2010 (1) TMI 1243 - AT - Income Tax

Summary

Issues involved: Appeal against CIT(A) order directing deletion of addition made u/s 2(22)(e) of the IT Act, 1961 regarding share application money received by the assessee company.

Facts of the case: The assessee, a company engaged in investment activities, received share application money of Rs. 4.42 crores from Optimum Stock Trading Co. Pvt. Ltd. in February 2005. The money was intended for issuing equity and preference shares, reflected in the balance sheet as "Share application money." The AO incorrectly stated the assessee was a shareholder of Optimum Stock Trading Co. Pvt. Ltd., but the company did not hold any shares. Preference shares of Rs. 2 crores were allotted, and the remaining money was returned due to failed agreement on equity shares. The AO treated the amount as a deemed dividend u/s 2(22)(e) of the Act due to alleged collusive nature of transactions.

Decision: The first appellate authority relied on a Tribunal decision and concluded that the money was share application money, not a loan, and cannot be deemed as dividend. The Tribunal upheld this decision, emphasizing that the money was utilized for share allotment, citing a Supreme Court case to support the finding. The factual utilization of the money for shares was not disputed by the Revenue, leading to the dismissal of the appeal.

Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the first appellate authority's decision regarding the treatment of share application money, emphasizing its utilization for share allotment and rejecting the deemed dividend classification.