise of section 2(22)(e), we deem opinion on the applicability or otherwise of section 2(22)(e), we deem it appropriate, in the interest of justice, to restore the matter to the appropriate, in the interest of justice, to restore the matter to the appropriate, in the interest of justice, to restore the matter to the file of the learned Assessing Officer for fresh adjudication. The file of the learned Assessing Officer for fresh adjudication. The file of the learned Assessing Officer for fresh adjudication. The Assessing Officer shall examine the entire transaction in the light of Assessing Officer shall examine the entire transaction in the light of Assessing Officer shall examine the entire transaction in the light of the material available on record and such further the material available on record and such further evidence as may evidence as may be furnished by the assessee, particularly with regard to the source be furnished by the assessee, particularly with regard to the source be furnished by the assessee, particularly with regard to the source of the funds, the terms and purpose of the loan, the interest of the funds, the terms and purpose of the loan, the interest of the funds, the terms and purpose of the loan, the interest actually charged and received, the treatment of such interest in the actually charged and received, the treatment of such interest in the actually charged and received, the treatment of such interest in the hands of the company, the availability hands of the company, the availability of any comparable loan of any comparable loan facility to other employees/directors, and the existence of any facility to other employees/directors, and the existence of any facility to other employees/directors, and the existence of any genuine commercial or business consideration accruing to the genuine commercial or business consideration accruing to the genuine commercial or business consideration accruing to the company. Needless to say, the Assessing Officer shall afford the Needless to say, the Assessing Officer shall afford the Needless to say, the Assessing Officer shall afford the assessee reasonable opportunity of being he assessee reasonable opportunity of being heard and shall decide the ard and shall decide the issue afresh in accordance with law. The observations made herein issue afresh in accordance with law. The observations made herein issue afresh in accordance with law. The observations made herein

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are confined to the question whether the matter requires fresh are confined to the question whether the matter requires fresh are confined to the question whether the matter requires fresh factual examination and shall not be construed as an expression of factual examination and shall not be construed as an expression of factual examination and shall not be construed as an expression of final opinion on the merits of the final opinion on the merits of the addition. The grounds raised by The grounds raised by the assessee are accordingly allowed for statistical purposes. the assessee are accordingly allowed for statistical purposes. the assessee are accordingly allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for 8. In the result, the appeal of the assessee is In the result, the appeal of the assessee is statistical purposes. .

Order pronounced in the open Court on ounced in the open Court on 18/0 09/2026.

Sd/- Sd/- (ANIKESH BANERJEE BANERJEE) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 18/09/2026 /2026 Kunal Kr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai

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