2014 (8) TMI 1066 - AT - Income Tax

Deemed dividend u/s. 2(22)(e) - Held that - The assessee is holding registered shares to the tune of 10, 99, 300 in Mega Resources Ltd. and not 13, 99, 100 as alleged by the revenue. No doubt the total shareholding of the assessee in Mega Resources Ltd. is to the tune of 13, 99, 100 but registered shareholders are to the extent of 10, 99, 300. We have to see only the registered shareholding and not the beneficial shareholder. For this the assessee has filed evidence before the lower authorities and even before us now. In such circumstances this issue being covered by the Special Bench of this Tribunal Mumbai Bench in the case of Bhaumik Colour P. Ltd. 2008 (11) TMI 273 - ITAT BOMBAY-E . Respectfully following the same we delete the addition and reverse the orders of the lower authorities. - Decided in favour of assessee.

Summary

Issues involved:
1. Treatment of loan as deemed dividend u/s. 2(22)(e) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Treatment of loan as deemed dividend u/s. 2(22)(e) of the Act
- The appeal arose from the order of CIT(A) confirming the action of AO in treating the loan from Mega Resources Ltd. as deemed dividend u/s. 2(22)(e) of the Act.
- The assessee contended that the AO failed to follow the directions of ITAT Kolkata Bench-C correctly and that the order was bad, illegal, and void ab initio.
- The appellant argued that as a registered shareholder of less than 10% in Mega Resources Ltd., the provisions of section 2(22)(e) should not apply, referencing a specific direction from ITAT Kolkata Bench-C.
- The CIT(A) upheld the AO's decision, stating that the appellant failed to provide documentary evidence to prove the shareholding discrepancy.
- The Tribunal considered the Special Bench decision in Bhaumik Colour P. Ltd. case, emphasizing that only registered shareholding should be considered for deemed dividend assessment.
- The Tribunal found that the appellant held 10,99,300 registered shares in Mega Resources Ltd., not 13,99,100 as claimed by the revenue, and ruled in favor of the appellant based on the Special Bench precedent.
- Consequently, the Tribunal allowed the appeal, deleted the addition, and reversed the lower authorities' orders.

This judgment highlights the importance of distinguishing between registered and beneficial shareholding for the purpose of deeming a loan as a dividend under section 2(22)(e) of the Income-tax Act, 1961. The Tribunal's decision to follow the Special Bench precedent and consider only registered shareholding in Mega Resources Ltd. led to the deletion of the addition and the allowance of the appellant's appeal.