CIT vs. RASS INTRATECH PVT LTD

I #L o/o 26.O5.2Ot 1 Present: Mr. Sanjeev Sabharwal, Sr. Standing Counsel for the appellant/Revenue, +lTA No.774l2O11 * The order passed by the Assessing Officer (AO) was revised by the Commissioner of Income Tax (for brevity 'ClT') in exercise of its power under Section 263 of the Income Tax Act on the ground that the AO had failed to tax the loan amounts of {3,57,03,7671- as deemed dividends in the assessee's hands. lt was observed by the CIT that the assessee had received loans in the aforesaid sum from M/s. Optic Electronic (l) Pvt. Ltd. (hereinafter referred to as 'optic') who had accumulated profits of <8.69 Crores and that the assessee and Optic had common share holders. On this basis, the CIT opined that the conditions for the applicability of Section 2(22)(e) of the lncome Tax Act is still satisfied and the orders of the AO was erroneous and prejudicial to the interest of Revenue inasmuch as he failed to bring the aforesaid tax amounts as deemed dividends. This order was challenged by the assessee before the lncome Tax Appellate Tribunal (in short 'the Tribunal') which has allowed the appeal for statistical purposes and remanded the case back to the AO for holding limited inquiry and the opinion of the CIT otherwise is not accepted. This is clear from Paras 8 and 8.1 of the impugned order: Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified

+ { I L- "8. In the present case, if the share holders of the assessee company were holding more than 10% of the shares and not the assessee company, then clearly Section 2(22)(e) will not apply in this case on the touchstone of Hon'ble Bombay High Court and Special Bench decisions cited above. The Ld. Commissioner of Income tax (Appeals)'s order that the assessee and OEIPL have common share holder, satisfies the condition for applicability of Section 2(22)(e) is not sustainable. 8.1 However, we find that as per the balance sheet of the assessee company submitted in the paper book furnished by the assessee's counsel in the investment head it has been shown that the assessee is holding only 1 equity share of Rs.10/- each fully paid of M/s Optic Electronic (l) Pvt. Ltd. (OEIPL). Further in the grounds of appeal it has been mentioned in ground no.5 that Ld. Commissioner of lncome tax erred in direction the Assessing Officer to tax the sum of 357O3767l- as deemed dividend under Section 2(22)(e) of the Act in the hands of the appellant, without appreciating that the appellant was not a share holder of OEIPL. However, there is no detail of the total number of shares of OEIPL. However, we agree with the proposition that section 2(22)(e) will not be attracted, if the assessee company is not holding 10% share of M/s OEIPL. Hence we direct the Assessing Officer to examine this aspect and decide the issue in favour of the assessee, if the share holding of the assessee in M/s OEIPL is less than 10% of total share holding of OEIPL. Needless to add that the assessee should be given adequate opportunity of being heard." The learned counsel for the Revenue submits that the view of the Tribunal directing limited inquiry by the AO is not correct inasmuch as if it is found that even if the assessee iS "any concern" within the meaning of Section 2(22)(e\ of the Act, then the common share-holder who has substantial interest in Optic can be taxed. For this purpose, he relies upon a recent Judgment of this Court in the case of Commissioner of Income Tax Vs. Ankitech Pvt' Ltd' (in ITA No.462 of 2009, decided on May 11, 2011).

$ t , at \., lnsofar as the present assessee is concerned, if it is not having substantial share holding in Optic, provisions of Section 2(22)(e) of the Act would not be attracted qua it. However, if there is a common shareholding and satisfies the conditions stipulated in the said provisions, as per the Judgment in Ankitech Pvt. Ltd, (supra), the Department'can initiate action against the assessee' This appeal is dismissed, subject to the aforesaid observations. t fw8 A.K. StKRt, J. M.L. MEHTA, J. MAY 26,ZOLL pmc