Tribunals
Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Saturday, 09 January 2016 16:07

Section 2(22)(e) - Where the Assessee Company is not a shareholder no addition could be made u/s 2(22)(e) of the Act, as deemed dividend

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Gist

1. Deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder

2. When the transactions entered into by the assessee company with its director were normal business transactions, Section 40A(2)(b) acn not be applied

Facts

1. Assessee company which is engaged in the business of ship breaking filed its return of income for Asst. Year 2007-08 on 29.10.2007 declaring total income at Rs.47,11,510/-. The case was selected for scrutiny assessment and notice u/s 143(2) was issued and served on the assessee

2. The Assessing Officer completed the assessment by making addition of Rs.14,02,522/- on account of excess interest claimed to be paid to a party covered u/s 40A(2)(b) of the Act

3. A.O. also added Rs.85,21,606/- on account of deemed dividend income and accordingly assessed the income of the assessee at Rs.1,46,35,638/-

2. Assessee went in appeal before the ld. CIT(A) who sustained the addition made u/s 40A(2)(b) and deleted the addition made on account of deemed dividend

3. Assessee moved to Tribunal against the action of ld. CIT(A) in confirming the disallowance out of interest expenses @ 3% u/s 40A(2)(b) of the Act and the Revenue moved to Tribunal against deemed dividend

4. Both cross appeals were heard together and decided in favour of the Assessee

Adjudication

1. For Section 40A()(b) - We find that applying the facts of the issue in appeal before us to the decision of Hon’ble Jurisdictional High Court referred above as well as our observations in relation transactions entered into by the assessee company with its director, K.K. Bansal and its sister concern Mahavir Rolling Mills were normal business transactions and did not reflect any intention of the assessee to will-fully evade tax by paying higher rate of interest and therefore, we delete the addition made by Assessing Officer and allow the ground of appeal of assessee.

2. For Section 2(22)(e) - As the facts discussed and decided by the Co-ordinate Bench in assessee’s own case are similar to the facts of the present case, we are of the considered view that as the assessee company is not a share holder in Mahavir Rolling Mills Pvt. Ltd., therefore, no addition could be made u/s 2(22)(e) of the Act, as deemed dividend and accordingly, we find no reason to interfere with the order of ld. CIT(A). We uphold the same. The ground raised by the Revenue is dismissed.

Cases referred to

1. ACIT v. Bhaumik Colour (P) Ltd. (2009) 118 ITD 1 (Mum)(SB)

2. Circular No.495 dated September 22, 1987

3. Kantilal Manilal v. CIT [1961] 41 ITR 275

4. CIT v. Nalin Behari Lall Singha [1969] 74 ITR 849 (SC)

5. CIT v. Hotel Hilltop (2009) 313 ITR 116 (Raj)

Additional Info

Read 2848 times Last modified on Saturday, 13 February 2016 15:12
Deepak Kumar

A Post Graduate and Chartered Accountant Deepak Sinha is a member of Taxpundit's core team. An analytical, result oriented professional with more than 10 years of combined experience in industry and consultancy.

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