2018 (10) TMI 1942 - AT - Income Tax

Addition u/s 68 - Bogus share application money - HELD THAT - Hon ble Delhi High Court had an occasion to consider an identical issue in the case of CIT Vs. Usha Stud Agriculture Farms Ltd. 2008 (3) TMI 91 - DELHI HIGH COURT wherein it was held that addition should not be made in respect of cash credit if the same was received during the year under consideration. In the instant case also the Assessing Officer was not justified in law in making addition during the year under consideration since the assessee has not received impugned share application money during the year under consideration. Accordingly we set aside the order passed by the learned CIT(A) and direct the Assessing Officer to delete the addition made u/s. 68. Addition u/s. 2(22)(e) - Deemed dividend addition - HELD THAT - Cause of action u/s. 2(22)(e) of the Act shall arise in the hands of the shareholder and not in the hands of the company which paid loan or advance to shareholder. In the instant case the assessee-company has paid money to its shareholder as advance and hence the cause of action u/s. 2(22)(e) of the Act if any shall arise in the hands of the shareholders only. However we notice that the Assessing Officer has invoked provisions of section 2(22)(e) of the Act in the hands of assessee-company which is not in accordance with law. Accordingly the learned CIT(A) was not justified in confirming the addition made by the Assessing Officer. Accordingly we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to delete the addition made u/s. 2(22)(e). Appeal of assessee allowed.

Summary

Issues:
1. Addition of share application money u/s. 68 of the Income Tax Act.
2. Addition of deemed dividend u/s. 2(22)(e) of the Act.

Issue 1: Addition of Share Application Money u/s. 68:
The assessee had shown receipt of share application money in the balance sheet, which was received in the financial year 2001-02. The Assessing Officer assessed this sum as income u/s. 68 of the Act since the assessee did not provide a satisfactory explanation. The assessee contended that the money was received in earlier years and had been accepted in previous assessments. The CIT(A) upheld the addition under section 41(1) as shares were not allotted against the money. However, the Tribunal noted that the money was not received in the year under consideration and cited a Delhi High Court case where it was held that additions should not be made for cash credits received in a different year. Consequently, the Tribunal directed the Assessing Officer to delete the addition u/s. 68.

Issue 2: Addition of Deemed Dividend u/s. 2(22)(e):
The Assessing Officer added sums due to the assessee from two directors as deemed dividend u/s. 2(22)(e) since they held a significant share in the company. However, the Tribunal observed that the cause of action u/s. 2(22)(e) arises in the hands of the shareholder, not the company. As the company had paid money to the shareholders as advances, the Tribunal held that the Assessing Officer incorrectly applied the provision to the company. Consequently, the Tribunal directed the Assessing Officer to delete the addition made u/s. 2(22)(e) of the Act.

In conclusion, the appeal filed by the assessee was allowed, and the Tribunal directed the Assessing Officer to delete both the addition of share application money u/s. 68 and the deemed dividend u/s. 2(22)(e) made in the original assessment. The Tribunal's decision was based on the legal interpretation of the relevant provisions of the Income Tax Act and the specific circumstances of the case.