2012 (4) TMI 684 - HC - Income Tax

Summary

Issues involved: Appeal against deletion of additions on account of deemed dividend u/s 2(22)(e) of the Income Tax Act for Assessment Year 2007-08.

Summary:
1. The revenue filed an appeal against the deletion of additions on account of deemed dividend u/s 2(22)(e) of the Income Tax Act for Assessment Year 2007-08. The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) which deleted the additions of Rs. 1,12,44,952 made by the Assessing Officer.

2. The Commissioner of Income Tax (Appeals) held that only the shareholder can be assessed for deemed dividend u/s 2(22)(e) and not the company. The CIT (A) relied on judgments of the Bombay High Court and Rajasthan High Court to support this view. It was further held that different shareholders cannot be clubbed to fulfill the conditions of Section 2(22)(e).

3. The CIT (A) concluded that the conditions of Section 2(22)(e) were not fulfilled as none of the shareholders held substantial interest in the company. Shareholding of different individuals could not be combined to meet the requirements of the section. The appeal of the assessee was allowed based on this analysis.

4. The Tribunal upheld the order of the CIT (A) stating that the basic conditions of Section 2(22)(e) were not met regarding minimum shareholding by the shareholders. It was reiterated that only the shareholder can be assessed for deemed dividend, not the company.

5. The High Court found no merit in the revenue's appeal as the judgments of the Bombay High Court and Rajasthan High Court were not challenged. The revenue failed to show that the assessee fulfilled the requirements of Section 2(22)(e) for the addition of deemed dividend. The appeal was dismissed as without merit.