Assessee\u2019s LLP was converted into partnership. Prior to conversion, the Assessee had taken loans or had business with another company where he was a shareholder of more than 20%. The AO made an addition considering the said transactions as deemed dividend u\/s. 2(22)(e). The ITAT observed that Clause (ii) of S. 2(22) includes any transaction with the other entity in which the shareholders having a controlling interest may enter into business transactions which may fall under the category of ordinary course of business transactions. The above exclusion has two parts, containing ordinary course of its business, and the other part, which involves lending of money, is a substantial part of the business. The first part of the clause ends with “,” and starts with the other part. It is widely interpreted to include trade advances, which are in the nature of commercial transactions. Therefore, the AO should have not only seen the transaction but also investigated how the money was being used for the individual benefit of the shareholder. Moreover, the deeming fiction is only attracted to payments made directly to the shareholders. The ITAT upheld the order of the CIT(A) deleting the addition.\u00a0 (AY. 2014-15)<\/p>\n","protected":false},"excerpt":{"rendered":"
S. 2(22)(e): Deemed dividend-Deemed dividend-Loan to firm where partners held substantial interest in lender company-Assessee not a shareholder-Advances are not chargeable as deemed dividend.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[21],"tags":[],"class_list":["post-61257","post","type-post","status-publish","format-standard","hentry","category-income-tax-act"],"acf":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9S2Rw-fW1","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/61257","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/comments?post=61257"}],"version-history":[{"count":1,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/61257\/revisions"}],"predecessor-version":[{"id":61258,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/61257\/revisions\/61258"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/media?parent=61257"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/categories?post=61257"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/tags?post=61257"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}