Case Law Details

Case Name : IAG Promoters & Developers Pvt. Ltd. VS ACIT (ITAT Delhi)
Appeal Number : ITA No. 6302 /Del/2013
Date of Judgement/Order : 10/06/2015
Related Assessment Year :
Courts : All ITAT (4788) ITAT Delhi (1050)
Issue before Court:

Whether provision of section 2 (22) (e) can be invoked when assessee is not a registered share holder.

Brief Facts:

  • Assessee filed its return of income declaring income at Rs. 39,04,210/-. The AO Completed assessment at Rs. 8,98,94,480/-.
  • The appellant company received loans of Rs. 23 lakhs and Rs. 4.01 crores from M/s Triangle Builders & Promoters Pvt. Ltd. and M/s Countrywide Promoters Pvt. Ltd. respectively. The appellant reflected these transactions in its balance sheet as loan received during the year.
  • The Assessing Officer was of the opinion that these are covered by the scope of the provisions of Section 2(22)(e) of the Act to the extent of accumulated profits of Rs. 84,993/- and Rs.1,73,261/- respectively. The AO made additions of Rs. 84,993/- and Rs. 1,73,261/- on account of deemed dividend under Section 2(22)(e) of the Act.
  • On appeal, the CIT(A) upheld the addition of a Rs.1,73,261/-, however, deleted the addition of Rs. 84,993/-.
  • On further appeal to ITAT matter was remanded back to the file of AO for afresh consideration.
  • AO in second round again made the same addition. CIT (A) dismissed appeal against the order u/s 143 (3) r.w.s. 254.

Contention of the revenue:

Assessee is liable to tax as deemed dividend an amount of Rs 1,73,262 being the accumulated profits of the concerned company, there is no error in considering the accumulated profits of Country Wide Promoters.

Contention of the assessee:

  • Accumulated profit of Country Wide Promoters Ltd. already stood assessed in the hands of another concern M/s Fragrance Construction Pvt. Ltd. u/s 2(22)(e). The profit of Rs 1,73,262/- having been considered in the hands of M/s Fragrance Constructions Pvt. Ltd. could not be considered again in the hands of assessee.
  • M/s IAG Promoters and Developers Pvt. Ltd is not a shareholder of M/s Countrywide Promoters Pvt. Ltd. having an interest of 10% per annum in the said company.
  • The addition of Rs. l,73,262/- as dividend u/s 2(22)(e) of the IT Act was unwarranted in view of the judgment of Hon’ble Jurisdictional Delhi High Court in CIT vs. Ankitech Pvt. Ltd 2011 11 taxmann.com 100 Delhi.

Held by the Court:

  • The appellant is not a shareholder of M/s Countrywide Promoters Pvt. Ltd. It is trite law that the provisions of Section 2(22)(e) have no application to non-registered shareholders.
  • The Hon’ble Apex Court in the case of CIT Vs. C.P. Sarathy Mudaliar (1972) 83 ITR 170 (SC) while construing the provisions of Section 2(6A)(e) of the Act, 1922 which are in pari materia with the provisions of Section 2(22)(e) of the Income-tax Act, 1961, held that the provisions governing the deemed dividend can be made applicable only in the hands of the registered shareholders.

Conclusion:

From the bare reading of provision of section 2(22)(e) it can be easily understood that section can be invoked only if assessee to whom any payment was made by way of loan or advance must be beneficial owner of the shares. In this particular case ITAT examined a list of shareholder filed by assessee in support of his argument and after examining the same ITAT concluded that section 2 (22) (e) had no application in the case of assessee.

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