Appellate Tribunal affirms CIT(A) decision on deemed dividend.

The Appellate Tribunal ITAT Mumbai upheld the order of the ld CIT(A) in the appeal against deeming a sum received as dividend under section 2(22)(e) for the assessment year 2007-08. The ITAT ruled that the recipient did not meet the criteria of being a registered and beneficial shareholder in the lending company, as required by legal precedents. Consequently, the department's appeal was dismissed, affirming the decision of the ld CIT(A).

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Issues involved: Appeal against order regarding deemed dividend u/s 2(22)(e) for assessment year 2007-08.

Summary:
The Appellate Tribunal ITAT Mumbai heard an appeal filed by the department against the order of the ld CIT(A) for the assessment year 2007-08. The main issue was whether a sum of Rs. 60,64,205 received by the assessee from M/s. Karodia Construction Pvt Ltd., where the karta of the assessee is a shareholder, should be considered as deemed dividend u/s 2(22)(e) of the Act.

The AO treated the amount received as deemed dividend, but the ld CIT(A) held that the assessee HUF is not a shareholder or a beneficial shareholder of M/s. Karodia Constructions P. Ltd. The ITAT observed that as per the decision of ITAT Special Bench and the Hon'ble Rajasthan High Court, for the provisions of section 2(22)(e) to apply, the recipient of the loan should be a registered shareholder as well as a beneficial shareholder in the lender company. In this case, the assessee did not meet these conditions, as confirmed by the ld CIT(A) and not disputed by the ld D.R.

The ITAT upheld the order of the ld CIT(A) based on the legal precedents and rejected the department's appeal. The decision was in line with the strict interpretation of section 2(22)(e) as established by previous judgments. The appeal filed by the department was dismissed, and the order was pronounced on 10th October 2012.

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