MAHESHBHAI NIRANJANBHAI VYAS,AHMEDABAD V. THE DY.CIT, CENT. CIR.-2(1) , AHMEDABAD

ITA 1750/AHD/2025

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The case revolves around an appeal by Maheshbhai Niranjanbhai Vyas against the reassessment order passed by the Deputy Commissioner of Income Tax, which treated a loan received from M/s. Nandsai Steel Pvt. Ltd., in which the assessee had a significant shareholding, as deemed dividend under section 2(22)(e) of the Income Tax Act. The assessee contested this addition, arguing that the loan was part of a commercial transaction secured by personal guarantees and did not fall under the ambit of deemed dividends as clarified by the CBDT. The Commissioner of Income Tax (Appeals) upheld the addition, leading to the current appeal before the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 789097 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: misc
• Appeal Filed On: 18-09-2025
• Other Referred Cases: CIT vs. Creative Dyeing & Printing Pvt. Ltd., CIT vs Amrik Singh, CIT, Agra vs Atul Engineering Udyog, Pradip Kumar Malhotra V.CIT, West Bengal-V, Asstt. Comm, of Income tax, Company Circle-V(3) V. Smt. G. Sreevidya, Sarat Chand Bhavaraju v. ITO, Ward-4(1), Visakhapatnam, Dipesh Lalchand Shah v. ACIT, Central Cir 4, Surat, Shital Kumar Vij, Jalandhar vs.ACIT, Range -II, Jalandhar
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Deemed dividend; Principle of natural justice
• Section: 148; 143(3); 2(22)(e)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH Before: DR. BRR Kumar, Vice President And Shri T. R. Senthil Kumar, Judicial Member Maheshbhai Niranjanbhai Vyas D/4/302, Karnavati Apartment Opp. Hariom Tower, Maninagar, Ahmedabad-380008 PAN: ABUPV2611H (Appellant) Vs The DCIT, Central Circle-2(1), Ahmedabad (Respondent) Assessee Represented: Shri Kunal Shangvi, A.R. Revenue Represented: Shri Rohit Aasudani, Sr. D.R. Date of hearing : 13-11-2025 Date of pronouncement : 25-11-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Assessee as against the appellate order dated 31.07.2025 passed by the Commissioner of Income Tax (Appeals)-12, Ahmedabad 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 2014-15. ITA No: 1750/Ahd/2025 Assessment Year: 2014-15 Printed from counselvise.com I.T.A No. 1750/Ahd/2025 A.Y. 2014-15 Page No Maheshbhai Niranjanbhai Vyas vs. DCIT 2 2. Brief facts of the case is that the assessee is an individual who derived income from business and other sources. The assessee filed his Return of Income for the Asst. Year 2014-15 declaring taxable income of Rs.3,49,740/-. Information received that the assessee received loan amount of Rs.13,46,792/- from M/s. Nandsai Steel Pvt. Ltd. wherein the assessee is having more than 10% share holding, therefore the loan amount is liable to be taxed as deemed dividend u/s. 2(22)(e) of the Act. Therefore a notice u/s. 148 was issued on 23-07-2018 for escaped income. The assessee filed return admitting the same original income. After issuance of notice, the assessing officer made addition u/s. 2(22)(e) deemed dividend income of the assessee of Rs.13,46,792/- and demanded tax thereon. 3. Aggrieved against the reassessment order, assessee filed an appeal before Ld. CIT(A) and explained its case that the assessee is having more than 20% of share holding in M/s. Nandsai Steel Pvt. Ltd. which is having reserve and surplus. The company is having facility of cash credit as against the personal guarantee given by the assessee by securing his LIC Policy, immovable properties and personal guarantee. This kind of transaction does not fall under the provisions of Section 2(22)(e) of the Act as clarified by CBDT vide Circular No. 19/2017. Therefore requested to delete the addition made by the A.O. However Ld. CIT(A) confirmed the addition made by the A.O. and dismissed the appeal. Printed from counselvise.com I.T.A No. 1750/Ahd/2025 A.Y. 2014-15 Page No Maheshbhai Niranjanbhai Vyas vs. DCIT 3 4. