2018 (6) TMI 1123 - HC - Income Tax

Treating the loan received as deemed dividend under Section 2(22)(e) - reopening of assessment - Held that - If the assessee had made such transfers and registered it with the Company as stipulated under the Companies Act, 1956, specifically Sections 108 to 112 dealing with transfer of shares and debentures, necessarily the transfer would have been registered by the Company and share certificates issued in the name of the transferee. If that was done, it would find reflection in the annual returns filed by the Company. The annual returns, however, shows the assessee holding 328 shares. Obviously, the documents produced by the assessee were cooked up and the revision of returns said to have been filed before the Registrar of Companies, was subsequent to the notice issued under Section 147; an afterthought to wriggle out of the liability. All the authorities having concurred on facts, we do not find any reason to interfere with the orders. No question of law arises from the orders of the Tribunal and we reject the appeals

Summary

Issues:
1. Validity of revised annual return and transfer of shares.
2. Applicability of Section 2(22)(e) to the appellant.

Issue 1: Validity of revised annual return and transfer of shares
The appellant, a shareholder of a closely held company, received loans without disclosing them as income for certain assessment years. The Assessing Officer treated the loans as deemed income under Section 2(22)(e) of the Income Tax Act, 1961. The appellant argued that she did not hold 10% shares to be covered under Section 2(22)(e) as some shares were transferred to another individual. The Assessing Officer found discrepancies in the documents provided by the appellant, including the revised annual return and company registers. The authorities rejected the appellant's contentions, concluding that the documents were unreliable and likely fabricated. The court emphasized that if the shares were genuinely transferred and registered with the company, it would have been reflected in the annual returns. However, the annual returns indicated the appellant still held 328 shares, contradicting her claims of transfer. The court found no reason to interfere with the authorities' decisions as they had unanimously rejected the appellant's arguments based on factual discrepancies.

Issue 2: Applicability of Section 2(22)(e) to the appellant
The main contention revolved around whether Section 2(22)(e) applied to the appellant due to the receipt of loans from the company. The appellant argued that the provision should not apply as her shareholding fell below 10% after transferring some shares. However, the Assessing Officer, First Appellate Authority, and Tribunal all upheld the application of Section 2(22)(e) based on the lack of concrete evidence supporting the share transfer claim. The court noted that the key issue was whether the appellant had genuinely transferred the shares as claimed, which was decisively ruled against the appellant by all authorities. The court reiterated that the documents provided by the appellant were questionable and likely manipulated to avoid tax liability. Ultimately, the court found no legal grounds to challenge the authorities' decisions and dismissed the appeals, holding the parties responsible for their costs.

This judgment highlights the importance of substantiating claims with valid and reliable evidence in tax matters, emphasizing the significance of accurate documentation and compliance with legal requirements to avoid disputes and potential liabilities.