2018 (1) TMI 993 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - company M/s. First Tek Pvt. Ltd. had advanced a sum of ₹ 35 lakhs to M/s. Vijetha Constructions which in turn has executed promissory note in favour of the assessee, thereby derived the benefit of advance to M/s Vijetha Constructions from the company in which the assessee has substantial interest - Held that - The deemed dividend is applicable in circumstances of payment made by the company to the shareholder, having beneficial ownership of 10% or more than 10% of the shares, the amount should have been provided by way of loan or advance to shareholder and such amount should be for the benefit of the shareholder and the company should have sufficient reserves. In the instant case, it is established that the payment of ₹ 35 lakhs by cheque No.685243 was towards the consideration for purchase of flat from M/s. Vijetha Constructions by M/s. First Tek Pvt. Ltd and none of the conditions or clauses discussed above are applicable in the case of the assessee - benefit out of payment made to M/s. Vijetha Constructions by M/s. First Tek Pvt. Ltd, hence, no case for holding the amount as deemed dividend - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of addition of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961.

Analysis:
1. The appeals were filed against orders of the Commissioner of Income Tax (Appeals) related to the assessment year 2008-09. The appeals were clubbed together due to identical facts and common issues.
2. The primary issue revolved around the addition of ?35 lakhs as deemed dividend u/s 2(22)(e) of the Act. The Assessing Officer (A.O.) invoked the provision based on a promissory note found during a search, indicating a transaction between the assessee and M/s. Vijetha Constructions.
3. The CIT(A) deleted the addition, considering the transactions as sale and purchase, not finance or loan transactions. The revenue appealed to the ITAT.
4. The Departmental Representative (D.R.) argued that the assessee derived monetary benefit from the transaction, justifying the A.O.'s decision. The Authorized Representative (A.R.) relied on the CIT(A)'s order.
5. The ITAT examined the seized materials and sale deeds presented. It was established that the promissory note was a security for the payment made by M/s. First Tek Pvt. Ltd. to M/s. Vijetha Constructions, not a deemed dividend to the assessee.
6. In another appeal, a similar promissory note was found, and the A.O. held it as deemed dividend. However, following the precedent set in a related case, the ITAT upheld the CIT(A)'s decision to delete the addition.
7. The ITAT dismissed both appeals, concluding that the payments were made for the purchase of flats and not deemed dividends, in line with the CIT(A)'s orders.

This detailed analysis provides a comprehensive overview of the legal judgment, covering the issues involved and the reasoning behind the decisions made by the authorities and the ITAT.