2017 (8) TMI 408 - AT - Income Tax

Addition towards deemed dividend u/s 2(22)(e) - payment made to assessee company - deemed shareholders - the shareholders of the assessee company are having substantial share holding exceeding 20% in M/s. Maha Maruthi Logistics Private Limited - Held that - From the plain reading of section 2(22)(e) of the Act, it is evident that the deemed dividend is taxable in the hands of the registered share holder but not in the hands of the deemed shareholders. See G. Indira Krishna Reddy and G.V. Krishna Reddy 2017 (5) TMI 1365 - ITAT HYDERABAD In the instant case, the assessee is not the shareholder in the payer company M/s. Maha Maruti Logistics Pvt. Limited. Therefore, the decision of Hon ble ITAT Hyderabad bench and the special bench in the case of Bhowmick Colour Lab Pvt. Ltd. 120 (2008 (11) TMI 273 - ITAT BOMBAY-E ) and the decision in case of CIT Vs. Ankitech P. Ltd. (2011 (5) TMI 325 - DELHI HIGH COURT) are squarely applicable in the assessee s case. Therefore, we do not find any infirmity in the order of Ld. CIT(A) and the same is upheld. - Decided against revenue

Issues Involved:
1. Validity of the notice issued under Section 153A of the Income Tax Act.
2. Taxability of deemed dividend under Section 2(22)(e) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Validity of the Notice Issued under Section 153A of the Income Tax Act:

Background:
The CIT(A) quashed the notice issued under Section 153A of the Income Tax Act, stating that no warrant was executed in the name of the assessee.

Arguments:
- The Ld. D.R. produced a copy of the warrant issued under Section 132 of the Act in the name of the assessee and argued that the notice under Section 153A was valid.
- The Ld. A.R. did not dispute the submissions made by the assessing officer.

Tribunal's Decision:
Upon review, the Tribunal found that the notice issued under Section 153A was indeed valid. The Tribunal set aside the order of the CIT(A) on this issue, thereby upholding the validity of the assessment made under Section 143(3) read with Section 153A of the Act.

2. Taxability of Deemed Dividend under Section 2(22)(e) of the Income Tax Act:

Background:
The assessing officer treated a loan of ?45 lakhs given by M/s. Maha Maruthi Logistics Private Limited to the assessee company as deemed dividend under Section 2(22)(e) of the Act. The CIT(A) deleted the addition on merits, holding that the assessee company is not a registered shareholder of M/s. Maha Maruthi Logistics Private Limited.

Arguments:
- The Revenue argued that since the directors of the assessee company had substantial shareholding in M/s. Maha Maruthi Logistics Private Limited, the loan should be treated as deemed dividend.
- The assessee contended that the deemed dividend cannot be assessed in the hands of the company which is not a registered shareholder of the payer company.

Tribunal's Decision:
The Tribunal examined the provisions of Section 2(22)(e) and relevant case laws, including decisions from the ITAT Hyderabad Bench and the Special Bench in the case of Bhaumik Colour Pvt. Ltd. The Tribunal concluded that deemed dividend is taxable in the hands of the registered shareholder, not in the hands of a deemed shareholder. Since the assessee company was not a shareholder in M/s. Maha Maruthi Logistics Private Limited, the Tribunal upheld the CIT(A)'s decision to delete the addition.

Supporting Case Laws:
- The Tribunal referenced the decision of the Hon’ble Delhi High Court in CIT Vs. Ankitech P. Ltd., which held that deemed dividend is taxable in the hands of the registered shareholder.
- The Tribunal also cited the decision of the Special Bench in Bhaumik Colour Pvt. Ltd., which clarified that the provisions of Section 2(22)(e) apply only to registered shareholders.

Conclusion:
The Tribunal found no infirmity in the order of the CIT(A) and upheld the deletion of the deemed dividend addition.

Final Order:
The appeal of the revenue was dismissed. The above order was pronounced in the open court on 21st June 2017.

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