ACIT, COIMBATORE vs. SRI LAKSHMI MILLS, COIMBATORE

This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) -2, Coimbatore, dated 28.10.2016 and pertains to assessment year 2012-13.

The only issue arises for consideration is addition made by the Assessing Officer under Section 2(22)(e) of the Income-tax Act, 1961 (in short 'the Act').

Shri Hari Govind, the Ld. Departmental Representative, submitted that the CIT(Appeals) found that the assessee is not a registered shareholder of the company which has advanced loan to the partnership firm. According to the Ld. D.R., the partners of the assessee-firm are holding more than 20%. Therefore, the CIT(Appeals) is not justified in allowing the claim of the assessee.

We heard Sh. T. Banusekar, the Ld. representative for the assessee also. Even though partnership firm cannot hold shares of the company, this Tribunal is of the considered opinion that if the partners are holding the shares for the benefit of the partnership firm, then naturally the advance made to the partnership firm has to be treated as deemed dividend under Section 2(22)(e) of the Act. To determine whether the partnership firm is a beneficial shareholder or not, it has to be examined whether the partnership firm’s funds were invested in the shares of the company so as to enable the company to issue shares in the name of the partners for the benefit of the partnership firm. The details of investment and other particulars are not available before this Tribunal. Therefore, this Tribunal is unable to uphold the order of the lower authority.

However, in the interest of justice, the matter needs to be re- examined by the Assessing Officer. Accordingly, orders of both the authorities below are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter in the light of the details that may be filed by the assessee and bring on record whether the investment in the share of the company was made by the partners from their individual funds or from the firm’s funds. Thereafter, the Assessing Officer shall decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.