THE PR.COMMISSIONER OF INCOME TAX vs. MICROFININSH VALVES PRIVATE LIMITED,

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ITA/100009/2019HC KarnatakaKAHC02009409201929 July 2025Bench: S.SUNIL DUTT YADAV,VIJAYKUMAR A.PATIL7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court disposed of the appeals as withdrawn based on a CBDT circular regarding monetary limits for appeals. The substantial questions of law raised were kept open for future adjudication.

What were the facts?

The appeals were filed by the Income Tax Department challenging ITAT orders that held advances received by the assessee from its sister concern could not be treated as 'deemed dividend' under Section 2(22)(e). The Department argued that common directors with substantial interest in both companies warranted invoking the section.

What were the issues?

Whether advances received from a sister concern by a company can be treated as 'deemed dividend' under Section 2(22)(e) when there are common directors with substantial interest in both companies.

Which sections of the Income-tax Act were involved?

Section 2(22)(e)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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HC-KAR NC: 2025:KHC-D:9333-DB ITA No.100009 of 2019 C/W ITA No.100012 of 2019

IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH DATED THIS THE 29TH DAY OF JULY, 2025 PRESENT THE HON'BLE MR. JUSTICE S.SUNIL DUTT YADAV AND THE HON'BLE MR. JUSTICE VIJAYKUMAR A.PATIL INCOME TAX APPEAL NO. 100009 OF 2019 C/W INCOME TAX APPEAL NO. 100012 OF 2019

IN INCOME TAX APPEAL NO.100009 OF 2019: BETWEEN: 1. THE PRINCIPAL COMMISSIONER OF INCOME TAX, NAVANAGAR, HUBBALLI.

2.

ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HUBLI. - APPELLANTS (BY SRI. THIRUMALESH M.M. AND SMT. ROOPA R.A., ADVOCATES)

AND: MICROFININSH VALVES PRIVATE LIMITED, B-161/162, INDUSTRIAL ESTATE, GOKUL ROAD, HUBLI, PAN: AABCM 2527 Q - RESPONDENT (BY SRI. SHASHANK S. HEDGE, ADVOCATE)

THIS ITA IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'C' BENCH, BENGALURU IN ITA NO.1706/BANG/2017, DATED 16.11.2018 AND CONFIRM THE ORDER DATED 27.02.2015 PASSED BY THE ASST. COMMISSIONER OF INCOME TAX OFFICER, CIRCLE- 2(1), HUBLI FOR THE ASSESSMENT YEAR 2012-13 & ETC.

VINAYAKA B V Digitally signed by VINAYAKA B V Location: High Court of Karnataka, Dharwad Bench Date: 2025.08.06 12:19:50 +0530

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HC-KAR NC: 2025:KHC-D:9333-DB ITA No.100009 of 2019 C/W ITA No.100012 of 2019

IN INCOME TAX APPEAL NO.100012 OF 2019: BETWEEN: 1. THE PRINCIPAL COMMISSIONER OF INCOME TAX, NAVANAGAR, HUBBALLI.

2.

ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HUBLI.

- APPELLANTS (BY SRI. THIRUMALESH M.M. AND SMT. ROOPA R.A., ADVOCATES)

AND: MICROFINISH VALVES PRIVATE LIMITED, B-161/162, INDUSTRIAL ESTATE, GOKUL ROAD, HUBLI, PAN: AABCM 2527 Q

- RESPONDENT (BY SRI. SHASHANK S. HEGDE, ADVOCATE)

THIS ITA IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU IN ITA NO.1449/BANG/2015, DATED 12.04.2019 AND CONFIRM THE ORDER DATED 24.03.2014 PASSED BY THE JOINT COMMISSIONER OF INCOME TAX OFFICER, RANGE-2, HUBLI FOR THE ASSESSMENT YEAR 2011-12 & ETC.

THESE INCOME TAX APPEALS COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

CORAM: THE HON'BLE MR. JUSTICE S.SUNIL DUTT YADAV AND THE HON'BLE MR. JUSTICE VIJAYKUMAR A.PATIL

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HC-KAR NC: 2025:KHC-D:9333-DB ITA No.100009 of 2019 C/W ITA No.100012 of 2019

ORAL JUDGMENT (PER: THE HON'BLE MR. JUSTICE S.SUNIL DUTT YADAV)

These appeals have been filed under Section 260-A of the Income Tax Act challenging the order passed in I.T.A. No. 1706/Bang/2017 relating to assessment year 2012-13 and the order passed in I.T.A. No. 1449/Bang/2015 relating to assessment year 2011-12 respectively. It is noticed that the tax effect in the appeal in terms of the memo dated 29.07.2025 is Rs.1.32 crores and 1.13 crores respectively, raising the following substantial questions of law: In I.T.A. No. 100009/2019: 1. Whether in the facts and in the circumstances of the case and in law the Tribunal is correct in holding that the sum of Rs.4 crores being the advance received during the year by the assessee respondent company from its sister concern M/s Micro-finish Pumps Pvt. Ltd. Cannot be treated as ‘deemed dividend’ as per the provisions of section 2(22)(e) inspite of a categorical finding recorded by the assessing authority as confirmed by the first appellate authority?

