2018 (1) TMI 1157 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - Held that - The fact that the amount had been advanced as loan from M/s Beehive Technologies Private Limited is undisputed. It is also undisputed that the assessee is not a shareholder in M/s Beehive Technologies Private Limited. The Assessing Officer has also noted that on perusal of bank statement, it was found that Shri Tushar Kothari i.e. the assessee had received payment of ₹ 10 lakh in his HDFC account from M/s Beehive Technologies Private Limited. Thus, it is very much evident that the impugned amount has not been given by M/s Beehive Systems Private Limited in which the assessee is a shareholder. See CIT Versus ANKITECH PVT LTD. & OTHERS 2011 (5) TMI 325 - DELHI HIGH COURT - Decided in favour of assessee

Summary

Issues:
- Addition of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961.
- Validity of reassessment under section 147 r.w. section 143(3) of the Act.
- Treatment of payment received from M/s Beehive Technologies Private Limited as deemed dividend.
- Applicability of Section 2(22)(e) in the case where the assessee is not a shareholder in the payer company.

Analysis:

1. Addition of Deemed Dividend:
The appeal was against the addition of ?10 lakh as deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961. The Assessing Officer added the amount based on information that the assessee received a loan from M/s Beehive Systems Private Limited. However, the assessee argued that the amount was received from M/s Beehive Technologies Private Limited, in which he was not a shareholder. The Delhi High Court judgments cited emphasized that for Section 2(22)(e) to apply, the recipient must be a shareholder of the payer company. The Tribunal found that the assessee was not a shareholder in M/s Beehive Technologies Private Limited, and thus, the addition was unjustified.

2. Validity of Reassessment:
The assessee challenged the reassessment under section 147 r.w. section 143(3) of the Act, contending that it was solely based on internal information. However, the Tribunal did not find merit in this argument as the focus was on the incorrect application of Section 2(22)(e) rather than the reassessment process itself.

3. Treatment of Payment from M/s Beehive Technologies Private Limited:
The key contention was whether the payment received from M/s Beehive Technologies Private Limited should be considered deemed dividend. The Tribunal ruled that since the assessee was not a shareholder in that company, the provisions of Section 2(22)(e) did not apply, aligning with the legal principles established in the cited judgments.

4. Applicability of Section 2(22)(e) without Shareholder Status:
The crux of the matter revolved around the interpretation of Section 2(22)(e) concerning shareholders and deemed dividends. The Tribunal, guided by the Delhi High Court's decision, emphasized that the provisions of Section 2(22)(e) could not be invoked if the recipient was not a shareholder in the payer company. This interpretation led to the direction to delete the addition made by the Assessing Officer.

In conclusion, the Tribunal allowed the appeal, setting aside the addition of deemed dividend and directing the Assessing Officer to delete the said addition. The decision was based on the clear interpretation of Section 2(22)(e) and the absence of shareholding by the assessee in the payer company.