2013 (5) TMI 908 - AT - Income Tax

Tribunal rules loan not deemed dividend under Income Tax Act, Revenue appeal dismissed

The Tribunal upheld the First Appellate Authority's decision to delete the addition of Rs. 3,76,21,851/- made under Section 2(22)(e) of the Income Tax ... Deemed dividend addition u/s 2(22)(e) - Held that:- The very fact that the amount of loan is being brought forward when it was to be considered the actual payment received in the impugned assessment year whether could be subject to taxation as deemed dividend u/s 2(22)(e) of the Act was for revisiting the definition of deemed dividend u/s 2(22)(e) of the Act is of no avail. The AO has not been able to establish the facts otherwise, in so far as, it was not the assessee who suddenly took action for receiving the amount as deemed dividend when the department has been accepted the loan amount much more payable by it to M/s.Pataka Industries Pvt. Ltd. was acceptable to them earlier and further more the interest paid has been allowed by the AO in the impugned assessment year as expenditure. It is not the case of the Revenue to give a name as deemed dividend to the interest income which has been earned by M/s.Pataka Industries Pv.t Ltd. on which tax has already paid for the impugned assessment year for the assessee. We have no hesitation in upholding the order of the ld. CIT(A) and dismiss the appeal filed by the Revenue. Issues:Whether the ld. CIT(A) erred in deleting the addition of Rs. 3,76,21,851/- made by the AO u/s 2(22)(e) of the Income Tax Act, 1961.Analysis:1. Issue of Addition under Section 2(22)(e): The Revenue appealed against the deletion of an addition of Rs. 3,76,21,851/- made by the AO under Section 2(22)(e) of the Income Tax Act. The AO noted that the assessee received a loan from M/s. Pataka Industries Ltd., and the balance of the loan was Rs. 10,96,11,928/- as of 31.03.2009. The AO argued that the loan amount should be treated as deemed dividend under section 2(22)(e) due to the relationship between the parties involved.2. First Appellate Authority's Decision: The First Appellate Authority deleted the addition, citing a previous Tribunal decision and the fact that the assessee was not a shareholder in the lending company. The Authority emphasized that the loan should not be considered as deemed dividend based on the specific circumstances of the case and relevant legal precedents.3. Arguments and Counter-Arguments: The ld. DR contended that the facts were not adequately clarified by the CIT(A) or the Tribunal. However, the ld. Counsel for the assessee defended the decision, highlighting that the loan amount should not be taxed as deemed dividend under section 2(22)(e) based on the facts and the interest payments made.4. Tribunal's Decision: After considering the arguments, the Tribunal upheld the CIT(A)'s decision to delete the addition. The Tribunal found that the loan amount received by the assessee should not be treated as deemed dividend under section 2(22)(e) as the conditions specified in the provision were not met. The Tribunal emphasized that the interest income earned by the lending company had already been taxed, and there was no basis to classify the loan amount as deemed dividend.5. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision. The Tribunal held that the loan amount received should not be taxed as deemed dividend under section 2(22)(e) based on the facts and legal interpretations presented. The decision was based on the specific circumstances of the case and the previous Tribunal rulings in the assessee's favor.This detailed analysis highlights the key legal arguments, interpretations of relevant provisions, and the Tribunal's final decision regarding the addition under section 2(22)(e) of the Income Tax Act.