2017 (12) TMI 373 - AT - Income Tax

Deemed dividend addition made u/s 2(22)(e) - percentage of beneficial holding - Held that - As perused the list containing details of share holding of the company duly certified by the Company Secretary which is on record. As per the same, the share holding of the appellant is only 9% but this fact has to be verified by the authorities below. The assessee has submitted the additional evidence before the ld. CIT(A) which was accepted. We find sufficient cause for not submitting documents before the Assessing Officer in this regard and the ld. CIT(A) should have admitted the additional evidence and should have examined the same by taking remand report from the Assessing Officer. Therefore, CIT(A) is directed to admit the additional evidence furnished by the ld. counsel for the assessee with regard to share holding of the company which is claimed to be 9% instead of 50% in all the years and decide the case de novo by affording adequate opportunity of being heard to the assessee. Accordingly the appeal of the assessee for assessment year 2006-07 is allowed for statistical purposes.

Summary

Issues:
1. Additional ground of appeal on deemed dividend under section 2(22)(e) of the Income Tax Act.
2. Disallowance of expenses under section 11 of the Income Tax Act.

Detailed Analysis:

1. Additional Ground of Appeal on Deemed Dividend:
The assessee sought permission to raise an additional ground of appeal challenging the addition made on account of deemed dividend under section 2(22)(e) of the Income Tax Act. The contention was that the AO did not confront the assessee during the assessment proceedings, violating principles of natural justice. The assessee's shareholding in the company was claimed to be below 10%, contrary to the AO's assertion of 50% beneficial holding. The application under Rule 10 and Rule 29 of the ITAT Rules was filed along with an affidavit to support the claim. The Tribunal admitted the additional ground, considering it a question of law without requiring fresh material or evidence, citing relevant case law and the interest of justice.

2. Disallowance of Expenses under Section 11:
The CIT(A) sustained a disallowance of 10% out of total expenditure incurred by the appellant towards lease rent, management fees, and other expenses for running the hospital, as against the Assessing Officer's disallowance of 25%. The appellant contended that the CIT(A) erred in sustaining the disallowance and argued that the CIT(A) should not have addressed the alternative ground raised after allowing the main ground of exemption under section 11. The Tribunal admitted the additional ground of appeal related to the disallowance, considering it a question of law without the need for factual verification. The Tribunal directed the CIT(A) to decide the issue de novo for all assessment years, remanding the appeals back for further consideration.

In conclusion, the Tribunal allowed all five appeals of the assessee for statistical purposes, directing a fresh assessment by the CIT(A) based on the issues raised, including the deemed dividend and the disallowance of expenses under section 11.