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2015 (10) TMI 177 - AT - Income TaxDeemed dividend u/s 2(22)(e) - CIT(A) deleted the addition - Held that - The basis of the decision arrived at by the CIT(A) is the undisputed fact, that the assessee is not a shareholder of SMRL. In such a case import of provisions of section 2(22)(e) does not hold ground. For this, we may gainfully place reliance on the decision of ACIT vs Bhaumik Colour Pvt. Ltd. (2008 (11) TMI 273 - ITAT BOMBAY-E). Though the assessee has placed reliance of a number decisions of various fora, we, on the basis of the facts, are of the view that there is no infirmity in the order of the CIT(A), which we sustain. Consequentially, the ground as raised in the instant appeal, as filed by the department is rejected. - Decided in favour of assessee.
Issues involved:
- Interpretation of sec 2(22)(e) of IT Act, 1961 - Application of deemed dividend provisions - Assessment of loan as deemed dividend - Appeal against CIT(A) order - Shareholding pattern analysis Issue 1: Interpretation of sec 2(22)(e) of IT Act, 1961: In the present case, the primary issue revolves around the interpretation of section 2(22)(e) of the Income Tax Act, 1961. The department contended that the provisions of sec 2(22)(e) should apply to the case of the assessee company, emphasizing the taxation of deemed dividend on advance or loan to any concern where a common shareholder with substantial interest is involved. The department raised concerns regarding the deletion of the addition made under sec 2(22)(e) by the CIT(A), citing judgments that were deemed contrary to the 1987 amendment to sec 2(22)(e). Issue 2: Application of deemed dividend provisions: The crux of the matter was whether the amount received by the assessee from M/s Sunil Mantri Realty Ltd. (SMRL) should be treated as deemed dividend under sec 2(22)(e) of the Income Tax Act, 1961. The AO treated the amount as deemed dividend, while the assessee argued that it was a normal business transaction and that the assessee was not a shareholder in SMRL. The CIT(A) based its decision on the undisputed fact that the appellant was not a shareholder of SMRL, leading to the deletion of the addition under sec 2(22)(e). Issue 3: Assessment of loan as deemed dividend: The dispute further delved into the assessment of the loan received by the assessee from SMRL as deemed dividend. The AO added back the amount to the income of the assessee, despite the assessee's objections and submission that the transaction was part of regular business dealings. The CIT(A) analyzed the shareholding pattern and confirmed that the appellant was not a shareholder of SMRL, leading to the deletion of the addition. Issue 4: Appeal against CIT(A) order: Following the CIT(A)'s decision to delete the addition made under sec 2(22)(e), the department appealed before the ITAT. The ITAT considered the arguments presented by both parties, emphasizing the undisputed fact that the assessee was not a shareholder of SMRL as the basis for upholding the CIT(A)'s decision and dismissing the department's appeal. Issue 5: Shareholding pattern analysis: A crucial aspect of the case was the analysis of the shareholding pattern to determine the applicability of sec 2(22)(e). The CIT(A) and subsequently the ITAT relied on the fact that the appellant was not a shareholder of SMRL to conclude that the provisions of sec 2(22)(e) did not apply in the given scenario. This analysis played a pivotal role in the final decision to dismiss the department's appeal. In conclusion, the ITAT upheld the CIT(A)'s decision to delete the addition under sec 2(22)(e) in both appeals, emphasizing the absence of shareholding by the assessee in the lending company as the determining factor. The judgments highlighted the importance of factual analysis, leading to the dismissal of the department's appeals and the corresponding cross objections.
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