Top Stories Legal fiction created u/s 2 (22) (e) of Income Tax Act not to be extended further for broadening concept of shareholders: ITAT [Read Order] Legal fiction created under Section 2 (22) (e) of Income Tax Act, 1961, not to be extended further for broadening concept of shareholders, rules, ITAT By Aiswarya Krishnadas – On January 28, 2024 12:58 pm – 2 mins read The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) observed that legal fiction created under Section 2 (22)(e) of Income Tax Act, 1961, not to be extended further for broadening concept of shareholders Briefly stated the facts of the case are that the return of income filed on 27.10.2015 was selected for scrutiny through CASS and accordingly statutory notices were issued and served upon the assesse.

The Assessing Officer ( AO ) held a strong belief that all companies providing funds were closely held companies. Consequently, the loan was deemed as a dividend to the extent of accumulated profits, and invoking the provisions of section 2(22) (e) of Income Tax Act, 1961, the AO made an addition of Rs. 53,808,475. The counsels for the assessee Dr. Rakesh Gupta and Somil Agarwal strongly argued that the assessee does not hold any shares in the company under scrutiny.

Therefore, there is no basis for invoking the provisions of section 2(22) (e) of Income Tax Act, 1961. The two member bench of the tribunal comprising Astha Chandra ( Judicial member ) and N.K.Billaiya ( Accountant member ) carefully examined the directives issued by the authorities in this matter. After reviewing the chart delineating the distribution of shares, as presented elsewhere, it was evident that the assessee did not possess any shares in the contested company.

The esteemed Jurisdictional High Court of Delhi, as established in the case of Ankitech Private Limited, unequivocally ruled that the legal fiction established under section 2 (22)(e) of Income Tax Act, 1961, served to expand the definition of dividend exclusively, and this legal fiction should not be extrapolated to further broaden the concept of shareholders. The appeal of the assessee was accordingly allowed.