2019 (12) TMI 1252 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - HELD THAT - The requisite condition for invoking section 2(22)(e) of the Act is that the payment must be by way of loan or advance. Loans/Advances carries different connotation than deposits in commercial parlance. And the ICD is ordinarily for an agreed period with an agreed interest. Hence there is a clear distinction between ICD vis a vis loans/advances and as the ICD does not fall within the purview of section 2(22)(e). In the present case, there is no case of deemed dividend. To further support of its contention for non-applicability of Section 2(22)(e), ld. A.R. cited a judgment of Jurisdictional High Court in the matter of CIT vs. Daisy Packers (P.) Ltd. 2015 (7) TMI 253 - GUJARAT HIGH COURT wherein held where assessee had received a deposit from a company but it did own any share of said company, said deposit was an inter-corporate deposit and could not be treated as deemed dividend. More over assessee is neither a registered shareholder nor a beneficial shareholder of the lender company (JPIL). A.R. cited an order in the matter of CIT vs. Impact Containers (P.) Ltd. 367 ITR 346 2014 (Bombay) wherein it is held that the deemed dividend u/s. 2(22)(e) can only be assessed in the hands of a person other than the shareholder who is a shareholder of the lender company and not in the hands of a person other than shareholder. CIT(A) has passed reasoned order and same does not require any kind of interference at our end. Appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition made on account of deemed dividend under Section 2(22)(e) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Deletion of Addition on Account of Deemed Dividend under Section 2(22)(e):

The appellant, engaged in developing infrastructure, filed a Return of Income for A.Y. 2008-09 declaring total income of Rs. Nil. The case was reopened for assessment under Section 148, and reassessment was done under Section 143(3) read with Section 147, resulting in an addition of ?3,45,59,000 on account of deemed dividend under Section 2(22)(e).

The appellant raised objections upon receiving the reasons for reopening, which were rejected by the ITO. A show-cause notice was issued, and despite the appellant's detailed reply, the ITO made the addition of ?3,45,59,000 as deemed dividend.

The appellant company had common shareholders with JPIL, the ICD provider. However, the appellant was neither a registered shareholder nor a beneficial owner of JPIL shares. The appellant claimed that the ICD was provided for business purposes and not as a loan or advance.

The CIT(A) allowed the appeal, noting that the appellant was not a shareholder of JPIL and that the ICD did not constitute a loan or advance under Section 2(22)(e). The CIT(A) referenced multiple judicial pronouncements, including CIT v/s Daisy Packers (P) Ltd, ACIT v/s. Bhaumik Colour P. Ltd., and CIT vs. Impact Containers (P) Ltd, which supported the view that deemed dividend under Section 2(22)(e) could only be assessed in the hands of the shareholder of the lender company.

The CIT(A) observed that the appellant had provided interest on the ICD, deducted necessary TDS, and repaid the ICD with interest, distinguishing the ICD from loans/advances. The CIT(A) concluded that the addition made by the Assessing Officer under Section 2(22)(e) was not justified and directed its deletion.

The Revenue filed a second appeal, but the Tribunal upheld the CIT(A)'s decision, emphasizing that the appellant was neither a registered nor a beneficial shareholder of JPIL, and the ICD did not fall within the purview of Section 2(22)(e). The Tribunal referenced the jurisdictional High Court's judgment in CIT vs. Daisy Packers (P.) Ltd. and CIT vs. Impact Containers (P.) Ltd., affirming that deemed dividend could only be assessed in the hands of the shareholder of the lender company.

The Tribunal found no reason to interfere with the CIT(A)'s reasoned order and dismissed the Revenue's appeal. Consequently, the cross objection filed by the appellant was also dismissed as not pressed.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of ?3,45,59,000 made on account of deemed dividend under Section 2(22)(e), emphasizing that the appellant was neither a registered nor a beneficial shareholder of the lender company, and the ICD did not constitute a loan or advance under the said section. The Revenue's appeal was dismissed, and the cross objection by the appellant was also dismissed as not pressed.