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2014 (7) TMI 714 - AT - Income TaxDeemed dividend u/s 2(22)(e) - loan and advance to another company for the benefit of shareholders Held that - The assesse is a beneficial owner of more than 10% shares in the payer companies and further has substantial interest of more than 20% in the recipient companies - when a company gives loan or advance to any concern covered under the second category, the divided is deemed as income in the hands of the shareholder and not such concern - Position is similar for the third category as well - If the amount is given to a third person, which is for the benefit of the shareholder, the dividend is not deemed in the hands of such recipient but the shareholder - In all the three categories, it is the shareholder whose income is affected with the deemed dividend Relying upon COMMISSIONER OF INCOME TAX Versus ANKITECH PVT LTD. & OTHERS 2011 (5) TMI 325 - DELHI HIGH COURT - Certain loans or advances were given by some companies to some other companies (concerns) of the same group and the assessee is having substantial shareholding in both the sets of the payer and the recipient companies - the case falls under the second category and the amount is deemed as dividend in the hands of the assessee shareholder. Whereas payment by way of advance or loan is relevant in the first and second categories, the third category simply provides for any payment , which may or may not be by way of advance or loan - Since the third category encompasses any payment by such companies on behalf or for the individual benefit of any such shareholder, there can also be payment falling under this category de hors advance or loan - As the amounts under consideration are advances or loans by one set of companies to another set and the Revenue has not made out a case that these were for the individual benefit of the assessee-shareholder, naturally, the case does not fall in the third category - Once a case falls under the second category, there is no further need to show that it should also falls in the third category - the sums of ₹ 28,17,430/- for the AY 2007-08 and ₹ 2,96,060/- for AY 2008-09 are deemed dividend of the assessee-shareholder under the second category of section 2(22)(e) of the Act and ex consequential the CIT(A) was fully justified in sustaining these additions Decided partly in favour of Assessee.
Issues Involved:
1. Legality of additions made under Section 2(22)(e) of the Income-tax Act, 1961 for assessment years 2002-03, 2005-06, and 2006-07. 2. Merits of additions made under Section 2(22)(e) of the Income-tax Act, 1961 for assessment years 2007-08 and 2008-09. Detailed Analysis: A.Ys. 2002-03, 2005-06 & 2006-07: 1. Legal Issue: - The primary legal issue raised by the assessee was that the additions made under Section 2(22)(e) of the Income-tax Act, 1961 were not sustainable because no incriminating material concerning such additions was found during the course of the search, and the assessments for these years were not pending on the date of the search. - The assessee was subjected to search and seizure action on 15.11.2007, and notices under Section 153A were issued for six assessment years. The assessments were completed with additions under Section 2(22)(e), which were later contested by the assessee. - The CIT(A) dismissed the assessee's contention, stating that Section 153A authorizes the Assessing Officer to assess the "total income" and is not restricted to undisclosed income alone. 2. Tribunal's Analysis: - The Tribunal examined Section 153A and determined that the Assessing Officer is required to assess the "total income" of the assessee for the relevant six assessment years, which includes both declared and undeclared income. - The Tribunal noted that the second proviso to Section 153A(1) stipulates that any pending assessment or reassessment on the date of search shall abate, necessitating a fresh determination of "total income." - The Tribunal referred to various judgments, including the Special Bench order in All Cargo Global Logistics Ltd. vs. DCIT and CIT vs. Anil Kumar Bhatia, to conclude that no addition can be made in respect of completed assessments unless incriminating material is found during the search. - Since no incriminating material was found for the additions under Section 2(22)(e) for the assessment years 2002-03, 2005-06, and 2006-07, the Tribunal held that these additions were not sustainable and directed their deletion. A.Ys. 2007-08 & 2008-09: 1. Merits of Additions: - For these years, the additions made under Section 2(22)(e) were challenged on merits. The assessee, a substantial shareholder in certain companies, received loans from other group concerns, leading to additions on account of deemed dividend. - The CIT(A) confirmed the additions, relying on the judgment in CIT vs. Ankitech Pvt. Ltd., which held that such advances could not be treated as deemed dividend in the hands of the recipient companies but should be taxed in the hands of the registered shareholder. 2. Tribunal's Analysis: - The Tribunal examined the provisions of Section 2(22)(e) and noted that it covers advances or loans given to a shareholder or to a concern in which the shareholder has a substantial interest. - The Tribunal observed that the present assessee, being a beneficial owner of more than 10% shares in the payer companies and having substantial interest in the recipient companies, falls within the second category of Section 2(22)(e). - The Tribunal rejected the assessee's contention that the amount should not be deemed as dividend unless it falls under the third category (payment for the individual benefit of the shareholder). The Tribunal clarified that the categories under Section 2(22)(e) are mutually exclusive, and satisfying any one category is sufficient for deeming the amount as dividend. - Consequently, the Tribunal upheld the additions of Rs. 28,17,430 for A.Y. 2007-08 and Rs. 2,96,060 for A.Y. 2008-09 as deemed dividend under Section 2(22)(e). Conclusion: - The appeals for A.Ys. 2002-03, 2005-06, and 2006-07 were allowed, and the additions under Section 2(22)(e) were deleted due to the absence of incriminating material. - The appeals for A.Ys. 2007-08 and 2008-09 were dismissed, and the additions under Section 2(22)(e) were upheld on merits.
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