2022 (12) TMI 301 - AT - Income Tax

Tribunal nullifies reassessment, deletes addition under Income Tax Act; deems Assessee not liable for deemed dividend.

M/s. Pallava Resorts Private Limited Versus The Income Tax Officer, Corporate Ward – 5 (1)

The Tribunal allowed the Assessee's appeal partly, holding the reassessment as null and void and deleting the addition made under Section 2(22)(e) of the ... Deemed dividend u/s.2(22)(e) - loan received by the Assessee from QNEI is to be treated as ‘deemed dividend’ and is to be assessed to tax u/s.2(22)(e) - HELD THAT:- Transactions between the Assessee along with its holding company were in the nature of current account and not in the nature of loans and hence does not fall under the scope of the deemed dividend u/s.2(22)(e). Same view taken in the case of Fairmacs Shipstores Private Limited [2015 (2) TMI 1382 - ITAT CHENNAI] - We noted that identically in this case also the payment should have been made by way of advance of loan to a shareholder of QNEI. The loan given by QNEI to the Assessee does not fall within the aforesaid provision. Also, in the decision of the Jurisdictional High Court in the case of PCIT Vs. Ennore Cargo Container Terminal Private Limited [2017 (4) TMI 615 - MADRAS HIGH COURT] it is held that, even if common shareholders are there in both the companies, the deemed dividend can be taxed only in the hands of the registered shareholder of the company and not in the hands of the company which has received the loan. Since, the Assessee is not a shareholder of QNEI, the amount received from QNEI will not be taxable in the hands of the Assessee as deemed dividend u/s.2(22)(e) of the Act and common shareholding in two companies would not attract the provisions of Section 2(22)(e) of the Act. In the light of the above, we are of the opinion that the reassessment made by the Assessing Officer stands null and void and the addition made u/s.2(22)(e) of the Act be deleted. Thus, the ground raised by the Assessee is allowed. Issues Involved:1. Condonation of delay in filing the appeal.2. Reopening of assessment under Section 147 read with Section 148 of the Income Tax Act, 1961.3. Treatment of inter-corporate deposits as 'deemed dividend' under Section 2(22)(e) of the Income Tax Act, 1961.Detailed Analysis:1. Condonation of Delay:The appeal by the Assessee was barred by a delay of 96 days. The Assessee's counsel cited the Covid-19 pandemic as the reason for the delay, referring to the Supreme Court's Suo Moto WP 03/2020 dated 20.03.2020. The Tribunal acknowledged the Supreme Court's directions in Miscellaneous Application No.21/2022 and condoned the delay, admitting the appeal for adjudication on merits.2. Reopening of Assessment:The Assessee challenged the reopening of the assessment under Section 147 read with Section 148 of the Income Tax Act. The grounds included:- The Assessee had fully disclosed all material facts necessary for the original assessment.- The reasons recorded for reassessment did not indicate any failure on the Assessee's part to disclose relevant facts.- The details of the loans were already available in the financial statements during the original assessment.- No new information or change in law had occurred between the original assessment and the reassessment.- The reassessment was based on a change of opinion on the same set of facts.3. Deemed Dividend under Section 2(22)(e):The primary issue was the addition made by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals) on 'deemed dividend' under Section 2(22)(e) of the Act. The Assessee contended that:- The inter-corporate deposit received from Questnet Enterprises Private Limited (QNEI) should not be treated as deemed dividend.- The Assessee was not a shareholder of QNEI, and hence the provisions of Section 2(22)(e) were not applicable.- Jurisdictional High Court decisions, such as PCIT Vs. Ennore Cargo Terminal Private Limited, supported their position.Tribunal's Findings:- The Tribunal noted that the Assessee did not hold any shares in QNEI, and it is illegal for a subsidiary to hold shares in its holding company under the Companies Act, 1956.- The transactions between the Assessee and QNEI were in the nature of current account transactions and not loans, thus not falling under the scope of deemed dividend under Section 2(22)(e).- The Tribunal referred to several judicial precedents, including decisions from the Delhi High Court, Madras High Court, and Mumbai High Court, which supported the Assessee's contention that deemed dividend provisions apply only if the recipient is a shareholder.- The Tribunal concluded that since the Assessee was not a shareholder of QNEI, the amount received could not be taxed as deemed dividend under Section 2(22)(e).Conclusion:The Tribunal held that the reassessment made by the Assessing Officer was null and void and deleted the addition of Rs.1,40,67,364/- made under Section 2(22)(e). Consequently, the issue of reopening the assessment became academic and was not adjudicated.Result:The appeal of the Assessee was allowed partly, with the order pronounced on 22nd July, 2022, at Chennai.