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2021 (2) TMI 1232 - AT - Income TaxDeemed dividend u/s. 2(22)(e) - inter corporate deposit to the assessee company - CIT(A) has deleted the addition holding that assessee company was not a registered share holder of J.P. Escon Ltd. after placing reliance on the various judicial pronouncements - HELD THAT - As it is undisputed fact that assessee company was not a registered share holder in J.P. Escon Ltd. from whom it has obtained loan during the year under consideration. Therefore, the addition made by the Assessing Officer as deemed dividend u/s. 2(22)(e) of the Act is not justified. In the light of the above facts and findings, we do not find any infirmity in the decision of ld. CIT(A), therefore, this appeal of the revenue is dismissed.
Issues Involved:
1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend. 2. Determination of whether the assessee company was a registered shareholder in the lender company. Issue-wise Detailed Analysis: 1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend: The primary issue in the appeal was whether the amount of ?3,30,50,859/- received by the assessee company from J.P. Escon Ltd. should be treated as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The Assessing Officer (AO) argued that this amount should be treated as deemed dividend because there were common shareholders holding substantial interest in both companies. The AO's position was that the provisions of Section 2(22)(e) were applicable due to the substantial common shareholding of Shri Pravin Kotak and Shri Amit Gupta in both companies. However, the assessee contended that the provisions of Section 2(22)(e) were not applicable as the assessee company was not a shareholder in J.P. Escon Ltd. The assessee further argued that the transaction was an inter-corporate deposit (ICD) and not an advance or loan, and that interest expenses were accounted for with necessary TDS deductions and repayments. The CIT(A) allowed the appeal of the assessee, relying on various judicial pronouncements, including the decision of the Special Bench of ITAT Mumbai in the case of ACIT vs. Bhaumik Colour (P.) Ltd. and the Gujarat High Court decision in CIT vs. Daisy Packers (P.) Ltd. These decisions established that deemed dividend under Section 2(22)(e) could only be assessed in the hands of a person who is a shareholder of the lender company, not in the hands of a person other than the shareholder. 2. Determination of whether the assessee company was a registered shareholder in the lender company: The CIT(A) and later the ITAT confirmed that the assessee company was not a registered shareholder of J.P. Escon Ltd., which provided the inter-corporate deposit. The CIT(A) held that the addition made by the AO under Section 2(22)(e) was not justified and deleted the same. The ITAT upheld this decision, referencing the Gujarat High Court’s decision in Pr. CIT vs. Mahavir Inducto Pvt. Ltd. and other similar cases, which clarified that for Section 2(22)(e) to apply, the assessee must be a shareholder in the company from which the loan or advance is taken. The ITAT concluded that since the assessee company was not a registered shareholder in J.P. Escon Ltd., the addition made by the AO as deemed dividend under Section 2(22)(e) was not justified. Therefore, the appeal filed by the revenue was dismissed, and the cross-objection filed by the assessee became infructuous and was also dismissed. Conclusion: The ITAT dismissed the revenue's appeal, confirming that the provisions of Section 2(22)(e) of the Income Tax Act, 1961, regarding deemed dividend, could not be applied to the assessee company as it was not a registered shareholder in the lender company, J.P. Escon Ltd. The cross-objection filed by the assessee was also dismissed as it became infructuous following the dismissal of the revenue's appeal. The judgment emphasized the necessity for the assessee to be a shareholder in the lender company for the provisions of Section 2(22)(e) to be applicable.
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