2015 (2) TMI 65 - AT - Income Tax

Deemed dividend - CIT(A) deleted the addition made by the AO u/s. 2(22)(e) - Held that - Find considerable cogency in the contention of the Ld. Counsel of the assessee that the issue in dispute in the present case has been squarely covered in favor of the assessee by the decision of the Hon ble Delhi High Court in CIT vs. Ankitech P Ltd. 2011 (5) TMI 325 - DELHI HIGH COURT stating that the legal fiction of section 2(22)(e) does not extend to shareholder . The fiction is not to be extended further for broadening the concept of shareholders. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made by the AO under Section 2(22)(e) of the Income Tax Act, 1961.
2. Validity of the CIT(A)'s order on facts and in law.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 2(22)(e):

The Revenue appealed against the deletion of an addition of Rs. 10,91,340/- made by the Assessing Officer (AO) under Section 2(22)(e) of the Income Tax Act, 1961. The AO had included this amount as deemed dividend in the hands of the assessee, which was contested by the assessee on the grounds that it was not a registered shareholder of the payer company, M/s. Sunglow Overseas Pvt. Ltd.

The CIT(A) deleted the addition, citing several judicial precedents, including:
- CIT vs. Universal Medicare Pvt. Ltd. [2010] 324 ITR 263 (Bom.)
- CIT vs. Ankitech Pvt. Ltd. [2011] 11 taxmann.com 100 (Delhi)
- CIT vs. Navyug Promoters Pvt. Ltd. [2011] 16 taxmann.com 292 (Delhi)
- CIT vs. MCC Marketing Pvt. Ltd. [2011] 16 taxmann.com 411 (Delhi)

The CIT(A) concluded that the deemed dividend under Section 2(22)(e) could only be taxed in the hands of the registered shareholder. Since the appellant company was not a shareholder in M/s. Sunglow Overseas Pvt. Ltd., the addition was not justified.

2. Validity of the CIT(A)'s Order:

The Tribunal reviewed the CIT(A)'s order and the arguments presented by both parties. The Tribunal noted the reliance on the decision in ACIT vs. ISG Estate (P) Ltd. ITA No. 1532/Del/2013 (A.Y. 2006-07), which followed the Delhi High Court's decision in CIT vs. Ankitech Pvt. Ltd. [2011] 11 Taxmann.com 100 (Delhi). The Tribunal reiterated that the legal fiction created under Section 2(22)(e) extends only to the definition of "dividend" and not to the "shareholder". Therefore, the deemed dividend could not be taxed in the hands of a non-shareholder.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the appellant company was not a shareholder of the payer company, and thus, the addition under Section 2(22)(e) was not applicable. The Tribunal found no reason to interfere with the CIT(A)'s well-reasoned order, which was based on binding judicial precedents.

Conclusion:

The Tribunal dismissed the Revenue's appeal, confirming that the addition of Rs. 10,91,340/- under Section 2(22)(e) was not taxable in the hands of the assessee, as it was not a shareholder of the payer company. The CIT(A)'s order was upheld, and the appeal by the Revenue was dismissed.