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2015 (11) TMI 1764 - AT - Income TaxDeemed dividend addition u/s 2(22)(e) - granting of loan formed substantial part of its business - Held that - As decided when once the business of the lender company covered by exception (ii) to section 2(22)(e) of the Income Tax Act, then the provisions of section 2(22)(e) will not be applicable. As per section 2(22)(iii), the loans granted did not fall within the definition of dividend and therefore, we find no infirmity in the orders of the ld. CIT(A) to be interfered with. Hence, we confirm the same - decided against revenue Addition under section 68 -share application money treating the same as unexplained cash credits - Held that - From the details and documents filed by the concerned share subscribers, it was held by the Assessing Officer that their identity and capacity as well as the genuineness of the relevant transactions were duly established and no addition under section 68 was called for. Keeping in view these submissions made by the ld. Counsel for the assessee, which have not been disputed or controverted by the ld. D.R., we find no justifiable reason to interfere with the impugned order of the ld. CIT(Appeals) deleting the addition - decided against revenue
Issues Involved:
1. Addition of Rs. 13,33,656/- as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. 2. Deletion of Rs. 1,35,00,000/- as share application money under section 68 treating the same as unexplained cash credits. Detailed Analysis: Issue 1: Addition of Rs. 13,33,656/- as Deemed Dividend under Section 2(22)(e) The assessee, a company involved in the manufacture and sale of aluminum/alloys coil/rod, filed a return declaring a loss of Rs. 2,84,595/-. During assessment, the Assessing Officer (AO) noted that the assessee received Rs. 2,00,00,000/- from its sister concern, M/s. Maa Bhuasuni Industries Pvt. Ltd. (MBIPL), and added Rs. 13,33,656/- as deemed dividend under section 2(22)(e) based on MBIPL's accumulated profit. The CIT(A) confirmed this addition. Upon appeal, it was found that MBIPL was regularly engaged in granting loans and derived substantial interest income, making it a business of granting loans. The Tribunal had previously deleted a similar addition on the grounds that MBIPL's business of granting loans fell under the exception provided in section 2(22)(iii), which excludes loans made in the ordinary course of business from being treated as dividends. This precedent was applied, and the addition of Rs. 13,33,656/- was deleted, favoring the assessee. Issue 2: Deletion of Rs. 1,35,00,000/- as Share Application Money under Section 68 The AO observed that the assessee received Rs. 2,00,00,000/- as share application money from twelve companies, with letters sent to eight returning undelivered. Despite confirmations and share application forms provided by the assessee, the AO treated Rs. 1,35,00,000/- as unexplained cash credits under section 68. The CIT(A) deleted this addition, noting that the companies had been in existence for 8-10 years, were on record with the Income Tax Department, and the transactions were through banking channels. The CIT(A) found the AO's objections regarding address changes, signature differences, and timing of share applications to be insufficient grounds for the addition. Legal precedents such as CIT Vs. Stellar Investment Ltd and CIT Vs. Makhani and Tyagi (P) Ltd were cited, emphasizing that identity and genuineness were established, and any further inquiry should have been conducted by the AO. The Tribunal upheld the CIT(A)'s decision, noting that the AO had accepted similar share capital transactions in other group companies after verification during a search operation. The identity, capacity, and genuineness of the transactions were established, and no addition under section 68 was warranted. Conclusion: The appeal of the assessee regarding the addition of Rs. 13,33,656/- as deemed dividend was allowed, and the addition was deleted. The appeal of the Revenue against the deletion of Rs. 1,35,00,000/- as share application money was dismissed, upholding the CIT(A)'s decision. The order was pronounced in open court on November 27, 2015.
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