2012 (8) TMI 36 - AT - Income Tax

Deemed Dividend u/s 2(22) - held that - As per the decision of Special bench of the Tribunal rendered in the case of Bhaumik Colour (2008 (11) TMI 273 - ITAT BOMBAY-E), section 2(22)(e) can be invoked only in such a case where the person who has received the loan is having shareholding in the company who has given the loan and such person should be a registered as well as beneficial shareholder of that company which has given the loan. In the present case, this is noted by Ld. CIT(A) on page 1 of his order that the assessee company is a closely held company with Shri Hariprasad Yadav and Shri Anil H. Yadav holding 22.09% & 51.14% of shares respectively and these two people are holding 12.8% and 24.60% shares in the sister company Sai Jyoti Fashions Pvt. Ltd. This goes to show that the loan taker company i.e. the assessee company is neither a registered shareholder nor the beneficiary shareholder of loan giving company and, therefore, as per this decision of Special bench of the Tribunal, the amount received by the assessee company as loan from Sai Jyoti Fashions Pvt. Ltd. cannot be assessed as deemed dividend in the hands of this assessee company by invoking the provisions of Section 2(22)(e) of the Income tax Act, 1961.

Summary

Issues:
- Addition confirmed as deemed dividend u/s 2(22)(e) of the Income tax Act, 1961.

Analysis:
The judgment involves an appeal against the order of the Ld. CIT(A) IV, Surat regarding the addition confirmed as deemed dividend u/s 2(22)(e) of the Income tax Act, 1961. The appellant argued that the amount in question was a deposit account, not a loan or advance, citing legal precedents. However, the A.O. contended that the amount was in the nature of a loan and treated it as deemed dividend due to the transfer of funds between accounts. The A.O. quantified the amount based on audited accounts and cheques received, leading to the addition. The Ld. CIT(A) upheld the addition, prompting the appeal.

The appellant relied on a Special bench Tribunal decision and various High Court judgments in favor of the assessee. The Ld. D.R. supported the lower authorities' orders, citing a Supreme Court judgment and a Board's circular. The Tribunal analyzed the precedents cited and the facts of the case. They distinguished the Supreme Court judgment as inapplicable and applied the Special bench Tribunal decision, emphasizing the absence of shareholding in the loan-giving company by the assessee. Consequently, the Tribunal reversed the Ld. CIT(A)'s decision, deleting the addition as deemed dividend.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee based on the application of relevant legal precedents and the absence of shareholding by the assessee in the loan-giving company. The decision highlights the importance of specific criteria under Section 2(22)(e) for invoking deemed dividend provisions and the significance of legal precedents in tax assessments.