2020 (1) TMI 1513 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - Substantial interest - two assessees namely Shri Aloke Kumar Ghosh and Shri Partha Sarathi Mondal are directors in a company namely M/s. Spandan Advance Medicare Pvt. Limited holding its 16% share each - HELD THAT - No merit in Revenue s stand invoking section 2(22)(e) deemed deduction of dividend under challenge. The fact remains that although the company hereinabove has paid for purchasing land(s) in the two assessees/directors names having 16% shares, the said lands form part of company s balance-sheet only as its assets than that of these two assessees. The said company s resolution(s) to this effect also indicates that these directors would not enjoy any right in the land. Smt. Biswas at this stage sought to justify the lower authorities action that if these two assessees/directors sell the land in future, that sum would indeed be in the nature of deemed dividends only - find no substance in the instant last argument as well as the land in question purchased in these two directors names cannot be taken as a payment per se as well - therefore, direct the Assessing Officer to delete the impugned addition(s) made in these two assessees cases. - Decided in favour of assessee.

Summary

Issues:
- Appeal against deemed dividend addition under section 2(22)(e) for the assessment year 2015-16.

Analysis:
- The judgment pertains to two separate appeals by different assessees against the Commissioner of Income Tax (Appeals)-11, Kolkata's orders upholding the Assessing Officer's deemed dividend additions under section 2(22)(e) for the assessment year 2015-16. The appeals were heard by the Appellate Tribunal ITAT Kolkata.
- The factual matrix in both appeals was found to be identical. The assessees, who were directors in a company, had land purchased in their names by the company, leading to the Assessing Officer treating the transaction as deemed dividend income under section 2(22)(e).
- The Appellate Tribunal, after hearing arguments from both parties, found no merit in upholding the deemed dividend additions. It was noted that the lands purchased in the directors' names were part of the company's assets and not the personal holdings of the directors. The company's resolution also clarified that the directors did not have any right in the land.
- The Tribunal rejected the Revenue's argument that if the directors sold the land in the future, it would be deemed dividends. It was emphasized that the land purchase in the directors' names cannot be considered a "payment." Consequently, the Tribunal directed the Assessing Officer to delete the deemed dividend additions in both assessees' cases.
- No other arguments were raised during the hearing, and the appeals of the assessees were allowed. The order was pronounced in open court on January 31, 2020.