Deemed Dividend -Sec 2(22)(e)

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santhosh (Querist)
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16 July 2009
I would be very glad if you can correctly analyze the following case and give me the tax implications
Mr. X is Managing director of ABC (P) Ltd. The company has reserves close to 2 Crores and above. It is not declared dividend from the beginning, it has advanced Loans to directors (Rs 95 Lacs),It has made payments(not advance) (Rs 1.2 Crores)to M/s ABC&Co (a Firm where X is a partner) for supplying raw material to ABC(p) Ltd .That is ABC & co is regular Trade Creditor to ABC P Ltd.

Now the Question is whether payments made to ABC & co will be treated has “deemed dividend” in the hands of MR.X. If Yes, what is the argument can we make to prevent deemed dividend taxation U/s 2(22)(e). Please give your reply ASAP.

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