2016 (3) TMI 443 - AT - Income Tax

Deemed dividend addition u/s. 2(22)(e) - Held that - From the evidence available on record it is clear that the actual transfer of shares took place only on 30.8.2008. The wrong mention of date in the annual return filed by GCP was the only basis on which the entire addition has been made. The Annual return has since been rectified by GCP by mentioning the correct date of transfer of 20,000 shares in the name of the Assessee as 30.8.2008. The other documentary evidence showed that there was legal transfer of 20000 shares of GCP in the name of the Assessee only on 30.8.2008. In the given facts and circumstances, we are of the view that the mere claim of the revenue that all the documents are not contemporaneous and have been brought about by the Assessee to get over the rigours of Sec.2(22)(e) of the Act cannot be accepted. In this regard it is seen that even in the remand proceedings the AO did not make any enquiries nor examined concerned persons to establish his case. In such circumstances, we are of the view that the order of the CIT(A) deleting the addition does not call for any interference. - Decided in favour of assessee

Summary

Issues:
- Appeal by Revenue against deletion of deemed dividend addition
- Interpretation of provisions of section 2(22)(e) of the Income Tax Act, 1961
- Assessment of substantial interest in a company based on shareholding
- Treatment of advance or loan under section 2(22)(e) of the Act
- Consideration of revised annual return and legal transfer of shares
- Application of the decision in Praveen Bhimshi Chheda Shiv Sadan vs DCIT

Analysis:
The case involved an appeal by the Revenue against the deletion of a deemed dividend addition under section 2(22)(e) of the Income Tax Act, 1961. The Assessing Officer (AO) found that the Assessee, an individual and director of a company, held a substantial interest in the company based on shareholding information obtained from the Ministry of Corporate Affairs (MCA). The AO concluded that the Assessee had received an advance from the company, which should be treated as deemed dividend under section 2(22)(e) of the Act.

The Assessee contended that the share transfer date mentioned in the annual return was incorrect and was subsequently rectified. The Assessee argued that the advance received was returned without utilization, and therefore, should not be considered a loan or advance under section 2(22)(e) of the Act. The Assessee relied on a decision by the ITAT Mumbai Bench regarding similar transactions.

The CIT(A) considered the revised annual return and legal transfer of shares, concluding that the Assessee did not have substantial interest in the company and that the advance was not a loan or advance within the meaning of section 2(22)(e) of the Act. The CIT(A) also referred to the decision in Praveen Bhimshi Chheda Shiv Sadan vs DCIT to support the deletion of the addition made by the AO.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the actual transfer of shares occurred on a later date than initially mentioned in the annual return. The Tribunal found that the documents presented by the Assessee supported the legal transfer of shares and that the AO did not conduct sufficient enquiries to establish their case. Therefore, the Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order.

In conclusion, the Tribunal's decision highlighted the importance of accurate documentation and legal transfer of shares in determining the applicability of section 2(22)(e) of the Act. The case underscored the need for thorough investigation and adherence to legal procedures in assessing deemed dividends and substantial interests in companies.