2018 (5) TMI 494 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - common shareholders - Held that - The provisions of section 2(22)(e) of the Act would not be attracted in this case as the assessee company is not a shareholder in the company M/s Dayal Steels Pvt. Ltd who had given advance to the assessee company and we note that the assessee company s name does not figure in the list of the shareholders. Hon ble Delhi High Court in the case of CIT vs. A.R. Magnetics Pvt. Ltd. 2012 (4) TMI 624 - DELHI HIGH COURT wherein held that the provisions relating to deemed dividend could not be invoked merely because the shareholders were common. In this case, it is seen that the sole ground for making the addition was that Mrs Rani Chawdhari was a common shareholder in both the companies. Therefore, we are unable to concur with the findings of the Ld. CIT (A) - Decided in favour of assessee.

Summary

Issues:
Challenge to addition of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.

Analysis:
1. The appellant challenged the confirmation of addition of &8377; 73,57,649/- as deemed dividend in the hands of the assessee company. The Assessing Officer added this amount based on the provisions of section 2(22)(e) of the Act, considering an advance received by the assessee from another company with common shareholding. The Ld. CIT (A) upheld this addition, leading to the current appeal before the ITAT.

2. The appellant contended that they were not a beneficial shareholder of the company providing the advance. They presented evidence showing the absence of their name in the list of shareholders of the other company and highlighted trade transactions between the two entities. Citing a Delhi High Court judgment, the appellant argued that if a company is not a shareholder, no addition can be made on account of deemed dividend.

3. The Ld. Sr. DR supported the CIT (A)'s order, emphasizing the correctness of the addition. However, the ITAT, after considering the submissions and evidence, agreed with the appellant. They noted that the provisions of section 2(22)(e) would not apply since the appellant was not a shareholder in the company providing the advance. Referring to the Delhi High Court judgments in similar cases, the ITAT ruled in favor of the appellant, directing the deletion of the addition.

4. The ITAT's decision was based on the clear finding that the appellant was not a shareholder in the company from which the advance was received. They highlighted the absence of the appellant's name in the list of shareholders and the lack of dispute on this fact by the lower authorities. By following the precedent set by the Delhi High Court, the ITAT set aside the CIT (A)'s order and instructed the Assessing Officer to remove the addition of deemed dividend.

5. Ultimately, the ITAT partly allowed the appeal, emphasizing the non-applicability of deemed dividend provisions due to the appellant's non-shareholder status in the company providing the advance. The judgment provided a detailed analysis of the legal interpretation and application of section 2(22)(e) in the context of the specific case, ensuring a fair and just outcome for the appellant.