2014 (3) TMI 295 - AT - Income Tax

Deemed dividend u/s 2(22)(e) of the Act Held that - The decision in Commissioner of Income Tax Versus Navyug Promoters (P) Ltd. 2011 (11) TMI 318 - Delhi High Court followed - Legal provision relates to dividend, loan or advance given under the conditions specified under Section 2(22)(e) of the Act would be treated as dividend - By a deeming provision, it is the definition of dividend which is enlarged and is not to be extended further for broadening the concept of shareholder - an assessee who is not a shareholder of the company, from which it received a loan or an advance cannot be treated as being covered by the definition of the word dividend as provided in Sec.2(22)(e) of the Act - Decided Against Revenue.

Issues:
1. Taxability of amount received by the assessee company from M/s B.R. Arora & Associates Pvt. Ltd. as deemed dividend under section 2(22)(e) of the Income-tax Act.
2. Consideration of CBDT circular No.495 dated 22/09/1987.
3. Classification of the amount received as an advance or a loan.
4. Admissibility of fresh grounds of appeal.

Analysis:
1. The primary issue in this case revolved around the taxability of the amount received by the assessee company from M/s B.R. Arora & Associates Pvt. Ltd. as deemed dividend under section 2(22)(e) of the Income-tax Act. The Revenue contended that the amount should be taxable as deemed dividend due to the shareholding pattern of Shri B.R. Arora in both companies. However, the ITAT, in line with its decision in the assessee's own case for AY 2006-07, ruled that the assessee company did not hold the required percentage of shares in the lender companies as prescribed in Section 2(22)(e), thereby upholding the order of the CIT(A) in favor of the assessee.

2. The Revenue argued that the CIT(A) erred in not considering CBDT circular No.495 dated 22/09/1987, which expanded the scope of deemed dividend taxable under section 2(22)(e). However, the ITAT emphasized that the decision of the Special Bench of the Tribunal held precedence over any contrary decisions by division benches. Consequently, the ITAT declined to interfere with the CIT(A)'s order based on the Special Bench's ruling, thereby reinforcing the non-taxability of the amount as deemed dividend.

3. Another aspect of the case involved determining whether the amount received was an advance or a loan. The ITAT noted a collusion between the assessee and M/s B.R. Arora & Associates Pvt. Ltd. to portray the amount as an advance against property when it was, in fact, a loan. Despite this observation, the ITAT's decision primarily hinged on the shareholding criteria under section 2(22)(e) rather than the nature of the transaction.

4. Lastly, the issue of allowing fresh grounds of appeal was raised by the appellant. However, the ITAT, guided by the decisions of the Special Bench and the Jurisdictional High Court, upheld the order of the CIT(A) and dismissed the appeal filed by the Revenue. The decision was pronounced in favor of the assessee on 28th February 2014.

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