2016 (10) TMI 542 - AT - Income Tax

Tribunal overturns tax assessment, emphasizes merits over technicalities

The Tribunal allowed the appeal, holding that the CIT-XIII, Kolkata was not justified in adding Rs. 95,70,953/- under section 2(22)(e) as deemed dividend. ... Revision u/s 263 - deemed dividend addition u/s 2(22)(e)- assessee is challenging this finding by contending that the deemed dividend, if any, is taxable in the hands of the person, who is the shareholder of the lender Company and not in the hands of the persons or entities other than the shareholder - Held that:- Here in this case, M/s. Birendra Chandra Saha admittedly is not a shareholder in M/s. Mascot Woodcraft Pvt. Ltd. and the loan was advanced to the assessee-company. The beneficiary shareholder of M/s. Mascot Woodcraft Pvt. Limited, i.e. Smt. Kamala Saha is not the registered shareholder of M/s. Mascot Woodcrafts Pvt. Limited. In these circumstances, the decision of this Tribunal in the case of Bhaumik Colour (P) Limited [2008 (11) TMI 273 - ITAT BOMBAY-E ] is applicable on all fours. Respectfully following the same, we hold that the ld. CIT is not justified in making the addition of ₹ 95,70,953/- under section 2(22)(e) of the Act as deemed dividend. - Decided in favour of assessee. Issues Involved:1. Legality of the order passed under section 263 by the CIT-XIII, Kolkata.2. Justification of the CIT-XIII, Kolkata in adding Rs. 95,70,953/- under section 2(22)(e) as deemed dividend.3. Condonation of delay in filing the appeal.Detailed Analysis:1. Legality of the Order Passed Under Section 263 by the CIT-XIII, Kolkata:The assessee challenged the order dated 25.03.2013 by the CIT-XIII, Kolkata, arguing that it was arbitrary, unjustified, and illegal. The CIT had enhanced the income and assessed it at Rs. 1,05,87,423/- by adding a deemed dividend of Rs. 95,70,953/- from an unsecured loan given by M/s. Mascot Woodcraft Pvt. Ltd. The assessee contended that the Assessing Officer (AO) had already considered all points raised by the CIT in the notice under section 263 during the original assessment, making the CIT's order arbitrary and unjustified.2. Justification of the CIT-XIII, Kolkata in Adding Rs. 95,70,953/- Under Section 2(22)(e) as Deemed Dividend:The CIT added Rs. 95,70,953/- as deemed dividend under section 2(22)(e), reasoning that the unsecured loan from M/s. Mascot Woodcraft Pvt. Ltd. to the assessee-firm was taxable as dividend. The CIT noted that the partners of the assessee-firm, Mrs. Kamala Saha and Mr. Asim Kumar Saha Mondal, held significant shares in M/s. Mascot Woodcraft Pvt. Ltd. However, the Tribunal found that the deemed dividend is taxable in the hands of the shareholder of the lender company, not in the hands of the non-shareholder entity receiving the loan. Since M/s. Birendra Chandra Saha, the assessee, was not a shareholder of M/s. Mascot Woodcraft Pvt. Ltd., the addition under section 2(22)(e) was not justified. The Tribunal referenced the ITAT Mumbai Bench decision in ACIT vs. Bhaumik Colour (P) Limited and the ITAT Kolkata Bench decision in Shiv Transport & Travels vs. ITO, which held that deemed dividends should be taxed in the hands of the shareholder, not the non-shareholder entity.3. Condonation of Delay in Filing the Appeal:The assessee filed the appeal with a delay of 303 days, attributing the delay to improper advice from their former counsel, Mr. P.K. Sarkar, FCA, and the illness of Smt. Kamala Saha, a partner of the assessee-firm. The Tribunal considered the sworn statement regarding the counsel's incompetence and Smt. Kamala Saha's medical condition as sufficient cause for the delay. The Tribunal referenced the guidelines laid down by the Hon'ble Supreme Court in Collector Land Acquisition vs. Mst. Katiji & Others and the Hon'ble Calcutta High Court in Indian Oil Corporation Limited vs. CEGAT & Others, which advocate for a liberal approach in condoning delays to ensure substantial justice. The Tribunal concluded that the delay should be condoned, as non-condonation would prioritize technical considerations over the merits of the case.Conclusion:The Tribunal allowed the appeal, holding that the CIT-XIII, Kolkata was not justified in making the addition of Rs. 95,70,953/- under section 2(22)(e) as deemed dividend. The Tribunal also condoned the delay in filing the appeal, emphasizing the importance of deciding cases on their merits rather than technical grounds. The order was pronounced in the open Court on August 26, 2016.