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Income Tax Appellate Tribunal, DELHI BENCHES: ‘F’, NEW DELHI
Before: SHRI R.S. SYAL & SMT. BEENA A PILLAI
PER BEENA A PILLAI, JUDICIAL MEMBER
The present appeal has been preferred by the revenue against order dated 30/04/15 passed by Ld. CIT (A)-22, New Delhi for assessment year 2011-12 on the following grounds of appeal:
1. The Ld.CIT(A) has erred in law and on the facts and in the circumstances of the case in deleting the addition amounting to Rs.78,50,000/- on account of deemed dividend income u/s 2(22)(e) of Income Tax Act, 1961.
Wings Corporate Services P Ltd. 2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal.”
Brief facts of the case are as under: The assessee filed its return of income on 30/09/11 declaring a total income of Rs. 88,09,130/-. The return was processed under section 143(1) of the Act and, case was selected for scrutiny. Notice under section 143(2) of the Act was issued to the assessee along with the detailed questionnaire. In response to the notice assessee filed various details and submissions as requisitioned and discussed the case with Assessing Officer. 2.1. During the assessment proceedings Ld. AO observed that assessee was engaged in the business of collection of debts and verification. He also observed that assessee had received a sum of Rs.78,50,000/- from M/s Scrutscan Services Pvt. Ltd., which was shown as a liability in the books of accounts. The Ld. AO accordingly called for evidences in relation to money so received from M/s Scrutscan Services. 2.2. Ld. AO however rejected the contentions advanced by assessee and made addition of Rs. 78,50,000/- in the hands of assessee as deemed dividend under the provisions of section 2 (22) (e) of the Act. 2.3. Aggrieved by the order of Ld. AO assessee preferred appeal before Ld. CIT (A). It was submitted by assessee that assessee is not a shareholder of M/s Scrutscan Services. It was further submitted that only Sh. Kamal Singh Yadav was a common Page | 2
Wings Corporate Services P Ltd. shareholder in both the companies being the assessee as well as M/s Scrutscan Services. Ld. CIT (A) decided the issue as under: “After going through the observations of the AO and the submissions of the appellant, the grounds are being finalized after making the following observations. 1.12 The AO has primarily argued that since the assessee company and M/s Scrutscan Consultants (P) Ltd hove common directors and also cross shareholding, the provisions of section 2 (22)(e) are attracted. In this regard, the AR of the appellant has emphasized that the appellant did not have any shareholding in M/s Scrutscan Consultants (P) Ltd, even though one of the directors Shri Kamal Singh Yadav was having shares in both the company. In this regard, the shareholding pattern of both the companies had also been provided before the AO. On facts it is clear that though the appellant did not have any shares of M/s Scrutscan Consultants (P) Ltd, there were common directors in both the companies. 1.13 The AR has strongly argued that only because there were common shareholders in both the companies would not attract the provisions of section 2 (22) (e) of the I.T. Act. In this regard, the AR emphasized that one of the primary conditions is that the assessee should be a shareholder of the company. The AR has relied upon the decision of Ankitech (P) Ltd 340 ITR and MCC Marketing 343 ITR to argue that the deemed dividend is assessable only in the hands of the shareholder of the company from which it had received a loan.
Wings Corporate Services P Ltd. The AR has placed reliance on decisions where on similar facts, the provisions of section 2(22) (e) were not attracted. With regard to the issue of applicability of section 2 (22)e), the jurisdictional High Court has held in the case of Ankitech 340 ITR and MCC Marketing 343 ITR that dividend has to be taxed in the hands of the shareholder and the fiction cannot be extended for broadening the concept of shareholders. In the decision of Ankitech (Supra) the facts of the case were similar to the present case where there were common shareholders but the appellant company did not have any share holding in the company from whom the advance had been received. Under similar circumstances, the Hon'ble Delhi High Court had decided the issue in favour of the assessee. The issue is, therefore, covered in favour of the assessee, by the Delhi High Court decision. In the present case, the AO has not been able to dispute the arguments of the appellant that the appellant was not a shareholder in M/s Scrutscan Consultants P Ltd. and, therefore, the provisions of section 2(22)(e) could not be attracted. This contention of the appellant is, therefore, allowed. The AO is directed to delete this addition.”
Being aggrieved by the order of Ld. CIT (A) revenue is in appeal before us now.
At the outset Ld. AR has submitted a circular No. 19/2017 issued by the CBDT on 12/06/17 wherein the view regarding application of section 2 (22) (e) of the Act on trade advances has been settled. He placed reliance upon the circular and submitted Wings Corporate Services P Ltd. that more so assessee is not at all a shareholder of M/s Scrutscan Services and therefore the provisions of section 2 (22) (e) of the Act would anyways not be applicable in the present case.
On the contrary Ld. DR placed reliance upon the assessment order.
We have perused the submissions advanced by both the sides in the light of records placed before us. 6.1. It has not been disputed by the authorities below or Ld.DR that assessee not being a shareholder in M/s Scrutscan Services, provisions of Sec.2(22)(e) would be applicable only if assessee is a share holder in M/s Scrutscan Services. We do not find any infirmity in the findings of Ld. CIT(A) and the same is upheld. Accordingly the ground raised
by the revenue stands dismissed.
7. In the result appeal filed by the revenue stands dismissed. Order pronounced in the open court on 22nd November, 2017.