Appellate Tribunal Upholds Deletion of Deemed Dividend Addition

The Appellate Tribunal ITAT Delhi dismissed the revenue's appeal against the deletion of an addition of Rs. 37,66,432/- as deemed dividend u/s 2(22)(e) of the Income Tax Act for the assessment year 2006-07. The Tribunal upheld the decision of the Ld. CIT(A) in favor of the assessee, ruling that deemed dividend could only be assessed in the hands of a shareholder of the lender company and not in the hands of any other person. The appeal was dismissed, and the decision to delete the addition of deemed dividend was upheld.

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Issues involved: Appeal against deletion of addition u/s 2(22)(e) of deemed dividend.

Summary:
The Appellate Tribunal ITAT Delhi heard an appeal by the revenue against the deletion of an addition of Rs. 37,66,432/- u/s 2(22)(e) of the Income Tax Act for the assessment year 2006-07. The revenue contended that the amount, treated as deemed dividend, should not have been deleted by the Ld. CIT(A). The issue revolved around whether the advance received by the assessee from its sister concern could be considered as deemed dividend u/s 2(22)(e) due to a common shareholder. The Ld. CIT(A) ruled in favor of the assessee, following a special bench decision of the Tribunal in a similar case.

Upon considering the rival contentions and the record, the Tribunal found that the special bench decision in a comparable case had already settled the matter. The Tribunal highlighted the intention behind the provisions of section 2(22)(e) to tax dividend in the hands of shareholders, not concerns. The Tribunal emphasized that the deeming provisions applied to loans or advances by a company to a concern in which its shareholder had substantial interest. The Tribunal concluded that deemed dividend could only be assessed in the hands of a shareholder of the lender company and not in the hands of any other person.

Based on the precedents and the interpretation of the law, the Tribunal held that the issue was squarely covered in favor of the assessee. Consequently, the appeal by the revenue was dismissed, upholding the decision of the Ld. CIT(A) to delete the addition of deemed dividend. The order was pronounced in the open court on 13.8.2010.

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