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Facts
The assessee, a shareholder and Managing Director of SPC Life Sciences Pvt. Ltd., received a loan of Rs. 56,09,615/- from the company. The Assessing Officer (AO) treated this loan as a deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The assessee argued it was a commercial transaction and cited a CBDT circular, but the AO and CIT(A) confirmed the addition.
Held
The Tribunal noted that while the CIT(A) correctly identified the issue, their confirmation of the addition was not entirely correct given the applicability of the CBDT circular regarding trade advances. To ensure justice, the matter was set aside.
Key Issues
Whether the loan received by the assessee from the company is to be treated as a deemed dividend under Section 2(22)(e) of the Income Tax Act, or if it falls under trade advances and is not taxable as such.
Sections Cited
143(3), 147, 148, 2(22)(e), 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Shri T.R. Senthil Kumar & Shri Makarand Vasant Mahadeokar
ITA No: 1418/Ahd/2025 Assessment Year: 2013-14 Snehal Rajvibhai Patel The DCIT, Plot No. 284/1, GIDC, Circle-2(1)(1), Estate Makarpura, Vs Vadodara Vadodara-390010, Gujarat PAN: ACQPP6504N (Appellant) (Respondent) Assessee Represented: None Revenue Represented: Shri Girish Parihar, Sr. D.R. Date of hearing : 27-11-2025 Date of pronouncement : 28-11-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Assessee as against the appellate order dated 19.05.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the reassessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2013-14.
A.Y. 2013-14 Page No 2 Snehal Ravjibhai Patel vs. DCIT
Brief facts of the case is that the assessee is an individual employed with M/s. SPC Life Sciences Pvt. Ltd. as Managing Director which is a company engaged in the business of manufacture, research and trading in fine chemicals, pharmaceuticals, intermediates etc. The assessee holds 35.26% of the shares of the company. For the Asst. Year 2013-14, assessee filed her Return of Income on 08-10-2013 declaring total income of Rs.68,47,390/-. The return was processed u/s. 143(1) of the Act on 01-02-2014. During the assessment in the case of M/s. SPC Life Sciences Pvt. Ltd. that the assessee being a Director and holding more than 10% shareholding had received loan transactions from the company which is taxable u/s. 2(22)(e) of the Act. Therefore the assessment was reopened by issuing notice u/s. 148 of the Act on 21-02-2020 and proposing to treat a sum of Rs.56,09,615/- as deemed dividend
Assessee filed a return in response to the notice issued u/s. 148 and claimed the loan amount should not be taxed in the hands of the assessee as deemed dividend and also objected to the reopening of assessment. The assessing officer considered the submission however made addition of Rs.56,09,015/- under section 2(22)(e) of the Act and demanded tax thereon.
Aggrieved against the reassessment order, assessee filed an appeal and submitted that the issue is covered by CBDT Circular No. 19/2017 dated 12-06-2017 wherein it is clarified Section 2(22)(e) of the Act will not be applicable in trade advances and relied upon various High Court judgments. Ld. CIT(A) held that the A.Y. 2013-14 Page No 3 Snehal Ravjibhai Patel vs. DCIT loan received by the assessee was in the nature of commercial transaction, however the assessee has not explained the nature of commercial transaction with necessary required details and documentary evidences. Further the assessee’s claim of CBDT Circular No. 19/2017 is not covered on the illustrations/examples given in the Circular thereby Ld. CIT(A) confirmed the addition made by the A.O. and dismissed the assessee’s appeal.
Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:
1. That the Learned CIT(A) has erred in law and on facts in confirming the addition of Rs.56,09,615/- as income being deemed dividend under the Provisions of Section 2(22)(c) of the income tax Act.
2. The Appellant prays that the addition made of Rs.56,09,615/- being deemed dividend under the Provisions of Section 2(22)(c) of the income tax Act be deleted.
3. The Appellant prays that the penalty proposed to be levied by the learned AO u/s. 271(1)(c) of the income tax Act is bad in law and needs to be squashed.
4. The Appellant craves leave to add, amend or withdraw any ground of appeal at the time of hearing.
6. None appeared on behalf of the assessee either in person or virtual hearing, therefore the matter was kept as pass-over and taken as the last case. However none appeared on behalf of the assessee and no request for adjournment, therefore with the assistance of Ld. Sr. D.R., we proceeded to decide the appeal.
6.1. It is seen from record, the assessee filed written submission before Ld. CIT(A) on 04-04-2022 and 17-11-2022. It is undisputed A.Y. 2013-14 Page No 4 Snehal Ravjibhai Patel vs. DCIT fact that the assessee is shareholder with 35.56% of shares in M/s. SPC Life Finances Pvt. Ltd. The company as on 31-03-2013 had a reserves and surplus of Rs.3,48,36,978/- and 5,20,44,942/- respectively. The company advanced to the assessee from the accumulated profits in the reserves and surplus account. Therefore the A.O. was of the opinion that the loan of Rs.56,09,015/- received by the assessee falls within the purview of Section 2(22)(e) of the Act. The assessee explained before the A.O. that she is the Managing Director of the said company and there has been mutual financial accommodations between her and said company and vice versa. It is also explained that during this year, she received the loan from the said company but in other years, she had also provided loans to the company. The loan received during this year from the company was repaid by the assessee in the subsequent year. However the above submission was not accepted by the lower authorities, thereby made addition u/s. 2(22)(e) of the Act.
6.2. It is further seen that Ld. CIT(A) extracted the CBDT Circular No. 19/2017 dated 12-06-2017 wherein it was categorically held that trade advances in the nature of commercial transaction would not fall within the ambit of the provisions of Section 2(22)(e) of the Act relying upon various High Court judgments. Therefore in our considered view, Ld. CIT(A) is not correct in stating that confirming the addition u/s. 2(22)(e) of the Act. However to meet the ends of justice, we deem it fit to set-aside the matter back to the file of Jurisdictional Assessing Officer with a direction to the assessee to produce the copies of the loan repaid by the assessee in the subsequent year and the A.O. is directed to pass fresh order on the A.Y. 2013-14 Page No 5 Snehal Ravjibhai Patel vs. DCIT submission of the assessee. Needless to say, the assessee should co-operate by filing all required details before the Ld. JAO.
In the result, the appeal filed by the Assessee is allowed for statistical purpose.
Order pronounced in the open court on 28-11-2025