2015 (6) TMI 835 - AT - Income Tax

Deemed dividend u/s.2(22)(e) - CIT(A) has deleted the addition made by the AO by accepting one of the contentions of the assessee that the assessee-company is not a shareholder of M/s.Abhishek Engineers Pvt.Ltd., therefore the addition cannot be made in the hands of the assessee-company - Held that - The ld.counsel for the assessee could not demonstrate as to how the assessee-company is aggrieved by the direction of the ld.CIT(A). The only contention of assessee that in the Memorandum of Association of the M/s.Abhishek Engineers Pvt.Ltd. that company had Object to advance, deposit or lend money, securities and properties to or with any company, body corporate firm, person or association. Therefore, the amount so received in the course of the business of that company. The ld.counsel for the assessee admitted the fact that the said company is not a non-banking finance company and it was also not demonstrated as to how the loan transaction as effected by the said company are permissible under the Banking Regulation Act, the regulations framed by the Reserve Bank of India and also the Companies Act, 1956. The business of banking and finance is regulated by the Reserve Bank of India and in case a corporate entity, permission from RBI and other Regulatory Authorities is required for carrying out such business. In the absence of such permission, we are of the considered view that the loan transaction is not made during the course of business. Therefore, no merit in the contention of the assessee, same is hereby rejected. Moreover, the addition made by the AO has been deleted by the ld.CIT(A). The shareholder against whom the direction has been issued for addition is not before us in appeal. If the shareholder feels that the impugned direction is illegal or unjustified, the legal recourse is available to him under the Act. - Decided against assessee.

Summary

Issues:
1. Addition of deemed dividend u/s.2(22)(e) of the I.T.Act.
2. Application of section 2(22)(e) in the case of loan received from M/s. Abhishek Engineers Pvt. Ltd.
3. Justification of treating the loan amount as deemed dividend.
4. Direction to make the addition in the hands of the shareholder.
5. Application of the judgments of Hon'ble Rajasthan High Court and ITAT Mumbai 'E' Special Bench.
6. Rejection of the Assessee's appeal regarding the loan received.

Analysis:
1. The Revenue's appeal challenged the deletion of the addition of deemed dividend of Rs. 19,83,425 by the CIT(A). The AO treated the loan amount received as deemed dividend under section 2(22)(e) of the Act. The Sr.DR argued that the loan was not given in the normal course of business and lacked commercial expediency. The counsel for the Assessee contended that the provisions of section 2(22)(e) were not applicable in this case. The CIT(A) directed the AO to delete the addition in the hands of the Assessee and make the addition in the hands of the shareholder. The Tribunal upheld the CIT(A)'s decision, citing relevant case laws and lack of evidence that the Assessee was a shareholder of M/s. Abhishek Engineers Pvt. Ltd.

2. The Assessee's appeal contested the CIT(A)'s decision to tax the loan received from M/s. Abhishek Engineers Pvt. Ltd. as deemed dividend under section 2(22)(e). The Assessee argued that the loan was received in the ordinary course of business and cited the Memorandum of Association of the lender company to support this claim. The Tribunal noted that the Assessee was not a shareholder of the lender company and rejected the Assessee's contention that the loan transaction was permissible under banking regulations. The Tribunal dismissed the Assessee's appeal, emphasizing that the shareholder against whom the addition was directed was not part of the appeal process.

3. The Tribunal's decision was based on the application of relevant legal provisions and case laws, including the judgments of Hon'ble Rajasthan High Court and ITAT Mumbai 'E' Special Bench. The Tribunal found no merit in the Revenue's and Assessee's contentions regarding the treatment of the loan amount as deemed dividend. The Tribunal upheld the CIT(A)'s order to delete the addition in the hands of the Assessee and make the addition in the hands of the shareholder. The Tribunal emphasized the importance of following legal procedures and jurisdictional limitations in appeals.

In conclusion, the Tribunal dismissed both the Revenue's and the Assessee's appeals, upholding the CIT(A)'s decision regarding the treatment of the loan amount received from M/s. Abhishek Engineers Pvt. Ltd. as deemed dividend under section 2(22)(e) of the I.T.Act. The Tribunal's analysis was thorough, considering legal provisions, case laws, and the specific circumstances of the case to arrive at a just decision.