2015 (8) TMI 1078 - AT - Income Tax

Addition on account of deemed dividend u/s 2(22)(e) - assessment framed u/s. 143(3) r.w.s. 153A - CIT(A) deleted addition - Held that - It is an undisputed fact that Smt. Maya Dokania holds 18.33% of share holding in Newton Construction Pvt. Ltd. and 42.12% share holding in Assessee company. Assessee is not a share holder in Newton Construction Pvt. Ltd. from whom it has received amount. We find that the Hon ble Special Bench in the case of ACIT vs. Bhaumik Color Pvt. Ltd. (2008 (11) TMI 273 - ITAT BOMBAY-E) has held that deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of borrowing concern in which such share holder is a member or a partner having substantial interest. Further in the case of CIT vs. Ankitech Pvt. Ltd. (2011 (5) TMI 325 - DELHI HIGH COURT) held that a concern which is given loan or advance by a company cannot be treated as shareholder/member of the company who has advanced loan simply because a shareholder of the lender company holding power of 10% or more therein has substantial interest in such concern as such loan or advance cannot be treated as deemed dividend u/s. 2(22)(e) of the Act. Considering the facts of the present case in the light of aforesaid decisions we are of the view that in the present case no addition on account of deemed dividend u/s. 2(22)(e) can be made. Further, before us, Revenue has not brought any contrary binding decision in its support nor could controvert the findings of ld. CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A). - Decided against revenue.

Summary

Issues:
- Appeal against order of CIT(A)-II, Ahmedabad for A.Y. 2003-04 & 2004-05
- Deletion of addition of deemed dividend u/s 2(22)(e) of the Income Tax Act

Analysis:
1. Background and Facts: The appellant, a construction company, faced a search action under section 132 of the Act leading to a notice u/s 153A for A.Y. 2003-04. The AO framed the assessment u/s 143(3) r.w.s. 153A determining the total income at a specific amount. The CIT(A) allowed the appeal of the Assessee against the AO's order, prompting the Revenue to appeal before the ITAT.

2. Grounds of Appeal: The Revenue challenged the deletion of addition of deemed dividend u/s 2(22)(e) by the CIT(A). The grounds of appeal included contentions regarding the application of legal precedents, interpretation of the law, and the factual circumstances of the case.

3. Arguments Before ITAT: The DR argued that the only effective ground was the deletion of deemed dividend addition. The Assessee received a significant amount from another company, triggering the application of section 2(22)(e) as per the AO. However, the CIT(A) disagreed and deleted the addition based on specific case laws.

4. ITAT Decision: The ITAT considered the shareholding structure and the legal precedents cited by both parties. It noted that the Assessee was not a shareholder in the lending company, and the deemed dividend could only be assessed in the hands of a shareholder of the lender company. Relying on the decisions of the Special Bench and the Delhi High Court, the ITAT upheld the CIT(A)'s decision to delete the addition of deemed dividend.

5. Outcome: The ITAT dismissed the Revenue's appeal for both A.Y. 2003-04 and 2004-05, as the facts and legal principles were identical in both cases. The judgments delivered by the ITAT emphasized the importance of shareholding structure in determining the applicability of deemed dividend provisions under section 2(22)(e) of the Income Tax Act.

This comprehensive analysis highlights the key legal issues, arguments presented, and the final decision rendered by the ITAT in the context of the appeal against the order of the CIT(A) regarding the deletion of deemed dividend addition.