2021 (4) TMI 762 - AT - Income Tax

Deemed dividend u/s. 2(22)(e) - assessee company is a concern in which the shareholders of M/s. Anyushka Investment Pvt. Ltd. (the payer company) have substantial interest - CIT-A deleted the addition - HELD THAT - We find that it is evident from the facts above assessee is not a shareholder of the lending company that is AIPL. Hence on the touchstone of the special bench decision of Bhaumik Colour P. Ltd. 2008 (11) TMI 273 - ITAT BOMBAY-E deemed dividend under section 2(22)(e) of the Act are not taxable in the hands of the assessee. Reliance upon the Bombay High Court decision in the case of Impact Container 2014 (9) TMI 88 - BOMBAY HIGH COURT is also germane in as much as when it is the normal business of the lending company to give advances the receipt of advance from the same by the assessee cannot be termed as deemed dividend under section 2(22)(e) Addition of sum received as share premium u/s. 68 - issue of shares at such high premium by assessee company whose net worth is negative and purchase of the same by M/s. Anyushka Investments Pvt. Ltd. (both assessee company and AIPL has common directors) is unacceptable - CIT-A deleted the addition - HELD THAT - As assessee has submitted all the necessary documents required to satisfy the extant provisions of section 68. The required documents as noted above in the order of learned CIT(A) and submission of the assessee's counsel were available before the assessing officer also. The said party is a group concern and it has also confirmed the transaction. Furthermore we note that assessee company has received the share capital including premium from the same group company that is AIPL, from whom it has also received loan of ₹ 1.18 crores. AO is not doubting the capacity of AIPL in granting the loan but is doubting the capacity to give the share capital. The amended provisions of section 68 of the Act providing satisfaction of the assessing officer regarding explanation from the party from whom the credit is received as per proviso to section 68 of the Act was inserted by Finance Act, 2012 with effect from 1/4/2013. The same is not applicable for this assessment year. As regards the issue of justification of share premium that is also not applicable for the assessment year under consideration as the same is applicable from 1.4.2013.The above position is duly supported by decision of honourable jurisdictional High Court in several decisions including Gagandeep Infrastructure Pvt. Ltd. 2017 (3) TMI 1263 - BOMBAY HIGH COURT Pr. CIT Vs. Veedhata Towers Pvt. Ltd. . 2018 (4) TMI 1004 - BOMBAY HIGH COURT - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act.
2. Deletion of addition on account of share premium received under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

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

The Revenue's appeal contested the deletion of an addition of ?1,18,00,000/- by the CIT(A), which was initially added by the Assessing Officer (AO) as deemed dividend under Section 2(22)(e) of the Income Tax Act. The AO had observed that the assessee received a loan from M/s. Anyushka Investments Private Limited (AIPL), a related company, where the shareholders of both companies held substantial interests. The AO treated the loan as deemed dividend, arguing that both Suyash Pandey and Bhavna Pandey held more than 10% voting rights in the payer company (AIPL) and more than 20% in the payee company (assessee).

Upon appeal, the CIT(A) provided relief to the assessee on two grounds. Firstly, it was accepted that AIPL is an investment company, and providing financial assistance was its business, thus the loan did not fall within the definition of dividend. This was supported by the decision in CIT v. Impact Containers. Secondly, it was noted that dividend can only be taxed in the hands of the shareholder, and since the assessee was not a shareholder in AIPL, the dividend could not be taxed in its hands. This was supported by the special bench decision in ACIT v. Bhaumik Colour P. Ltd.

The Tribunal upheld the CIT(A)'s order, emphasizing that the assessee was not a shareholder of AIPL, and thus, on the basis of the special bench decision in Bhaumik Colour P. Ltd., the deemed dividend under Section 2(22)(e) was not taxable in the hands of the assessee. Additionally, the Tribunal noted that since it was the normal business of AIPL to give advances, the receipt of such advance by the assessee could not be termed as deemed dividend.

2. Deletion of Addition on Account of Share Premium Received under Section 68:

The Revenue's appeal also contested the deletion of an addition of ?2,00,00,000/- by the CIT(A), which was initially added by the AO as unexplained cash credit under Section 68 of the Income Tax Act. The AO observed that the assessee received ?2 crores as share application money from AIPL, with ?4,00,000/- representing share capital and the remaining ?1,96,00,000/- as share premium. The AO questioned the capacity of AIPL to pay the sum, noting its modest turnover and earnings, and concluded that the transaction was not genuine.

Upon appeal, the CIT(A) noted that the assessee had not been granted proper opportunity by the AO to present its case. The CIT(A) considered the assessee's contention that AIPL had a net worth of ?5,67,57,553/-, thus its capacity to invest ?2 crores could not be doubted. The CIT(A) also noted that the AO did not ask the assessee to establish the capacity of the creditor or the genuineness of the payment per se. The CIT(A) found that AIPL had confirmed the transaction and had been regularly filing its returns.

The Tribunal upheld the CIT(A)'s order, noting that the assessee had submitted all necessary documents to satisfy the provisions of Section 68. The Tribunal emphasized that AIPL, a group concern, had confirmed the transaction, and the AO's doubt on the capacity of AIPL to give the share capital was unfounded, especially since the AO did not doubt AIPL's capacity to grant a loan of ?1.18 crores to the assessee. The Tribunal also noted that the amended provisions of Section 68, requiring the satisfaction of the AO regarding the explanation from the party from whom the credit is received, were not applicable for the assessment year under consideration.

The Tribunal further supported its decision with several precedents, including the decision in Gagandeep Infrastructure Pvt. Ltd. and Pr. CIT Vs. Veedhata Towers Pvt. Ltd., and concluded that there was no infirmity in the CIT(A)'s order.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of additions on both counts: deemed dividend under Section 2(22)(e) and unexplained cash credit under Section 68. The Tribunal found that the assessee had adequately demonstrated that the transactions were genuine and that the provisions cited by the AO were not applicable for the assessment year in question.

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