Addition of deemed dividend in the hands of non-shareholders is unsustainable

DCIT Vs Aaryavart Infrastructure P. Ltd. (ITAT Ahmedabad)

ITAT Ahmedabad held that addition on account of deemed dividend as per section 2(22)(e) of the Act unsustainable in the hands of non-shareholders.

Facts- While adjudicating the issue of deemed dividend, the ld.CIT(A) held that as per the provision of law, the loans and advances given to the assessee by related parties could be treated as deemed dividend only to the extent of reserves and surplus available with them, and accordingly taking note of reserves and surplus with the said party, he held that the addition in any case could not have been exceed Rs.37,78,000/-. However, thereafter, taking note of the legal position of the law, with respect to the issue of taxability of deemed dividend in the hands of the shareholder alone and applying the decision of jurisdictional High Court, the ld.CIT(A) deleted the entire addition made on account of deemed dividend as per section 2(22)(e) of the Act, noting the fact that the assessee was not a shareholder of the concerns making the loans/advance.

Being aggrieved, revenue has preferred the present appeal.

Conclusion- Undisputedly, the ld.CIT(A) had deleted the entire addition noting judicial proposition that the amount could not be taxed in the hands of the non-shareholders and we have upheld the order of the ld.CIT(A) on this aspect. Therefore, the entire addition stands deleted in the hands of the assessee, and there remains no grievance of the assessee.

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