Omkar Finance Pvt. Ltd. is a company engaged primarily in the business of granting loans and advances and earns about 85% of its income from lending activities. During the Previous Year 2025-26, the company granted a loa

As per Section 2(22)(e) of the Income-tax Act, 1961, any loan or advance given by a closely held company to a shareholder who holds not less than 10% of the voting power is treated as deemed dividend to the extent of the company's accumulated profits. However, the section provides an exception that such loan or advance shall not be treated as deemed dividend if: 1. The loan or advance is made in the ordinary course of the company's business, and 2. Lending of money constitutes a substantial part of the business of the company. Application to the Given Facts: Mr. Suresh holds 12% of the voting power in Omkar Finance Pvt. Ltd. Hence, the basic condition for applicability of Section 2(22)(e) is satisfied. However, Omkar Finance Pvt. Ltd. is primarily engaged in the business of granting loans and advances. The company earns 85% of its income from lending activities, which indicates that lending of money is a substantial part of its business. The loan of ₹ 40 lakh was granted at a commercial rate of interest and on the same terms as applicable to other customers, indicating that it was given in the ordinary course of business. Conclusion: Since the loan was granted in the ordinary course of business and lending of money constitutes a substantial part of the company's business, the exception provided under Section 2(22)(e) applies. Therefore, the loan of ₹ 40 lakh granted to Mr. Suresh will not be treated as deemed dividend under Section 2(22)(e) of the Income-tax Act, 1961.