2022 (3) TMI 31 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on deemed dividend; business transactions not loans

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition under Section 2(22)(e) of the Income Tax Act. The ... Addition on account of deemed dividend u/s 2(22)(e) - HELD THAT:- CIT(A) held that assessee is neither registered nor beneficial shareholder of JIIPL. Thus, the deeming provision of section 2(22)(e) is for taxing deemed dividend is always meant for registered and beneficial shareholder of the JIIPL company. We find that the CIT(A) also examined the contention of assessee made purchases to the tune of ₹ 127.24 crores from JIIPL during the year under consideration and that transaction with JIIPL was pertaining to business transaction and not liable to be covered by the ambit of section 2(22)(e) - CIT(A) held that AO has not controverted this contention of assessee in the assessment order. CIT(A) further held that during appellate proceedings, the assessee furnished copy of ledger account of transaction with JIIPL and filed copy of transfer pricing officer (TPO) under section 92(CA), pertaining to specific domestic transaction with its associates companies. To support his contention, CIT(A) find the fund from JIIPL was pertaining to the business transaction - CIT(A) by referring the decision of Hon'ble jurisdictional High Court in the case of Shripad Concrete Pvt.Ltd. [2013 (7) TMI 117 - GUJARAT HIGH COURT] wherein the Hon'ble court held that advance on account of business transaction cannot be categorized as loans so as to attract deeming fiction under section 2(22)(e) of the Act. We also find merit in the submission that on similar transaction in earlier and subsequent year no such addition was based on similar transaction. In our view, the Ld. CIT(A) is after considering the entire fact and legal position took a legaly plausible view which we affirm. So far as reliance in case of National Travel Services [2018 (1) TMI 1159 - SUPREME COURT] by Ld. CIT-DR, we find that in the said decision the Hon'ble apex court merely referred the case before Hon'ble Chief Justice of India to constitute a larger bench and no finding which may be said to the adverse to the assessee is made. In view of the aforesaid factual and legal discussion, we affirm the order of Ld. CIT(A). - Decided against revenue. Issues Involved:1. Deletion of addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act.2. Whether the assessee-company is a shareholder in JIIPL.3. Validity of the addition based on the consent of the assessee's representative.4. The nature of the transactions between the assessee and JIIPL.5. Accumulated profit consideration under Section 2(22)(e).Detailed Analysis:Issue 1: Deletion of Addition on Account of Deemed Dividend under Section 2(22)(e)The Revenue appealed against the CIT(A)'s order deleting the addition of Rs. 5,74,45,129 made on account of deemed dividend under Section 2(22)(e) of the Income Tax Act. The assessee argued that the CIT(A) correctly deleted the addition, citing that the assessee-company is not a shareholder in JIIPL, and thus, the provisions of Section 2(22)(e) do not apply. The Tribunal upheld the CIT(A)'s decision, stating that the deeming provision for taxing deemed dividends is meant for registered and beneficial shareholders of the payer company.Issue 2: Whether the Assessee-Company is a Shareholder in JIIPLThe assessee-company argued that it is not a shareholder in JIIPL, and therefore, the provisions of Section 2(22)(e) are not applicable. The CIT(A) agreed with this contention, noting that the assessee is neither a registered nor a beneficial shareholder of JIIPL. The Tribunal affirmed this view, referencing the Special Bench decision in CIT vs. Bhaumik Colour Pvt. Ltd., which held that the shareholder should be both registered and beneficial.Issue 3: Validity of the Addition Based on the Consent of the Assessee's RepresentativeThe Assessing Officer made the addition based on the consent of the assessee's Chartered Accountant (CA). However, the assessee contended that this consent was not binding, as it was given under a mistake of law or fact. The CIT(A) supported this view, citing that no tax can be collected without the authority of law as mandated by Article 265 of the Constitution. The Tribunal agreed, affirming that admissions made on mistakes of fact or law are not binding on the assessee.Issue 4: The Nature of the Transactions Between the Assessee and JIIPLThe assessee argued that the transactions between it and JIIPL were in the nature of Inter Corporate Deposits and business transactions, not loans or advances. The CIT(A) noted that the assessee made purchases amounting to Rs. 127.43 crores from JIIPL during the year, supporting the claim that the transactions were business-related. The Tribunal upheld this view, referencing the jurisdictional High Court decision in CIT vs. Shripac Concrete Pvt. Ltd., which held that advances on account of business transactions cannot be categorized as loans to attract deemed dividend provisions.Issue 5: Accumulated Profit Consideration Under Section 2(22)(e)The assessee argued that if the addition under Section 2(22)(e) is upheld, it should be restricted to the accumulated profit of JIIPL as on 31-03-2012, amounting to Rs. 1.92 crores. The Tribunal found merit in this submission but noted that since the appeal of the Revenue was dismissed, specific adjudication on this alternative submission became academic and dismissed it as infructuous.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition under Section 2(22)(e) of the Income Tax Act. The assessee's Cross Objection was dismissed as infructuous. The judgment emphasized that the provisions of Section 2(22)(e) apply only to registered and beneficial shareholders and that business transactions cannot be categorized as loans to attract deemed dividend provisions.