2014 (4) TMI 162 - AT - Income Tax

Deletion u/s 2(22)(e) of the Act Deemed dividend Held that - The CIT(A) has gone by the presumption that the AO has considered that the assessee has made investment in Hegde Hotels India Pvt. Ltd., which is not correct - he has gone by the presumption that the AO has based his calculation on the fact that Hegde Hotels India Pvt. Ltd. had given loan to Mr. Sudhakar Hegde, which in turn, has advanced to the assessee, which fact is also not correct - he has not analysed as to what is the amount invested by Hegde Hotels India Pvt. Ltd. for the share application money in the assessee company and how much was the unsecured loan received by the assessee from the Hegde Hotels India Pvt. Ltd., and whether it was loan or not, or if loan, then what was the nature of the loan - He has also not analysed, whether the assessee is a substantial shareholder in Hegde Hotels India Pvt. Ltd. or not - All these facts are necessary for coming to any conclusion on merits - without going into the merits of the issue, the order of the CIT(A) is set aside and the matter is remitted back for fresh adjudication Decided in favour of Revenue.

Summary

Issues:
Challenge to deletion of addition under deemed dividend - Section 2(22)(e) - Incorrect factual assumptions by Commissioner (Appeals)

Analysis:

1. The appeal before the Appellate Tribunal ITAT Mumbai was filed by the Revenue against the order of the Commissioner (Appeals) for the assessment year 2004-05 under the Income Tax Act, 1961. The main dispute revolved around the deletion of an addition of Rs. 27,62,982 under the provisions of deemed dividend as per section 2(22)(e).

2. The Department contended that the Commissioner (Appeals) erred in his findings by not properly appreciating the facts of the case. The Departmental Representative argued that the notice under section 148 was issued to reopen the case due to the receipt of a loan by the assessee company from Hegde Hotels India Pvt. Ltd., making the provisions of deemed dividend applicable. The Assessing Officer concluded that the loan amount was indeed dividend income, but the Commissioner (Appeals) made factual errors in his final decision.

3. On the other hand, the assessee's counsel argued that the amount in question was reconciled and not a loan. While admitting some factual errors in the Commissioner (Appeals) findings, the counsel defended the reconciliation provided during the proceedings.

4. The Tribunal, after considering both sides, found that the Commissioner (Appeals) based his conclusion on erroneous assumptions of facts. The Tribunal pointed out that the Commissioner presumed incorrect details regarding investments, loans, and share application money between the parties involved. The Tribunal emphasized the necessity of analyzing the actual transactions and shareholding patterns to arrive at a correct decision.

5. Consequently, the Tribunal set aside the order of the Commissioner (Appeals) and remanded the issue for fresh consideration. The Tribunal directed the Commissioner (Appeals) to reevaluate the facts, consider all relevant aspects, and provide a reasonable opportunity to the assessee to present their case before arriving at a proper conclusion in accordance with the law.

6. Ultimately, the Tribunal allowed the Revenue's appeal for statistical purposes, indicating that the decision was made to correct the procedural aspect of the case rather than a substantive determination on the tax liability.

In conclusion, the Appellate Tribunal ITAT Mumbai addressed the issues raised by the Revenue regarding the deletion of an addition under deemed dividend. The Tribunal found that the Commissioner (Appeals) had made factual errors in his decision and remanded the case for a fresh assessment based on a correct understanding of the transactions and relevant provisions of the Income Tax Act.