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Issues involved: Determination of deemed dividend income u/s 2(22)(e) of the Income Tax Act, 1961 for an individual shareholder holding shares in two companies.
Summary: The appeal was filed by the Revenue against the order passed by the ld. CIT(A) for the A.Y. 2006-07 regarding the taxation of deemed dividend income u/s 2(22)(e) of the Act. The A.O. issued a show cause notice to the assessee based on the loan advanced by one company to another, in which the assessee held shares. The A.O. concluded that the assessee's case fell under category II u/s 2(22)(e) and taxed the loan amount. However, the ld. CIT(A) deleted the addition after considering relevant case law and lack of substantial interest by the assessee in both companies. The Revenue appealed the decision of the ld. CIT(A) on the grounds that substantial interest as defined in section 2(32) should be considered for taxation u/s 2(22)(e), and the ld. CIT(A) erred in relying on a decision that was overruled by the Delhi High Court. During the hearing, the counsel for the assessee argued that the shareholder did not meet the criteria for deemed dividend income as per the Act and cited relevant case law to support their position. The Tribunal upheld the ld. CIT(A)'s decision based on the lack of substantial interest by the assessee in both companies, in line with previous rulings and the decision of the Special Bench. In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the decision of the ld. CIT(A) to delete the addition made by the A.O. The Tribunal's decision was based on the lack of substantial interest by the assessee and the binding nature of the relevant case law. Judgment delivered on: 5-10-2012.
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