Filing Income Tax Made Easy

Yes, there will be tax implications in the hands of shareholder i.e. you in the present case.  Under section 2(22)(e) of the Income Tax Act,  if A1 Pvt Ltd give  advance or loan to B1 Pvt Ltd  in which shareholders are common having more than 10% holding in A1 Pvt Ltd and more than 20% in B1 Pvt Ltd, then the entire advance would be taxed in the hands of shareholder as deemed dividend.  Since in the present case, you are having substantial shareholding in the both the companies, the entire advance would be taxed in your hands as deemed dividend.  Besides the Income Tax Act provisions,  A1 Pvt Ltd is also likely to violate  provisions of  section 185 of the Companies Act which prohibits loans or advance to a company which has common directors.

Under section 56(viib), if a closely held company receive any share premium which is more than the fair market value of share, then the amount received in excess of fair market value would be taxed in the hands of the company as Income from Other Sources. Thus, as long as the share premium amount is within the fair market value, then there is no tax implication. Moreover, under section 68 of the Income Tax Act, a company needs to prove authenticity of the transaction, identity of investor and his capability and capacity to invest.

If the company fails to discharge initial onus, then entire share capital amount received could be taxed as income from undisclosed source under section 68 of the Income Tax Act. Addition made under section 68 could also trigger stringent penalty provisions under the Income Tax Act.

Fair market value is to be determined as per Rule 11U, 11UA & 11UB of the Income Tax Rules.

Once a person files his return of income, for a particular assessment year, then the Income Tax Department goes through the details and information given in the tax return.  If the Department feels that a detailed inquiry is required to confirm that tax payer has not understated the income or has not computed excessive  loss or has not underpaid the tax in any manner, then a notice under section 143(2) of the Income Tax Act would be issued.  Sometimes the Department pick-up a particular case for scrutiny if it has certain information in its possession such as purchase and sale of immovable property, substantial cash deposit in bank account, investment in mutual fund and other securities, credit card payments etc. then to satisfy correct source of payment / investment,  a case also is selected for scrutiny.

For picking-up a case for scrutiny, the Assessing Officer has to issue a notice under section 143(2) of the Act within 6 months from the end of the financial year in which return is furnished.  For example, return for assessment year 2016-17 is filed on 309/2016, notice has to be issued on or before 30/09/2017.  Through the notice the Assessing Officer may call information  /  documents to satisfy the genuineness and allowability of various claims and deductions made in the return. 

The Assessing Officer will also ensure that the income has been correctly disclosed and if not, can make addition of additional income.  The whole process has to be completed within 21 months from the end of assessment year.  For example, a scrutiny assessment for assessment year 2016-17 has to be completed by 31/12/2018.  If an assessee  is not satisfied with the scrutiny assessment order, then  the same can be challenged before the appellate authorities.