2022 (7) TMI 1475 - AT - Income Tax

ITAT Confirms Loan as Deemed Dividend Under Section 2(22)(e), Validates Case Reopening Under Section 148, Dismissing Appeal.

Y.V. Rajasekhara Babu, Hyderabad. Versus The Assistant Commissioner of Income Tax, Circle-4 (1), Visakhapatnam.

The ITAT upheld the treatment of a loan as a deemed dividend under section 2(22)(e) of the Income Tax Act, agreeing with the CIT(A) and AO's assessment. ... Deemed dividend U/s. 2(22)(e) - assessee being a 25% share holder in loan granter company - HELD THATA:- The accumulated profits to the extent available in the books of account shall be considered for the purpose of determining the deemed dividend U/s. 2(22)(e) of the Act. The reliance placed by the Ld. AR in the case of Promod Kumar Dang [2005 (11) TMI 193 - ITAT DELHI-A] has been rightly distinguished by the Ld. CIT(A) and cannot be applied to the instant case. However, we also find that the assessee has included the undisclosed income in its books of account resulting an increase in the accumulated profits of the company. The Ld. CIT(A) has rightly computed the accumulated profits for the purpose of section 2(22)(e) of the Act subject to verification of certain tax challans of the CIT(A)'s order. We also note that the Ld. AO has rightly considered the directions of the Ld. CIT(A) and passed the consequential order revising the order passed U/s. 143(3) r.w.s 254 of the Act. Reopening u/s. 148 - As we find from the record that the Ld. AO has rightly given the reasons for such reopening and reopening is well within the period as prescribed under the Act. Therefore, this ground raised by the assessee is dismissed. Issues:1. Deemed dividend treatment under section 2(22)(e) of the Income Tax Act for loan obtained by the assessee from the company.2. Computation of accumulated profits for determining deemed dividend.3. Validity of reopening the case under section 148 of the Act after a significant period.4. Admissibility of additional grounds challenging the reopening of the case.Deemed Dividend Treatment (Section 2(22)(e)):The appeal pertains to the treatment of a loan obtained by the assessee from a company as deemed dividend under section 2(22)(e) of the Income Tax Act. The assessee, a 25% shareholder in the company, received a loan which was assessed as deemed dividend. The Assessing Officer (AO) determined the loan amount as deemed dividend, leading to an appeal by the assessee before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) initially deleted the addition, but upon appeal by the Revenue to the ITAT, the order was set aside, directing the AO to determine accumulated profits to decide the quantum of deemed dividend. The AO, after considering submissions, assessed the loan amount as deemed dividend. The CIT(A) then computed accumulated profits and directed further examination. The ITAT found no infirmity in the orders of the CIT(A) and AO, upholding the treatment of the loan as deemed dividend.Computation of Accumulated Profits:The dispute involved the computation of accumulated profits for the purpose of section 2(22)(e) of the Act. The assessee argued that the undisclosed income admitted during search operations should not be used for determining accumulated profits. The CIT(A) computed accumulated profits subject to verification of tax challans. The ITAT upheld the CIT(A)'s decision, noting that the undisclosed income was included in the company's books, increasing accumulated profits. The ITAT found the CIT(A) and AO's orders regarding accumulated profits and consequential revision to be appropriate.Validity of Reopening Under Section 148:The assessee raised concerns regarding the validity of reopening the case under section 148 of the Act after a significant period. The ITAT determined that the AO provided valid reasons for reopening within the prescribed period, dismissing the ground raised by the assessee challenging the reopening.Admissibility of Additional Grounds:The assessee filed additional grounds challenging the validity of reopening the case under section 148. The ITAT, having dismissed the challenge to the reopening, found no need to separately adjudicate the additional grounds raised by the assessee.In conclusion, the ITAT upheld the treatment of the loan as deemed dividend under section 2(22)(e) of the Income Tax Act, affirmed the computation of accumulated profits by the CIT(A), and deemed the reopening of the case under section 148 as valid. The ITAT dismissed the appeal of the assessee, pronouncing the judgment on July 14, 2022.