2009 (4) TMI 479 - AT - Income Tax

ITAT Mumbai allows assessee's appeal on deemed dividend addition under section 2(22)(e) - debenture account included.

In a 2009 case before the ITAT, Mumbai, the tribunal allowed the assessee's appeal against the addition under section 2(22)(e) of the I.T. Act, 1961. The ... Addition under section 2(22)(e) of the I.T. Act, 1961 - Assessee is a share holder of more than 10% in one company called M/s. Star Synthetics Pvt. Ltd – AO treated the loan taken from M/s. Star Synthetics Pvt. Ltd as deemed dividend of 2365000 under section2(22)(e) of the Act - So the short question that arise is whether all the three accounts, i.e., debenture account in assessee's name, personal account in assessee's own name and account in the name of the proprietorship concern of the assessee, were to be considered together or only the later two accounts was to be considered for working out the peak credit and to see whether assessee had loan it any amount from M/s. Star Synthetics Pvt. Ltd - Held that: - debenture is only a loan account. Hence, both the CIT and the learned Assessing Officer fell in error when they consolidated only two accounts of the assessee with M/s. Star Synthetics Pvt. Ltd. ignoring its debenture account therein. - if all those three accounts are taken together, assessee at no point of time vowed any money to the company and therefore, assessee cannot be considered to have loan or taken any advance from the said company. Therefore, there is no question of any deemed dividend arising in its hand.Accumulated profit - share premium - Held that: under section 78 of the Companies Act, 1956 share premium account cannot be taken as part of accumulated profits for the purpose of applying section 2(22)(e) of the Act. - No addition can be made under section 2(22)(e) of the Act on the assessee in the impugned assessment year for its transactions vis-a-vis M/s. Star Synthetics Pvt. Ltd. In the appellate tribunal ITAT, Mumbai case of 2009 (4) TMI 479, the appeal was made by the assessee against the addition under section 2(22)(e) of the I.T. Act, 1961, which was confirmed by the CIT(A). The assessee, a shareholder.......The CIT(A) did not accept the assessee's contentions and confirmed the addition of deemed dividend, stating that the debentures' nature was different from unsecured loans. In the tribunal, the learned A.R. argued that the debenture account should also be considered in working out the loan balance. The tribunal examined the accounts and concluded that the debenture account should be included, and the accumulated profits should not include the share premium account. Therefore, the appeal of the assessee was allowed. The tribunal's decision was pronounced on April 29, 2009.