Tribunal rules in favor of partners in deemed dividend dispute

The Tribunal upheld the CIT(A)'s decision to delete the addition of deemed dividend u/s 2(22)(e) in the hands of the firm for assessment years 2007-08 and 2008-09. The funds received by the partnership firm from a company where the partners were also shareholders were deemed dividend. However, as the partners were the beneficial shareholders and the funds were for their benefit, the Tribunal ruled that the deemed dividend should be assessed in the hands of the partners, not the firm. Consequently, the revenue's appeals were dismissed.

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Issues involved:
The judgment involves the addition of deemed dividend u/s 2(22)(e) of the Act in the assessment years 2007-08 and 2008-09.

Summary:

Issue 1: Addition of deemed dividend u/s 2(22)(e) of the Act
The revenue's appeals were directed against a common order by the CIT(A) for the assessment years 2007-08 and 2008-09. The only issue for consideration was the addition of deemed dividend u/s 2(22)(e) of the Act. The assessing officer treated the amount received by the assessee, a partnership firm, as deemed dividend due to funds received from M/s KTC Automobile Pvt Ltd, where the partners of the assessee firm were also shareholders. The CIT(A) deleted the addition based on a previous Tribunal order. The Tribunal held that since the beneficial shareholders of the lending company were partners in the assessee firm, the deemed dividend should be assessed only in the hands of the partners, not the firm. As the partners were shareholders and the funds were for their benefit, the Tribunal confirmed the CIT(A)'s decision, dismissing the revenue's appeals.

Conclusion:
The Tribunal confirmed the CIT(A)'s decision to delete the addition of deemed dividend u/s 2(22)(e) in the hands of the firm, as it should be assessed only in the hands of the respective partners who are shareholders.

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