2015 (4) TMI 1199 - AT - Income Tax

Appellate Tribunal Upholds Assessee's Position on Deemed Dividends and TDS

I.T.O., Ward-33 (1) Kolkata Versus Pratap Singh Kothari

I.T.O., Ward-33 (1) Kolkata Versus Pratap Singh Kothari - TMI Issues Involved:1. Deemed dividend received from companies where the assessee is a director.2. Addition made under section 40(a)(ia) for failure to deduct tax at source.Analysis:Issue 1: Deemed DividendThe Revenue contended that the assessee, a substantial shareholder of multiple companies, received interest-bearing loans from these companies, leading to the treatment of these loans as deemed dividends under section 2(22)(e) of the Act. The Assessing Officer (AO) considered the loans as deemed dividends due to the substantial interest held by the assessee in these companies. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition based on the decision of the Jurisdictional High Court in a relevant case. The CIT(A) held that the loans received by the assessee could not be treated as deemed dividends, citing the High Court's interpretation that loans given to shareholders as a consequence of beneficial considerations to the company do not fall under the definition of deemed dividends. The Appellate Tribunal upheld the CIT(A)'s decision, stating that the loans received by the assessee were not gratuitous and were provided in return for advantages conferred upon the companies by the shareholder. Consequently, the ground raised by the Revenue on this issue was dismissed.Issue 2: Failure to Deduct Tax at SourceThe AO disallowed certain expenses under section 40(a)(ia) for the assessee's failure to deduct tax at source, which was later deleted by the CIT(A) following decisions of the Jurisdictional Tribunal in other cases. The dispute centered on the non-submission of Form No.15G for non-deduction of tax to the Commissioner of Income Tax (CIT). The Tribunal referenced previous cases where it was held that if the assessee received Form No.15G but did not submit it to the appropriate authorities, no disallowance could be made under section 40(a)(ia) of the Act. In alignment with these precedents, the Tribunal upheld the CIT(A)'s decision to delete the disallowance made by the AO. As a result, the ground raised by the Revenue on this issue was also dismissed.In conclusion, the appeal of the Revenue was dismissed by the Appellate Tribunal, upholding the decisions of the CIT(A) regarding both the treatment of deemed dividends and the disallowance under section 40(a)(ia) for failure to deduct tax at source.