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal: [1] The Ld. CIT(A)-12, Ahmedabad was grievously erred in confirming the addition of Rs. 13,46,792/- u/s. 2(22)(e) of the Income Tax Act (deemed dividend) without considering various documents and replies submitted including the reply to the show cause notice by the appellant during the course of appellate proceedings which is illegal and bad-in-law. [2] The Ld. CIT(A)-12, Ahmedabad was grievously erred in not considering the assessment order u/s. 143(3) r.w.s. 147 of the Income Tax Act for A.Y. 2014-15 made by the Ld. A.O. wherein huge addition of Rs. 13,46,792/- has been made in the returned income and huge demand of Rs. 5,97,610 is raised. [3] The Ld. CIT(A)-12, Ahmedabad was grievously erred in not considering the reopening of the assessment by issuing notice u/s. 148 of the Income Tax Act as the same is barred by limitation. The Assessing Officer has issued the notice for reopening of the assessment without proper and independent application of mind. [4] The Ld. CIT(A)-12, Ahmedabad was grievously erred in not considering the proper opportunity of being heard has not been given by the Ld. A.O., hence the entire action of the Ld. A.O. is in the gross violation of principle of natural justice. [5] The Ld. CIT(A)-12, Ahmedabad was grievously erred in not considering that the Ld. Assessing Officer has solely replied upon the assessment order of the early years without applying his independent mind as each and every assessment is separate assessment. [6] The appellant therefore requests your Honour to kindly delete the above mentioned addition of Rs. 13,46,792/- u/s. 2(22)(e) of the Income Tax Act (deemed dividend) made by the Ld. A.O., which was confirmed by the Ld. CIT(A) looking to the merits of the case. [7] The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.” 5. Ld. Counsel appearing for the assessee reiterated the same submission made before Ld. CIT(A) and also drawn our attention to the appellate order passed by Ld. CIT(A) for the earlier Asst. Year 2013-14 wherein similar addition u/s. 2(22)(e) was deleted by the Printed from counselvise.com I.T.A No. 1750/Ahd/2025 A.Y. 2014-15 Page No Maheshbhai Niranjanbhai Vyas vs. DCIT 4 Ld. CIT(A) vide its order dated 13-06-2018. Thus Ld. Counsel pleaded to delete the addition made u/s. 2(22)(e) of the Act by the lower authorities. 6. Per contra Ld. Sr. D.R. appearing for the Revenue supported the orders passed by the lower authorities. 7. We have given our thoughtful consideration and perused the materials available on record. Ld. D.R. could not dispute Circular No. 19/2017 issued by CBDT which was considered by Ld. CIT(A) and also the merits of the case for the Asst. Year 2013-14 which reads as follows: 5. Facts of the case, submission of the appellant and assessment order has been carefully considered. The only effective ground of appeal is against the additions of Rs.20,28,420/- made by the AO u/s. 2(22)(e) of the Act. The AO observed that the appellant has taken unsecured loan of Rs. 75,74,000/- from Shri Nandsai Steel Pvt Ltd in which he is a director and having more than 20% of registered/beneficial ownership of the shares in the company. As the company was having reserve and surplus only to the extent of Rs. 20,28,420/-, the AO made the additions u/s, 2(22)(e) of the Act considering the said loan as deemed dividend. The appellant contended that the company has facility of cash credit with Bank of Baroda and this facility is secured against the personal guarantee of the appellant to the extent of Rs1.19 crore and also Mrs. Gayatri Mahesh Vyas, wife of the appellant to the extent of Rs.60,07,000/-. The cash credit facility was also secured by the LIC policy of the appellant and his immovable properties. The company has received secured loan from the said bank and from the aforesaid loan, the company given loan to the appellant. Thus, the loan received by the appellant is nothing but amount received out of the bank loan for which the appellant has given personal securities. Keeping in view these facts, the appellant's case is not covered by the provisions of section 2(22)(e) of the Act. The appellant also submitted several case law in support of his contention and requested that the additions may be deleted. The facts mentioned in the assessment order and the submission of the appellant alongwith case laws relied upon have been carefully considered. There is no dispute about the fact that the appellant has pledged his personal