Back
2026 Supreme(Online)(ITAT) 13121
INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
Yogesh Kumar, Judicial Member, Sanjay Awasthi, Accountant Member
International Management Technologies Pvt. Ltd. – Appellant
Versus
ACIT – Respondent
I.T.A No.8782/Del/2025
For the Appellants/Petitioners: Shri M.R. Sahu
For the Respondents: Shri Ajay Kumar Arora
Under Section 2(22)(e) of the Income Tax Act, 1961, an advance or loan given by a closely held company to a shareholder having accumulated profits is treated as 'deemed dividend' regardless of whether the loan was interest-bearing or subsequently repaid.
Headnote:(A) Income Tax Act, 1961 - Section 2(22)(e) - Deemed Dividend - Loan or advance received by a shareholder from a closely held company having accumulated profits - Whether repayment of loan affects the character of deemed dividend - Held, statutory fiction under Section 2(22)(e) is conclusive - Once conditions for deemed dividend are satisfied, the loan constitutes dividend income, irrespective of subsequent repayment or interest payment - Taxing statutes must be interpreted based on plain language - No room for intendment or equity beyond statutory provisions. (Paras 3, 3.1)
Facts of the case:
The assessee company received an advance of Rs. 1,50,00,000 from Shaka Properties Pvt. Ltd., wherein both parties held significant shareholding. The Assessing Officer treated this as deemed dividend under Section 2(22)(e). The assessee argued that the loan was interest-bearing and had been repaid, thus it should not be treated as a dividend, relying on Pradip Kumar Malhotra (Kol) and distinguishing it from Krishna Gopal Maheshwari (All).
Findings of Court:
The Bench observed that the statutory fiction created by Section 2(22)(e) is triggered the moment a shareholder receives an advance from accumulated profits of a closely held company. Citing the Supreme Court judgment in Smt. Tarulata Shyam, the court held that even if a loan is repaid in full, it remains taxable as deemed dividend if the conditions of the section are otherwise met.
Issues: Whether an interest-bearing loan that is subsequently repaid can still be classified as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.
Ratio Decidendi: Parliament raised a conclusive presumption in Section 2(22)(e) that advances from accumulated profits to shareholders are dividends. There is no scope to imply that repayment negates this statutory classification, and the court must strictly adhere to the plain language of the taxing statute.
Result: Appeal of the assessee dismissed.
| Table of Content |
|---|
| 1. history of litigation and procedural facts of the deemed dividend addition. (Para 1) |
| 2. parties' contentions regarding the application of case laws and the nature of the loan. (Para 2) |
| 3. interpretation of section 2(22)(e) and the conclusive nature of statutory fiction. (Para 3) |
| 4. final ruling dismissing the assessee's appeal. (Para 4) |
ORDER
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
1. This appeal arises from order dated 17.11.2025, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), by NFAC. This case has a certain history which deserves to be briefly captured for the sake of perspective. The assessee has filed its return of income for AY 2015-16 on 30.09.2015. This return was subsequently revised on 07.11.2016 declaring the same income. Vide order dated 26.12.2017 the Ld. AO made additions u/s 14A of the Act (Rs.6,81,481/-, and also an addition of Rs.1,50,00,000/- u/s 2(22)(e) of the Act). The assessee preferred an appeal before the CIT(A), who vide order dated 31.12.2018 confirmed the addition on account of “deemed dividend”, but gave relief on the addition u/s 14A of the Act.
1.1 Thereafter, the assessee approached the ITAT where through order dated 23.03.2023 in ITA No.1298/Del/2019, the matter of deemed dividend was remanded back to the file of Ld. AO with observations that the Ld. AO must consider the Hon’ble Kolkata High Court’s judgment in the case of Pradip Kumar Malhotra reported in 338 ITR 538 (Kol), while undertaking the fresh assessment. It was also observed that there is no Estoppel against law and statute on the finding of Ld. CIT(A) that since the assessee had agreed to the addition made as deemed dividend, there was no scope for any appeal against the same. There is an interesting background to this observation which deserves to be briefly mentioned. In the first-round proceedings before the Ld. AO it was found that one M/s Shaka Properties Pvt. Limited had advanced an amount of Rs.1,50,00,000/- to the assessee company. This M/s Shaka Properties admittedly held 49.30% shares in the assessee company and the assessee also held 50.01% share in M/s Shaka Properties. On being issued with a show cause notice dated 12.12.2017 the assessee submitted its response vide letter dated 22.12.2017 through which it was admitted that due to lack of knowledge and without any mala fide intention the fact of the impugned amount being considered as deemed dividend in the hands of the assessee was mistakenly overlooked. It was further submitted by the assessee that the necessary tax amounting to Rs.50,98,500/- on the impugned amount was deposited on 22.12.2017. It was reiterated by the assessee that it was a mistake due to lack of understanding of law and the assessee had promptly rectified the same with the depositing of necessary extra tax on the same. This suo moto admission of “error” led the Ld. CIT(A), in the first round, to observe in para 6.3 at pages 14 & 15 of that order that since the assessee had admitted the tax liability and duly deposited the same then “once an amount has been surrendered before Assessing Officer it closes the chapter on that issue”. The Ld. CIT(A) went on to observe that after agreeing for the disallowance before the AO and then raising the same ground of appeal was patently unfair. Needless to say, the Ld. CIT(A), in the first round, confirmed the addition u/s 2(22)(e) of the Act. It was this issue which was also before the ITAT in the first round where the observation of the Bench regarding there being no estoppel on the due process of law was recorded. We will have occasion to discuss this issue in the later part of this order.
1.2 In the second-round proceedings, the Ld. AO discusses at length the non-applicability of the case of Pradip Kumar Malhotra (supra) and relied on the case of Krishna Gopal Maheshwari (363 ITR 280) (All) to hold that the impugned amount deserved to be treated u/s 2(22)(e) of the Act. Again, aggrieved with this finding the assessee
