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Facts
The assessee, a shareholder and Managing Director in certain companies, received loans amounting to Rs. 1,39,39,841/- from one of them. The Assessing Officer treated this as deemed dividend under Section 2(22)(e) of the Income Tax Act during reassessment proceedings. The CIT(A) largely confirmed this addition, rejecting the assessee's contention that the loans were for business purposes.
Held
The Tribunal admitted additional evidences presented by the appellant. It then remanded the case back to the Assessing Officer to re-examine and decide afresh the applicability of Section 2(22)(e) to the loans/advances received by the appellant, considering the new evidence.
Key Issues
Whether loans/advances received by a major shareholder from companies constitute deemed dividend under Section 2(22)(e) of the Income Tax Act, especially when the assessee claims they were for business purposes.
Sections Cited
2(22)(e), 148, 143(3), 147
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI PRAKASH CHAND YADAV, JM
Assessment Year: 2010-11 Ponnamparambath Ashique .......... Appellant Koyenco House, West Hill, Kozhikode 673005 [PAN: ACMPA5569N] vs. ACIT, Circle- 1(1) & TPS, Kozhikode .......... Respondent Appellant by: Smt. Parvathy Ammal, CA Respondent by: Smt. Leena Lal, Sr. D.R. Date of Hearing: 30.05.2025 Date of Pronouncement: 27.06.2025 O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 19.06.2023 for Assessment Year (AY) 2010-11.
Brief facts of the case are that the appellant is an individual deriving income under the head ‘Salary’ and also Managing Director og M/s. Platino Classic Motors Pvt. Ltd. The return of income for AY 2010-11 was filed on 17.09.2010 declaring total income of Rs. 25,18,810/-. There was no scrutiny assessment. Subsequently the AO received information that the appellant is holding shares of 25% Ponnamparambath Ashique in M/s. Koyenco Autos (P) Ltd. and holding 62% shares in Platino Classic Motors (P) Ltd. The company Platino Classic Motors (P) Ltd. advanced a loan of Rs. 1,39,39,841/- to the appellant. The said company also advanced a loan of Rs. 1,00,09,869/- to a company called Koyenco Autos (P) Ltd., in which the appellant had 25% shareholdings. According to the AO, the loans so advanced fall within the definition of section 2(22)(e) the Income Tax Act, 1961 (the Act). Accordingly formed an opinion that income escaped assessment to tax and issued a notice u/s. 148 of the Act on 28.03.2016 calling upon the appellant to file return of income. In response to the notice u/s. 148 the appellant filed return of income on for AY 2010-11 on 10.06.2016 declaring income of Rs. 25,18,810/-. Against the said return of income, the assessment was completed by the ACIT, Circle-1(1), Kozhikode (hereinafter called "the AO") vide order dated 24.11.2016 passes u/s. 143(3) r.w.s. 147 of the Act at a total income of Rs. 1,66,13,650/-. While doing so, the AO brought to tax an amount of Rs. 1,39,39,841/- as deemed dividend in the hands of the assessee.
Being aggrieved, an appeal was filed before the CIT(A), contending that the company Platino Classic Pvt. Ltd. made the advance payment of Rs. 1,39,39,841/- to the appellant for the purpose of purchase of land and similarly the advance paid to Koyenco Autos Pvt. Ltd. is towards leasing of building. Thus, it is submitted that the loans were advanced for business purposes of the respective companies, therefor, cannot be treated as deemed Ponnamparambath Ashique dividend. However, the CIT(A) confirmed the addition by holding that the appellant had failed to prove that it had purchased land on behalf of the company. However, directed the AO to delete the addition to the extent of Rs. 21,50,016/- by holding that the sum to this extent does not form part of the accumulated income.
Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.
The learned counsel for the assessee contended that the loans were received by the appellant towards business purposes of the company is a commercial advance and, therefore, it cannot be terms as deemed dividend and placed reliance on the following decisions:-
i) CIT v. Arvind Kumar Jain [2011] (9) TMI 363 Delhi High Court ii) CIT v. Raj Kumar [2009] 318 ITR 462 (Del) iii) CIT vs. Atul Engineering Udyog [2014] (10 TMI 41, Allahabad High Court The appellant also filed additional evidences in support of this submission.
Having regard to the circumstances made in the application for admission of additional evidences, it is a fit case for admitting the additional evidences. Therefore, we remand the matter back to the file of the AO to decide afresh the applicability of provisions of section 2(22)(e) of the Act in respect of the loans/advances received by the appellant from the said two companies.
Order pronounced in the open court on 27th June, 2025.