guarantee, personal properties and LIC polity for obtaining secured loan by the company Shri Nandsai Steel Pvt Printed from counselvise.com I.T.A No. 1750/Ahd/2025 A.Y. 2014-15 Page No Maheshbhai Niranjanbhai Vyas vs. DCIT 5 Ltd. It is also correct fact that the appellant has received loan from the company from the amount received by the company as cash credit facility from Bank of Baroda for which the appellant has given personal securities. In such situation, it cannot be considered as deemed dividend. The CBDT, New Delhi vide Circular No. 19/2017 stated as under:- \"F.No.279/Misc/140/2015/ITJ Government of India Ministry of Finance Central Board of Direct Taxes New Delhi, Dated 12th June, 2017 Sub: Settled View on section 2(22)(e) of the Income Tax Act, trade advances-reg. Section 2(22) clause (e) of the Income Tax Act, 1961 (the Act) provides that \"dividend\" includes any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits. 2. The Board has observed that some Courts in the recent past have held that trade advances in the nature of commercial transactions would not fall within the ambit of the provisions of section 2(22) (e) of the Act. Such views have attained finality. 2.1 Some illustrations/examples of trade advances/commercial transactions held to be not covered under section 2(22) (e) of the Act are as follows: i. Advances were made by a company to a sister concern and adjusted against the dues for job work done by the sister concern. It was held that amounts advanced for business transactions do not to fall within the definition of deemed dividend under section 2(22) (e) of the Act. (CIT vs. Creative Dyeing & Printing Pvt. Ltd., Delhi High Court). ii. Advance was made by a company to its shareholder to install plant and machinery at the shareholder's premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. (CIT vs Amrik Singh, P&H High Court) ⅲ) A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The Printed from counselvise.com I.T.A No. 1750/Ahd/2025 A.Y. 2014-15 Page No Maheshbhai Niranjanbhai Vyas vs. DCIT 6 company utilised gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister concern was a business transaction arising in the normal course of business between two concerns and the transaction did not attract section 2(22)(e) of the Act. (CIT, Agra vs Atul Engineering Udyog, Allahabad High Court) 3. In view of the above it is a settled position that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word 'advance' in section 2(22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon. 4. The above may be brought to the notice of all concerned. 5. Hindi version follows. Sd/- (Neetika Bansal) Deputy Secretary to Government of India\" The appellant's case is further found covered by the following judgments:- i) Pradip Kumar Malhotra V.CIT, West Bengal-V (2011) 15 taxmann.com 66 (Cal). ii) Asstt. Comm, of Income tax, Company Circle-V(3) V. Smt. G. Sreevidya, (2012) 24 taxmann.com 75 (Chennai)/138 ITD 427 (Chennani). Sarat Chand Bhavaraju v. ITO, Ward-4(1), Visakhapatnam. (2017) 81 taxmann.com 323 (Visakhapatnam-Trib). iv) Dipesh Lalchand Shah v. ACIT, Central Cir 4, Surat. (2016) 68 taxmann.com 151 (Ahmedabad-Trib), v) Shital Kumar Vij, Jalandhar vs.ACIT, Range -II, Jalandhar n ITA No.406(Asr)/2009, dtd.20/09/2012 (Amritsar ITAT). Keeping in view the CBDT, New Delhi Circular as reproduced above and the binding judgments, the additions made by the AO are not found justified and therefore, deleted. This ground of appeal is allowed. 8. There is no change in facts of the case for the present assessment year and the above decision of Ld. CIT(A) for Asst. Year Printed from counselvise.com I.T.A No. 1750/Ahd/2025 A.Y. 2014-15 Page No Maheshbhai Niranjanbhai Vyas vs. DCIT 7 2013-14 has attained finality and no appeal preferred by the Revenue. Thus the addition made by the lower authorities for the present assessment year is not sustainable in law. 9. In the result, the appeal filed by the Assessee is hereby allowed. Order pronounced in the open court on 25-11-2025 Sd/- Sd/- (DR. BRR KUMAR) (T.R. SENTHIL KUMAR) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 25/11/2025 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद Printed from counselvise.com "