2015 (4) TMI 1199 - AT - Income Tax

Deemed dividend received - dividend received from the companies having accumulated profits in which the assessee himself is a Director and has got substantial or beneficial interest - Held that - The undisputed fact in this case is that the assessee has received loans from all the four companies on interest and therefore in view of the decision of the Jurisdictional High Court in the case of Pradip Kumar Mahlhotra (2011 (8) TMI 16 - CALCUTTA HIGH COURT) the said loan cannot be treated as deemed dividend. - Decided in favour of assessee Disallowance u/s 40(a)(ia) - though the assessee received Form No.15G for non deduction of tax the said form was not submitted to the C.I.T. - Held that - On identical issue in the case of S.S.Impex (2011 (9) TMI 927 - ITAT KOLKATA), Capital Transport Corpn (2011 (8) TMI 1068 - ITAT KOLKATA) the ITAT Kolkata Benches have held that if the assesse has received form No.15G the same has not been submitted to the appropriate authorities, no disallowance can be made u/s 40(a)(ia) of the Act. In the present case also the issue lies on the same point that Form No.15G for non deduction of tax at source has been received by the assesse but the same was not submitted before the appropriate authority i.e. CIT. Accordingly following the decision of the ITAT, Kolkata Benches (supra) no disallowance can be made u/s 40(a)(ia) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Deemed dividend received from companies where the assessee is a director.
2. Addition made under section 40(a)(ia) for failure to deduct tax at source.

Analysis:

Issue 1: Deemed Dividend
The Revenue contended that the assessee, a substantial shareholder of multiple companies, received interest-bearing loans from these companies, leading to the treatment of these loans as deemed dividends under section 2(22)(e) of the Act. The Assessing Officer (AO) considered the loans as deemed dividends due to the substantial interest held by the assessee in these companies. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition based on the decision of the Jurisdictional High Court in a relevant case. The CIT(A) held that the loans received by the assessee could not be treated as deemed dividends, citing the High Court's interpretation that loans given to shareholders as a consequence of beneficial considerations to the company do not fall under the definition of deemed dividends. The Appellate Tribunal upheld the CIT(A)'s decision, stating that the loans received by the assessee were not gratuitous and were provided in return for advantages conferred upon the companies by the shareholder. Consequently, the ground raised by the Revenue on this issue was dismissed.

Issue 2: Failure to Deduct Tax at Source
The AO disallowed certain expenses under section 40(a)(ia) for the assessee's failure to deduct tax at source, which was later deleted by the CIT(A) following decisions of the Jurisdictional Tribunal in other cases. The dispute centered on the non-submission of Form No.15G for non-deduction of tax to the Commissioner of Income Tax (CIT). The Tribunal referenced previous cases where it was held that if the assessee received Form No.15G but did not submit it to the appropriate authorities, no disallowance could be made under section 40(a)(ia) of the Act. In alignment with these precedents, the Tribunal upheld the CIT(A)'s decision to delete the disallowance made by the AO. As a result, the ground raised by the Revenue on this issue was also dismissed.

In conclusion, the appeal of the Revenue was dismissed by the Appellate Tribunal, upholding the decisions of the CIT(A) regarding both the treatment of deemed dividends and the disallowance under section 40(a)(ia) for failure to deduct tax at source.