2015 (6) TMI 1247 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - money was received by M/s Laxmi Diamond from the director which is to be kept in a separate account and the loan given to the assessee was given in the capacity of a share-holder which is to be assumed a deemed dividend - According to the assessee, there is debit balance in the accounts of the company rather it is the assessee who has to receive from the company, thus the company has no credit balance in the accounts of the assessee section 2(22)(e) is not applicable - CIT-A deleted the addition - HELD THAT - If we take a consolidated figure of all the accounts then it is the assessee, whose credit balance is there in the company. AO has treated the account in the name of director separately and did not consider the credit balance along with the account in the capacity of share holder. Thus, there is no disparity on facts. The identical issue was considered in the case of assessee s farther. Therefore, respectfully following the decision of Hon ble jurisdictional High Court 2014 (4) TMI 1290 - GUJARAT HIGH COURT we do not see any reason to interfere in the finding of ld. Commissioner of Income Tax (Appeals). - Decided against revenue.

Summary

Issues:
Appeal against deletion of addition under section 2(21)(e) of the Income Tax Act.

Analysis:
The appeal was filed by the revenue against the deletion of an addition of Rs. 18,45,25,001/- under section 2(21)(e) of the Income Tax Act by the Commissioner of Income Tax (Appeals) for the Assessment Year 2008-09. The Assessing Officer had added this amount as deemed dividend due to a credit balance of a company in the accounts of the assessee, who was a director in the company. The key contention was whether the provisions of section 2(21)(e) were applicable in this case.

The provisions of section 2(21)(e) of the Income Tax Act were examined in detail. The section defines "dividend" to include payments made by a company to a shareholder, a concern in which the shareholder has substantial interest, or on behalf of such shareholders. The section also specifies conditions that must be met before invoking section 2(21)(e), including the company not being substantially interested to the public, the shareholder holding at least 10% voting power, and the company possessing accumulated profits at the time of the loan.

The Tribunal considered the facts of the case where the assessee had a credit balance in the company, contrary to the Assessing Officer's view. The Tribunal relied on a decision of the High Court that found the provisions of section 2(21)(e) not applicable when the fundamental condition of a payment by the company was not established. The Tribunal concluded that the provisions of section 2(21)(e) did not apply in this case as the assessee's credit balance in the company did not meet the criteria for deemed dividend.

Based on the precedent set by the High Court and the factual analysis of the case, the Tribunal dismissed the revenue's appeal, upholding the decision of the Commissioner of Income Tax (Appeals) to delete the addition under section 2(21)(e) of the Income Tax Act for the Assessment Year 2008-09. The Tribunal's decision was in line with the interpretation of the law and the specific circumstances of the case, ensuring consistency with legal principles and precedents.