2016 (6) TMI 327 - AT - Income Tax

Deemed dividend u/s. 2(22)(e) - Held that - In the present case, the assessee is holding 10,99,300 shares in M/s. Mega Resources Ltd as per register produced by the assessee before the lower authorities. This fact was examined by the Tribunal in the above case. When the assessee is holding the shares as indicated above, which comes to less than 10% of total equity shares of M/s. Mega Resources Ltd., the reasoning of the AO as it is noticed from the assessment order that both the assessee and M/s. Mega Resources Ltd are closely holding shares belonging to same to avoid the tax. But, no contrary evidence brought on record against to the assessee s claim. In the light of the observations made by the Tribunal in assessee s own case and also following the principle laid down by the Special Bench, ITAT, Mumbai in the case of Bhaumik Color P.Ltd (2008 (11) TMI 273 - ITAT BOMBAY-E ), we are of the view that the CIT was not justified in confirming the order of the AO in making additions. - Decided in favour of assessee TDS u/s 194A - Addition made u/s. 40(a)(ia) - interest paid to a party without deducting TDS - Held that - Considering the case of the assessee that the interest paid to M/s Methoni Tea Ltd on unsecured loan and debited to the P/L account and did not deduct the tax U/Sec 194A of the Act, we hold that the assessee cannot be a defaulter in view of the first proviso to section 201(1) r/w second proviso to section 40(a)(ia) of the Act. The second proviso to Section 40(a)(ia) is declaratory and curative in nature having retrospective effect from 01-04-2005 and the case on hand being for A.Y 2005-06, in our view, the matter shall go back to AO. Therefore, we remand ground no. 3 to AO for examination and for verification of the required details of the resident i.e M/s Methoni Tea Ltd and direct the assessee to cooperate in completing the assessment.- Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Validity of the assessment order passed by the AO during the pendency of the appeal before the Tribunal.
2. Addition of ?4,10,00,000 as deemed dividend under Section 2(22)(e) of the Income Tax Act.
3. Disallowance of interest of ?6,30,000 under Section 40(a)(ia) for failure to deduct tax at source.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order:
The appellant contended that the assessment order passed by the AO on 17-08-2011 was invalid due to the pending appeal before the Tribunal (ITA No.549/Kol/2011). The Tribunal referred to the relevant provisions of Section 153(2A) of the Income Tax Act, which prescribes the time limit for completing assessments and reassessments. It concluded that the AO is required to give effect to the order passed by the CIT under Section 263 of the Act, irrespective of the pending appeal before the Tribunal. The assessment made by the AO was deemed valid, and the ground raised by the assessee was dismissed.

2. Addition as Deemed Dividend:
The AO added ?4,10,00,000 to the assessee's income as deemed dividend under Section 2(22)(e) of the Act, based on the assessee's shareholding in M/s. Mega Resources Ltd. The CIT confirmed the addition, referencing the earlier decision in the assessee's own case for AY 2005-06. The assessee argued that this issue was covered by the Tribunal's earlier order, which followed the Special Bench decision in ACIT Vs. Bhaumik Colors Pvt. Ltd. The Tribunal found that the assessee held registered shares amounting to 10,99,300, which was less than the 10% threshold for deemed dividend. Consequently, the Tribunal deleted the addition, reversing the lower authorities' orders, and allowed the ground raised by the assessee.

3. Disallowance of Interest under Section 40(a)(ia):
The AO disallowed ?6,30,000 paid as interest to M/s. Methoni Tea Ltd for failure to deduct tax at source under Section 40(a)(ia). The CIT(A) confirmed this disallowance. The assessee argued that the second proviso to Section 40(a)(ia), inserted by the Finance Act 2012, should apply retrospectively. The Tribunal referred to the Delhi High Court's decision in CIT-1 Vs. Ansal Land Mark Township(P) Ltd, which held that the second proviso is declaratory and curative, having retrospective effect from 01-04-2005. The Tribunal remanded the matter back to the AO for verification of the details of M/s. Methoni Tea Ltd and directed the assessee to cooperate in completing the assessment. This ground was allowed for statistical purposes.

Conclusion:
The Tribunal dismissed the first ground, allowed the second ground by deleting the addition of deemed dividend, and remanded the third ground for further verification. The appeal was partly allowed.