2021 (2) TMI 1054 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - company had accumulated profits as on 31.3.2013 and the assessee is a substantial shareholder i.e. 15.13% of M/s. Tejdeep Engg Enterprises (P) Ltd.- assessee has shown the transaction as an unsecured loan in its books of account - HELD THAT - We find that the assessee has entered into a share purchase agreement with M/s. Tejdeep Engg. Enterprises (P) Ltd, and has received consideration as on the date of agreement, and the transactions are also duly reflected in the Bank Statement of the assessee. Except for the reason that the assessee has shown the same as an unsecured loan in its books of account, there is no evidence brought on record by the AO that this is not a genuine sale transaction. The assessee has stated that subsequently, the transaction was completed and the shares were also transferred to Tejdeep Engg. Enterprises Ltd. Therefore, we deem it fit and proper to direct the AO to verify this contention of the assessee and if the contention of the assessee is found to be correct, then the addition u/s 2(22)(e) cannot be made. Therefore, the appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues:
Interpretation of section 2(22)(e) of the Income Tax Act regarding deemed dividend - Whether loan received from a company constitutes a genuine sale transaction or a deemed dividend.

Analysis:

Issue 1: Interpretation of section 2(22)(e) of the Income Tax Act
The case involved a dispute regarding the applicability of section 2(22)(e) of the Income Tax Act on a loan received by the assessee from a company in which the assessee held shareholding. The Assessing Officer (AO) treated the amount received as a loan and deemed it as a dividend in the hands of the assessee. The assessee contended that the amount was received towards the sale of shares, supported by a share purchase agreement. The Commissioner of Income Tax (Appeals) (CIT(A)) upheld the AO's decision. The Tribunal, after considering the share purchase agreement and bank statements, found that the transaction was genuine and directed the AO to verify the completion of the transaction. If found correct, the addition under section 2(22)(e) could not be made.

Issue 2: Genuine Sale Transaction vs. Deemed Dividend
The dispute revolved around whether the amount received by the assessee from the company was a genuine sale transaction or a deemed dividend as per section 2(22)(e). The assessee argued that the transaction was a sale of shares, evidenced by the share purchase agreement and bank statements. The Revenue, however, argued that since the amount was shown as an unsecured loan in the assessee's books, it should be treated as deemed dividend due to the accumulated profits of the company. The Tribunal found in favor of the assessee, emphasizing the documentary evidence and directing the AO to verify the completion of the transaction before making any addition under section 2(22)(e).

Conclusion:
The Tribunal allowed the appeal of the assessee for statistical purposes, highlighting the importance of verifying the nature of transactions before deeming them as dividends under section 2(22)(e) of the Income Tax Act. The case underscored the significance of documentary evidence and proper examination of facts to determine the true nature of financial transactions for tax purposes.