2010 (7) TMI 1041 - AT - Income Tax

Summary

Issues involved: Assessment of deemed dividend u/s 2(22)(e) of the Income-tax Act.

Summary:
1. The revenue appealed against the order of Ld. CIT(A) for the Assessment Year 2006-07, challenging the addition of deemed dividend u/s 2(22)(e) made by the A.O. The revenue contended that the deemed dividends should be taxed in the hands of the borrower, i.e., the assessee concern.

2. None appeared on behalf of the assessee, leading to an ex-parte decision in favor of the revenue. The issue revolved around the assessment of deemed dividend by the A.O. u/s 2(22)(e) in relation to loans received by the assessee from specific companies.

3. Ld. CIT(A) based the decision on the common shareholding of a director in the assessee company and the companies from which loans were received. The revenue challenged this decision before the ITAT Delhi.

4. The Ld. D.R. supported the assessment order, emphasizing the common shareholding aspect.

5. After considering the submissions and evidence, the ITAT Delhi observed that the assessee did not hold the required percentage of shares in the lending companies as prescribed by Section 2(22)(e) of the Act. The Special Bench precedent was cited, stating that deemed dividend can only be assessed in the hands of a shareholder in the lender company.

6. The ITAT Delhi rejected the revenue's reliance on other tribunal decisions, emphasizing the need to follow the Special Bench decision over division bench rulings.

7. Consequently, the appeal of the revenue was dismissed, affirming the decision of Ld. CIT(A) to delete the addition of deemed dividend u/s 2(22)(e).

8. The judgment was pronounced on 08.07.2010.