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2015 (9) TMI 386 - ITAT AHMEDABAD

2015 (9) TMI 386 - ITAT AHMEDABAD - TMI - Addition on account of deemed dividend under section 2(22)(e) - CIT(A) deleted the addition - Held that:- As being a registered shareholder is a condition precedent for invoking Section 2(22)(e) of the Act, and that condition is admittedly not satisfied. For this short reason alone, the impugned additions should have been deleted by the CIT(A). We approve the conclusions arrived at by the CIT(A) in this respect and decline to interfere in the matter so f .....

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the hands of the assessee as these additions are required to be made in the hands of someone else. The deletion of the impugned addition in the hands of the assessee company has been thus projected to be, though perhaps at a somewhat subliminal level, dependent of the addition being confirmed in the hands of the director. The directions given by the CIT(A) do prejudice interests of the assessee inasmuch as these directions not being implemented may be viewed as detrimental to the interests of th .....

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ition, the statutory provisions are to be construed ut res magis valeat quam pereat i.e., in such a manner as to make it workable rather than redundant. The assessee before us, therefore, has, in our considered view, locus standi to challenge legality of these directions. Thus we vacate the directions in questions. - Decided in favour of assessee. - IT APPEAL NO. 443 (AHD.) OF 2011, CO NO. 71 (AHD.) OF 2011 - Dated:- 31-8-2015 - PRAMOD KUMAR AND S.S. GODARA, JJ. For The Appellant : A.K. Pandey F .....

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8377; 70,57,941 made on account of deemed dividend under section 2(22)(e) of the Income Tax Act". 3. To adjudicate on this issue, only a few material facts need to be taken note of. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee company had taken a loan of ₹ 70,57,941 from Biotech Vision Care Pvt Ltd. (BVCPL, in short) It was also noted that Shri Mehul P Asnani, one of the major shareholders in the assessee company, holding 40 .....

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er alia, as follows: Appellant is not a shareholder in the lender company. However, the Assessing Officer has treated the same as deemed dividend in the hands of the appellant company. Appellant's main objection was that in view of the various decisions, including the special bench of ITAT Mumbai and Bombay High Court referred to in assesse's submissions, the addition of deemed dividend can only be made in the hands of the shareholder. If the recipient of loan is not a shareholder and th .....

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of the decisions of the ITAT Special Bench and Bombay High Court. 4. The Assessing Officer is aggrieved of the relief so granted by the CIT(A), and is in appeal before us. 5. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. 6. We find that there is no controversy or dispute about the fundamental legal position that unless the assessee is a shareholder in the company from which the amounts .....

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company from which it had received deposit, it cannot be treated to be a deemed dividend under section 2(22)(e) of the Act". The same was the position in the case of ACIT v. Bhaumik Colours Pvt Ltd [(2009) 118 ITD 1 SB (Mum)] wherein a special bench of this Tribunal concluded that, "Deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder" and that "The expression 'sh .....

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Act, and that condition is admittedly not satisfied. For this short reason alone, the impugned additions should have been deleted by the CIT(A). We approve the conclusions arrived at by the CIT(A) in this respect and decline to interfere in the matter so far as the relief given by the CIT(A) is concerned. 8. In the result, the appeal is dismissed. 9. The assessee has also moved a cross objection which seeks to expunge CIT(A)s directions to bring this deemed dividend to tax in the hands of Shri M .....

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attention to a decision of the coordinate bench in the case of Jagat Minerals Pvt Ltd v. DCIT and vice versa (ITA Nos 2110, 2403 and 2750/Ahd/11; dated 22.4.2015) whereby similar remarks made by the CIT(A) have been modified. 11. Learned Departmental Representative, on the other hand, relies upon the stand taken by the CIT(A). He submits that when the impugned addition was deleted solely on the ground that it was required to be taxed in the hands of the director concerned, the CIT(A) was quite .....

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uary 2011. Obviously, the assessment must have attained finality, by the time the Assessing Officer came to know of these directions, since in terms of Section 153(1) "no order of assessment shall be made under section 143 or section 144 at any time after the expiry of- (a) two years from the end of the assessment year in which the income was first assessable; or (b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing .....

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3 or section 264 is passed by the Commissioner. However, this provision comes into play only when the order passed under section 250, 254, 263 or 264 in the case of the assessee himself. That is not the situation that we are dealing with at present. 14. Section 153 (3), dealing with the impact of the findings or direction given by the revisionary, appellate or judicial authorities, prescribes that "the provisions of" inter alia section 151(1) "shall not apply to the ….. ass .....

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ding or direction of an revisionary, appellate or judicial authority is to be given, that exercise can be carried out any point of time de hors the time limits specified in section 153(1). However, even this relaxation of time limits is subject to certain riders, including rider contained in Explanation 3 to Section 153(3) which provides that, where by a revisionary, appellate or judicial order of the above nature, an income is excluded from the income of one assessee and held to be income of th .....

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s issued by the revisionary, appellate or judicial authority are an exercise in futility. This rider is equally relevant in respect of reopening of an assessment under section 154, as a result of the findings or directions of the revisionary, appellate or judicial authorities. 15. It is an undisputed position, on the facts of this case, that Shri Mehul P Asnani, in whose hands CIT(A) has directed this income to be added, has not been granted an opportunity of hearing by the CIT(A) before these d .....

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eme Court in the case of CIT v. Rajinder Nath [(1979) 120 ITR 14 (SC)], "As regards the expression "direction" in s. 153(3)(ii) of the Act, it is now well settled that it must be an express direction necessary for the disposal of the case before the authority or Court. It must also be a direction which the authority or Court is empowered to give while deciding the case before it." Their Lordships then added that "The expressions "finding" and "direction&qu .....

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ng in respect of B may be called for. For instance, where the facts show that the income can belong either to A or B and no one else, a finding that it belongs to B or does not belong to B would be determinative of the issue whether it can be taxed as A's income. A finding respecting B is intimately involved as a step in the process of reaching the ultimate finding respecting A. If, however, the finding as to A's liability can be directly arrived at without necessitating a finding in res .....

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e before the authority or Court. It must also be a direction which the authority or Court is empowered to give while deciding the case before it. 18. Let us now, in the above light, revert to the facts of the case before us. The authorities below were dealing with a deeming fiction, i.e. deemed dividend, about an income. The case of the assessee was that this deeming fiction of deemed dividend could not be invoked in the present case because the assessee did not hold the shareholdings in the com .....

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olds that since Mehul P Asanai is a shareholder in the said company, the receipt can be added as deemed dividend in the hands of Mehul P Asnani, but then what he overlooks is that all the conditions precedent for taxing a receipt as deemed dividend are to be satisfied qua the assessee in whose income is to be taxed, and being a shareholder is only one such precondition. Learned CIT(A) has, as noted earlier in this order, observed that "If the recipient of loan is not a shareholder and the t .....

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hold that it is an income to be taxed in the hands of the shareholder i.e. Mehul P Asnani. It is a classic case of putting cart before the horse and is wholly based on fallacious logic. The direction is thus not only unnecessary but patently incorrect. Viewed thus, the direction given by the CIT(A), for taxability of this deemed dividend in the hands of Shri Asnani, does not constitute "an express direction necessary for disposal of a case". Nothing really turns on his direction, as su .....

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