CIT vs. AR MAGNETICS PVT LTD

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ITA - 241 / 2012HC Delhi16 April 20121 pages
For Petitioner: DEEPAK CHOPRA
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the Revenue's appeal, holding that no substantial question of law arises for consideration. The Tribunal had deleted the addition made under Section 2(22)(e) of the Income Tax Act, 1961, by relying on the jurisdictional High Court's decision in CIT Vs. Ankitech (P) Ltd. (199 Taxman 341). This precedent established that the provisions of deemed dividend under Section 2(22)(e) cannot be invoked in cases where a loan is received from a company in which the recipient is not a shareholder, even if there are common shareholders between the lender and the recipient. The High Court found this decision to be authoritative and binding, thus finding no substantial question of law to adjudicate upon. The operative direction was the dismissal of the appeal.

What were the facts?

The Revenue (CIT) filed an appeal under Section 260A of the Income Tax Act, 1961, against the order dated December 16, 2011, passed by the Income Tax Appellate Tribunal (ITAT) concerning assessment year 2006-07. The assessee, AR Magnetics Pvt. Ltd., received a loan from Arcon (India) Pvt. Ltd. The Assessing Officer (AO) made an addition under Section 2(22)(e) of the Act, deeming the loan as dividend, because Sanjay Bhaskar held a majority of shares in Arcon (India) Pvt. Ltd. and almost all shares in the assessee company. The CIT(Appeals) upheld the AO's addition. The ITAT, however, deleted this addition.

What were the issues?

1. Whether the Tribunal erred in deleting the addition made under Section 2(22)(e) of the Income Tax Act, 1961, by holding that the deeming provisions of dividend cannot be invoked when shareholders are common, despite the assessee not being a shareholder in the lending company? The Revenue contended that the AO correctly invoked Section 2(22)(e) as Sanjay Bhaskar held significant shares in both the lending company (Arcon (India) Pvt. Ltd.) and the assessee company (AR Magnetics Pvt. Ltd.), making the loan a deemed dividend. The Revenue's argument was implicitly based on the AO's action and the CIT(Appeals)'s affirmation. The Assessee argued, and the Tribunal followed, the decision of the jurisdictional High Court in CIT Vs. Ankitech (P) Ltd. (199 Taxman 341), which held that Section 2(22)(e) cannot be invoked in such circumstances where common shareholders exist but the recipient is not a shareholder in the lender.

Which sections of the Income-tax Act were involved?

Section 260A,Section 2(22)(e)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF DELHI AT NEW DELHI . . . ITA 241/2012 . . . CIT ..... Appellant . Through Mr. Deepak Chopra, sr. standing counsel with Mr. Harpreet Singh Ajmani, Adv. . . . versus . . . AR MAGNETICS PVT LTD ..... Respondent . Through . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE G. P. MITTAL . . . O R D E R . 16.04.2012 . . . This appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961 (?Act?, for short) is directed against the order dated 16.12.2011 in the case of A R Magnetics Pvt. Ltd. It relates to assessment year 2006-07. . 2. The respondent-assessee is a company and had received loan from another company Arcon (India) Pvt. Ltd. The respondent-assessee is not a shareholder in Arcon (India) Pvt. Ltd. The Assessing Officer, however, made an addition by invoking provisions of deemed dividend under Section 2(22)(e) of the Act on the ground that one Sanjay Bhaskar held more than 50.49% of the shares in Arcon (India) Pvt. Ltd. and also held 99.98% shares in the respondent-assessee. The aforesaid addition made under Section 2(22)(e) was upheld by the CIT(Appeals). . 3. The Tribunal has however deleted the said addition following decision of the jurisdictional High Court in CIT Vs. Ankitech (P) Ltd. 199 Taxman 341. The said decision has been held that deemed dividend provisions cannot be invoked in such cases because the shareholders are common. . 4. In view of the authoritative pronouncement of this Court in Ankitech (P) Ltd. (supra) no substantial question of law arises for consideration. The appeal is dismissed. No costs. . . . SANJIV KHANNA, J . . . . . . . G. P. MITTAL, J . APRIL 16, 2012 . vld . . . . . $ 4 and 8 . . .

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