Tribunal dismisses deemed dividend addition, allows penalty appeal

The appeal related to the addition of deemed dividend under section 2(22)(e) of the Act was dismissed as the Tribunal found that the amounts received by the Managing Director were not supported by a Board Resolution, upholding the addition. However, the appeal concerning the penalty on disallowance of deemed dividend was allowed, with the Tribunal determining that the penalty under section 271(1)(c) was unwarranted as the assessee had provided all details in the return. The judgment was pronounced on 12th April 2017 in Chennai.

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Issues:
1. Addition of deemed dividend under section 2(22)(e) of the Act.
2. Levy of penalty on disallowance of deemed dividend.

Analysis:

Issue 1: Addition of Deemed Dividend
The case involved two appeals filed by the assessee against the orders of the Commissioner of Income Tax (Appeals) regarding the addition of deemed dividend under section 2(22)(e) of the Act. The Managing Director of the company received certain amounts, and the Assessing Officer disallowed a balance amount for being deemed dividend. The assessee contended that the provisions of section 2(22)(e) were not applicable as the amounts received were for commercial expediency. The Tribunal remitted the issue to the AO, who repeated the addition. The assessee argued that the amounts were received for mortgaging properties for the company's loan. However, the Tribunal found that there was no authority from the company's Board of Directors to grant such a substantial amount, thus upholding the addition as deemed dividend. The Tribunal rejected arguments based on various case laws and the scheme of amalgamation, stating that the absence of a Board Resolution rendered the provisions of section 2(22)(e) applicable.

Issue 2: Penalty on Disallowance of Deemed Dividend
Regarding the penalty levied on the disallowance of deemed dividend, the Tribunal referred to a Supreme Court judgment to determine that the addition did not constitute furnishing inaccurate particulars of income or concealment of income. The Tribunal held that as the assessee had provided all details in the return, the penalty under section 271(1)(c) was unwarranted, and thus, the penalty was deleted.

In conclusion, the appeal related to the addition of deemed dividend was dismissed, while the appeal concerning the penalty on disallowance of deemed dividend was allowed. The judgment was pronounced on 12th April 2017 in Chennai.

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