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HC-KAR NC: 2025:KHC-D:9333-DB ITA No.100009 of 2019 C/W ITA No.100012 of 2019

2.

Whether in the facts and in the circumstances of the case and in law the Tribunal is correct in treating the deeming provisions of section 2(22)(e) of the Income Tax Act, 1961 cannot be invoked as the assessee respondent is not a shareholder of the lending company in spite of the fact that lending company with huge accumulated profits and there being common director shareholders having substantial interest with controlling stake in both the companies?

3.

Whether in the facts and in the circumstances of the case and in law the Tribunal is correct in not considering the judgment of the Hon’ble Apex Court in the case of M/s National Travel Services Vs. Commissioner of Income Tax, Delhi, reported in 401 ITR 154 (SC) wherein the Apex Court has placed the appeal before the Chief Justice of India to constitute an appropriate three judge bench to relook at the entire issue of applicability of the deeming provisions u/s 2(22)(e)?

In I.T.A. No. 100012/2019: 1. Whether in the facts and in the circumstances of the case and in law the Tribunal is correct in holding that the sum of Rs.3.30 crores being the advance received during the year by the assessee respondent company from its sister concern M/s

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HC-KAR NC: 2025:KHC-D:9333-DB ITA No.100009 of 2019 C/W ITA No.100012 of 2019

Micro-finish Pumps Pvt. Ltd. Cannot be treated as ‘deemed dividend’ as per the provisions of section 2(22)(e) inspite of a categorical finding recorded by the assessing authority as confirmed by the first appellate authority?

2.

Whether in the facts and in the circumstances of the case and in law the Tribunal is correct in treating the deeming provisions of section 2(22)(e) of the Income Tax Act, 1961 cannot be invoked by following its earlier order, in spite of the fact that lending company with huge accumulated profits and there being common director shareholders having substantial interest with controlling stake in both the companies?

3.

Whether in the facts and in the circumstances of the case and in law the Tribunal is correct in not considering the judgment of the Hon’ble Apex Court in the case of M/s National Travel Services Vs. Commissioner of Income Tax, Delhi, reported in 401 ITR 154 (SC) wherein the Apex Court has placed the appeal before the Chief Justice of India to constitute an appropriate three judge bench to relook at the entire issue of applicability of the deeming provisions u/s 2(22)(e)?

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HC-KAR NC: 2025:KHC-D:9333-DB ITA No.100009 of 2019 C/W ITA No.100012 of 2019

2.

Learned counsel for the appellants has filed a memo which reads as under: In I.T.A. No. 100009/2019: “That the appellant has filed the above appeal challenging the ITAT order. As per the Circular No. 09/2024 dated 17.09.2024 the above matter falls under the Below Monetary Limit, i.e., 2 crore and the tax effect is Rs.1.32 crores. Hence the matter needs to be withdrawn as per the Circular.”

In I.T.A. No. 100012/2019: “That the appellant has filed the above appeal challenging the ITAT order. As per the Circular No. 09/2024 dated 17.09.2024 the above matter falls under the Below Monetary Limit, i.e., 2 crore and the tax effect is Rs.1.13 crores. Hence the matter needs to be withdrawn as per the Circular.”

3.

Copy of the circular dated 17.09.2024 of the Central Board of Direct Taxes is enclosed. In the light of the subject matter of the appeals being below monetary limit in terms of the Circular, the proceedings cannot be continued. Accordingly, the appeals stand disposed off.

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HC-KAR NC: 2025:KHC-D:9333-DB ITA No.100009 of 2019 C/W ITA No.100012 of 2019

4.

The substantial questions of law raised above are kept open to be adjudicated in appropriate proceedings.

Sd/- (S.SUNIL DUTT YADAV) JUDGE

Sd/- (VIJAYKUMAR A.PATIL) JUDGE

BVV, CT:VP LIST NO.: 1 SL NO.: 44

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