Tribunal directs deletion of additions under sections 68 and 2(22)(e) in appeal decision.

The Tribunal allowed the appeal, directing the Assessing Officer to delete the additions of share application money u/s. 68 and deemed dividend u/s. 2(22)(e) made in the original assessment. The Tribunal emphasized that cash credits received in a different year should not be subject to additions under section 68. Additionally, it clarified that the provision of deemed dividend under section 2(22)(e) applies to shareholders, not the company, in cases where advances are made to shareholders.

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Issues:
1. Addition of share application money u/s. 68 of the Income Tax Act.
2. Addition of deemed dividend u/s. 2(22)(e) of the Act.

Issue 1: Addition of Share Application Money u/s. 68:
The assessee had shown receipt of share application money in the balance sheet, which was received in the financial year 2001-02. The Assessing Officer assessed this sum as income u/s. 68 of the Act since the assessee did not provide a satisfactory explanation. The assessee contended that the money was received in earlier years and had been accepted in previous assessments. The CIT(A) upheld the addition under section 41(1) as shares were not allotted against the money. However, the Tribunal noted that the money was not received in the year under consideration and cited a Delhi High Court case where it was held that additions should not be made for cash credits received in a different year. Consequently, the Tribunal directed the Assessing Officer to delete the addition u/s. 68.

Issue 2: Addition of Deemed Dividend u/s. 2(22)(e):
The Assessing Officer added sums due to the assessee from two directors as deemed dividend u/s. 2(22)(e) since they held a significant share in the company. However, the Tribunal observed that the cause of action u/s. 2(22)(e) arises in the hands of the shareholder, not the company. As the company had paid money to the shareholders as advances, the Tribunal held that the Assessing Officer incorrectly applied the provision to the company. Consequently, the Tribunal directed the Assessing Officer to delete the addition made u/s. 2(22)(e) of the Act.

In conclusion, the appeal filed by the assessee was allowed, and the Tribunal directed the Assessing Officer to delete both the addition of share application money u/s. 68 and the deemed dividend u/s. 2(22)(e) made in the original assessment. The Tribunal's decision was based on the legal interpretation of the relevant provisions of the Income Tax Act and the specific circumstances of the case.

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