Tribunal rules on deemed dividend & keyman insurance policy, upholding CIT(A)'s decisions.

The Tribunal upheld the CIT(A)'s decisions to delete additions on account of deemed dividend under section 2(22)(e) and disallowance of keyman insurance policy. The Tribunal ruled that the deemed dividend could only be taxed in the hands of the shareholder, and since the assessee was not a shareholder, the additions were deleted. Additionally, the Tribunal found the keyman insurance policy premium to be an allowable expense based on relevant legal provisions and dismissed the Revenue's appeals.

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Issues Involved:
1. Deletion of addition on account of deemed dividend under section 2(22)(e) of the Income Tax Act.
2. Deletion of addition on account of disallowance of keyman insurance policy.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Deemed Dividend under Section 2(22)(e) of the Income Tax Act

The Revenue challenged the order of the CIT(A) for Assessment Years 2011-12 and 2012-13, where the CIT(A) deleted the additions made by the Assessing Officer (AO) on account of deemed dividend under section 2(22)(e) of the Income Tax Act. The AO had added Rs. 1,16,72,608/- and Rs. 46,83,972/- for the respective assessment years, arguing that there was common shareholding between the lending and receiving companies. The AO relied on the ITAT Delhi decision in the case of NCK Exports Pvt. Ltd.

The assessee contended that it was neither a registered nor a beneficial shareholder in the lending companies (M/s Royal Motors Bhopal Pvt. Ltd., M/s Royal Motors Gwalior Pvt. Ltd., and M/s Samadhiya Financial Services Pvt. Ltd.), and thus, the provisions of section 2(22)(e) were not applicable. The CIT(A) agreed with the assessee, citing various judicial precedents, including the Special Bench decision in the case of Bhaumik Colour Pvt. Ltd. and the jurisdictional ITAT bench decision in Atul Engineering Udyog. The CIT(A) concluded that deemed dividend under section 2(22)(e) could only be taxed in the hands of the shareholder, and since the assessee was neither a beneficial nor a registered shareholder, the addition was deleted.

The Tribunal upheld the CIT(A)'s decision, noting that the loans and advances were not received by the assessee on behalf or for the individual benefit of any shareholder. The Tribunal also referred to the Supreme Court decision in the case of CIT, Delhi-II vs. Madhur Housing and Development Company, which settled the issue that deemed dividend under section 2(22)(e) could only be taxed in the hands of the shareholder. Consequently, the Tribunal confirmed the CIT(A)'s orders for both assessment years and rejected the Revenue's appeals on this ground.

Issue 2: Deletion of Addition on Account of Disallowance of Keyman Insurance Policy

The AO had disallowed Rs. 9,50,150/- on account of keyman insurance policy, stating that the assessee failed to produce admissible evidence during the assessment proceedings. The CIT(A) deleted the addition, considering the assessee's contention that the premium paid for the keyman insurance policy of its director, Shri Hari Kant Samodhiya, was an allowable expense. The CIT(A) referred to the CBDT Circular No. 38/2016 dated 22nd November 2016 and various judicial pronouncements supporting the deductibility of such premiums.

The Tribunal observed that the findings of the CIT(A) were in conformity with the facts of the case and were not controverted by the Revenue. The Tribunal confirmed the CIT(A)'s order on this issue as well.

Conclusion:

In conclusion, the Tribunal dismissed both appeals by the Revenue, upholding the CIT(A)'s decisions to delete the additions on account of deemed dividend under section 2(22)(e) and disallowance of keyman insurance policy. The Tribunal's decision was based on established judicial precedents and the specific facts of the case. The orders were pronounced in the open court on 07/12/2017.

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