Tribunal upholds assessment order, reverses deemed dividend, remands interest disallowance for verification.

The Tribunal deemed the assessment order valid despite the pending appeal, dismissing the appellant's contention. The addition of deemed dividend under Section 2(22)(e) was reversed as the shareholding did not meet the threshold. The disallowance of interest under Section 40(a)(ia) was remanded for verification based on the retrospective application of the second proviso. The appeal was partly allowed, with the second ground accepted and the third ground remanded for further review.

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Issues Involved:
1. Validity of the assessment order passed by the AO during the pendency of the appeal before the Tribunal.
2. Addition of Rs. 4,10,00,000 as deemed dividend under Section 2(22)(e) of the Income Tax Act.
3. Disallowance of interest of Rs. 6,30,000 under Section 40(a)(ia) for failure to deduct tax at source.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order:
The appellant contended that the assessment order passed by the AO on 17-08-2011 was invalid due to the pending appeal before the Tribunal (ITA No.549/Kol/2011). The Tribunal referred to the relevant provisions of Section 153(2A) of the Income Tax Act, which prescribes the time limit for completing assessments and reassessments. It concluded that the AO is required to give effect to the order passed by the CIT under Section 263 of the Act, irrespective of the pending appeal before the Tribunal. The assessment made by the AO was deemed valid, and the ground raised by the assessee was dismissed.

2. Addition as Deemed Dividend:
The AO added Rs. 4,10,00,000 to the assessee's income as deemed dividend under Section 2(22)(e) of the Act, based on the assessee's shareholding in M/s. Mega Resources Ltd. The CIT confirmed the addition, referencing the earlier decision in the assessee's own case for AY 2005-06. The assessee argued that this issue was covered by the Tribunal's earlier order, which followed the Special Bench decision in ACIT Vs. Bhaumik Colors Pvt. Ltd. The Tribunal found that the assessee held registered shares amounting to 10,99,300, which was less than the 10% threshold for deemed dividend. Consequently, the Tribunal deleted the addition, reversing the lower authorities' orders, and allowed the ground raised by the assessee.

3. Disallowance of Interest under Section 40(a)(ia):
The AO disallowed Rs. 6,30,000 paid as interest to M/s. Methoni Tea Ltd for failure to deduct tax at source under Section 40(a)(ia). The CIT(A) confirmed this disallowance. The assessee argued that the second proviso to Section 40(a)(ia), inserted by the Finance Act 2012, should apply retrospectively. The Tribunal referred to the Delhi High Court's decision in CIT-1 Vs. Ansal Land Mark Township(P) Ltd, which held that the second proviso is declaratory and curative, having retrospective effect from 01-04-2005. The Tribunal remanded the matter back to the AO for verification of the details of M/s. Methoni Tea Ltd and directed the assessee to cooperate in completing the assessment. This ground was allowed for statistical purposes.

Conclusion:
The Tribunal dismissed the first ground, allowed the second ground by deleting the addition of deemed dividend, and remanded the third ground for further verification. The appeal was partly allowed.

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