2020 (5) TMI 578 - AT - Income Tax

Deemed dividend u//s 2(22)(e) - assessee to be in default u/s 201/201(1A) - HELD THAT - The assessee company had advanced the loan to its associated concern M/s. Arihant Agencies which was then transferred to the account of Sh.Dinesh Kumar Jain and the fund was transferred back to the assessee company on the same day as Director s share capital. We find that the issue of deemed dividend u/s 2(22)(e) of the Act in respect of similar transaction being made wherein the transaction of receipt and payment were on the same date itself by both the parties, arose before the Tribunal in series of cases i.e. Seema Devi Bansal i 2018 (7) TMI 1545 - ITAT DELHI relating to Assessment Year 2010-11 and Sh. Harish Kanwar 2017 (10) TMI 997 - ITAT DELHI relating to Assessment Year 2011-12. We have also decided similar issue in Surbhi Jain vs ITO 2020 (5) TMI 533 - ITAT DELHI relating to Assessment Year 2011-12, applying the ratio laid down by Hon ble Bombay High Court in Praveen Bhimsi Chheda Shivsadan vs DCIT 2011 (5) TMI 857 - ITAT MUMBAI held that under similar circumstances, it was not case of deemed dividend u/s 2(22)(e) of the Act. Applying the said parity of reasoning and we hold that the assessee cannot held to be in default u/s 2(22)(e) of the Act and there is no merit in raising the demand u/s 201(1) and charging interest u/s 201(1A). Penalty u/s 271C for the aforesaid default u/s 201(1) - HELD THAT - Since we have already deleted the demand raised u/s 201(1) there is no merit in levy of penalty u/s 271(1)(c) and the same is deleted. Grounds of appeal raised by assessee are thus allowed. - Decided in favour of assessee.

Summary

Issues:
Appeals against order of CIT(A)-1, Gurgaon dated 01.04.2015 & 07.04.2015 related to assessment year 2011-12 under section 201(1)/201(1A) and 271C of the Income-tax Act, 1961.

Analysis:
1. Deemed Dividend & Default under Section 201(1)/201(1A):
The appellant, a company, advanced ?70 lakhs to its associated concern, treated as deemed dividend under section 2(22)(e) of the Act. The Assessing Officer held the appellant in default under section 201/201(1A) and raised a demand of ?1,46,149. The CIT(A) upheld this order. The appellant contended that the transaction was for increasing director capital and not for making an interest-free advance. The tribunal referred to similar cases and the Bombay High Court's ruling, holding that under similar circumstances, it did not constitute deemed dividend under section 2(22)(e). Consequently, the demand under section 201(1) and interest under section 201(1A) were deemed invalid, and the AO was directed to delete them.

2. Penalty under Section 271C:
A penalty was levied under section 271C for the default under section 201(1) of the Act. Since the demand under section 201(1) was deleted, the tribunal found no merit in levying the penalty under section 271C and thus deleted it. The grounds of appeal raised by the appellant were allowed, and both appeals were allowed in favor of the assessee.

In conclusion, the tribunal ruled in favor of the appellant, holding that the transactions did not constitute deemed dividend under section 2(22)(e) of the Act. Consequently, the demand and penalty imposed were deemed invalid and were directed to be deleted. The judgment was pronounced on 21st May, 2020.