2019 (1) TMI 1060 - AT - Income Tax

Stay petition - Deemed dividend addition u/s 2(22)(e) - amount of Reserve and surplus of M/s. Advantage overseas Pvt. Ltd in which the assessee company was holding more than 10% of voting power - Held that - Stay application and are inclined to stay the demand for a period a period of 90 days from the date of the stay order or disposal of the appeal whichever event occurs earlier. The stay granted to the assessee will be in operation only if the assessee fulfills the above stated conditions. Registry is directed to fix the appeal out of turn for hearing on 21.3.2019 and the date of hearing to be communicated to the parties. Assessee is also directed to file necessary paper book, if any, at an early date and adjournment should not be seeked unless for any unavoidable circumstances. Stay application of the assessee is allowed subject to the terms and conditions stated hereinabove. Stay application of the assessee is allowed subject to the terms and conditions stated hereinabove.

Summary

Issues:
Stay of outstanding demand of ?1,33,33,80,940 for AY 2015-16 due to deemed dividend u/s 2(22)(e) - Financial hardship faced by the assessee - Request for security against assets and adjustment of income tax refund - Payment of ?20 crores in installments - Opposing view by Departmental Representative.

Analysis:
The stay application was filed by the assessee seeking relief from the outstanding demand of ?1,33,33,80,940 related to the Assessment Year 2015-16, primarily arising from the addition made by the Assessing Officer for deemed dividend u/s 2(22)(e) of the Income Tax Act. The amount in question was linked to the Reserve and surplus of a subsidiary company in which the assessee held over 10% voting power and had received an unsecured loan. The assessee contended that the funds received were for a specific commercial purpose and not as dividends, emphasizing their core business of strategic investments in other companies.

The assessee, through its Senior Counsel, highlighted severe financial hardship, supported by audit reports demonstrating the dire financial state. They offered the company's assets as security for the satisfaction of the Income Tax Department and proposed the adjustment of pending income tax refunds against the demand. Additionally, the assessee agreed to pay ?20 crores in installments to settle the remaining demand by a specified date.

On the contrary, the Departmental Representative opposed the stay, citing a minimal deposit made by the assessee against the total demand and suggested a higher percentage payment to be made immediately. After considering the arguments from both sides and examining the records, the Tribunal decided to grant a stay of the outstanding demand for 90 days from the date of the order or the appeal's disposal, subject to specific conditions.

The conditions imposed by the Tribunal included a schedule for the assessee to deposit specified amounts against the outstanding demand in installments, along with offering the assets mentioned in the application as security to the Income Tax Department. The stay was contingent upon the assessee fulfilling these conditions, and a hearing for the appeal was scheduled for a later date. The order pronounced on 17.01.2019 allowed the stay application subject to the stated terms and conditions, providing temporary relief to the assessee while ensuring compliance with the specified requirements.