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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: HON’BLE SHRI MAHAVIR SINGH & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by Revenue for Assessment Year (AY) 2008-09 arises out of the order of learned Commissioner of Income Tax (Appeals)-6, Chennai [CIT(A)] dated 30-11-2017 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s. 147 of the Act on 22-03-2013. The grounds raised by the Revenue read as under:
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1. 1. The Order of the learned Commissioner of Income Tax (Appeals) is contrary to the Law and facts of the case.
2. The CIT(A) erred in deleting the addition by holding that the AO of the recipient company can make addition u/s.2(22)(e) of the Act without considering the fact that the AO has disallowed u/s.40(a)(ia) r.w.s. 194 of the Act.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the learned Commissioner of Income Tax (Appeals) be set aside and that of the Assessing Officer be restored.
As evident, the sole subject of dispute is addition u/s 2(22)(e).
The Ld. DR supported the assessment framed by Ld. AO whereas Ld. AR submitted that no disallowance could be made u/s 40(a)(ia) for want of tax deduction at source u/s 194. Having heard rival submissions, our adjudication would be as under.
During assessment proceedings, it transpired that the assessee advanced sum of Rs.7.50 Crores to an entity namely M/s. Arun Priya Services Ltd. One of the directors of the assessee company i.e., Dr. Jayam Kannan held substantial interest in that entity. Accordingly, Ld. AO opined that the sum so paid would require tax deduction at source on the part of the assessee. The assessee defended its stand on the ground that even if the sum was treated as deemed dividend u/s 2(22)(e), there was no liability to deduct tax at source since there was no declaration or payment of dividend u/s 194. However, rejecting the same, Ld. AO held that the assessee was liable for TDS on the said payment u/s 194 and therefore, made a disallowance of Rs.169.50 Lacs to the income of the assessee. The sum of Rs.169.50 Lacs was nothing but the amount of TDS @22.6% which the assessee was liable to deduct in terms of Sec.194.
Upon further appeal, Ld. CIT(A) deleted the same on the ground that the advance was given for taking a property on lease and addition u/s 2(22)(e) could be made in the hands of the recipient only. The relevant observations were as under: - 4.4. Coming to the merits on the addition made, AO has accepted the advance made to M/s. Arun Priya Services Limited amounting to Rs.7.5 crores without any adverse inference. However, AO has not accepted appellant's submission's that deemed dividend is not applicable in its case. On perusal of assessment order, I found that AO has not understood the provisions of deemed dividend u/s.2(22)(e). It is the primary onus on the department to establish that deemed dividend in the hands of recipients. AO has not disputed the advance of Rs.7.5 crores given to M/s. Arun Priya Services Limited in which Dr. Jayam Kannan was a director and having substantial interest. If the facts are true, then the AO of Dr. Jayam Kannan has to initiate assessment proceedings in the hands of Dr. Jayam Kannan and bring the assumed advance as deemed dividend, if conditions therein the provisions are met. This is not the case of the appellant. The advance given for taking a property on lease which has not questioned and established as a loan or an advance. Moreover, AO has made an addition on amount of Rs.1,69,50,000/- without any basis. He has not given any reason and why the said amount to be deducted by the appellant u/s.194. This is nothing but AO's conjectures and surmises without substance. In the circumstances, AO is directed to delete the addition of Rs.1,69,50,000/-. This ground of appeal stands allowed.
Aggrieved as aforesaid, the revenue is in further appeal before us.
Upon careful consideration of material facts, it could be gathered that the assessee has advanced sum of Rs.7.5 Crores to another entity for taking a property on lease. The same has been treated by Ld. AO as deemed dividend u/s 2(22)(e) of the Act on the ground that one of the directors of the assessee company held substantial interest in that entity. However, addition u/s 2(22)(e) is to be made in the hands of the recipient i.e., M/s. Arun Priya Services Ltd. which is not the case of Ld. AO. The only reasoning given is that one of the directors of assessee-company held substantial interest in that entity. There is noting on record to establish that the payment was to a person which was having beneficial interest in assessee company. No such addition is shown to have been made in the hands of M/s. Arun Priya Services Ltd. Therefore, the 4 - provisions of Sec.194 could not be invoked in the case of the assessee and the assessee could not be held to be liable for deduction of tax at source which would warrant any disallowance u/s 40(a)(ia). Therefore, finding no reason to interfere in the impugned order, we dismiss the appeal.
The appeal stands dismissed. Order pronounced on 06th July, 2022.