IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH
Before: Shri Pramod Kumar, Accountant Member and Shri Rajpal Yadav, Judicial Member

C.O. No. 83/Ahd/2014 (In ITA No. 3002/Ahd/2010) Assessment Year 2006-07

Kingston Threads Pvt. Ltd. (Cross Objector) vs The DCIT, Circle 1(2), Baroda (Respondent)

Date of hearing: 08-07-2015
Date of pronouncement: 03-08-2015

ORDER

On receipt of notice in the revenue’s appeal bearing ITA no. 3002/Ahd/2010, assessee has filed cross objection bearing No. 83/Ahd/2014. The appeal and CO were heard together on 8th July, 2015.

2. Appeal of the revenue has been disposed off by us vide order dated 24th July, 2015.

3. The grievance of the assessee in the cross objection is that ld. Commissioner of Income Tax (Appeals) ought to have deleted the entire addition proposed u/s. 2(22)(e) of the Income Tax Act, 1961. The revenue in its appeal has also taken ground no. 3 wherein it has challenged the deletion of addition made u/s. 2(22)(e). In the revenue’s appeal, we have recorded following finding.

“9. In ground no. 3, grievance of the revenue is that ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition made u/s. 2(22)(e) of the income tax act, 1961. The brief facts of the case are that on scrutiny of the accounts, ld. Assessing Officer found that assessee-company had received a sum of Rs. 16,71,757/- as an advance from the associate concern M/s. Jet Tech Pvt. (Guj). The Assessing Officer has observed that Shri Shibanshu Mishra is a director/share-holder with substantial share exceeding 10% of the voting powers in both the companies. Therefore, the advances given by M/s. Jet Tech Pvt Ltd to the assessee is to be considered as a deemed dividend within the meaning of section 2(22)(e) of the Income Tax Act. He accordingly, made an addition of Rs. 16,21,755/- in the total income of the assessee.

10. On appeal, ld. Commissioner of Income Tax (Appeals) has deleted the addition.

11. With the assistance of ld. representatives, we have gone through the record carefully. The issue in dispute is squarely covered in favour of the assessee by the decision of the Special Bench of the ITAT rendered in the case of ACIT vs. Bhaumik Colours Pvt. Ltd reported in 118 ITD page 01. The Special Bench of the ITAT has held that in order to attract section 2(22)(e) of the Act, the borrower should be the registered share-holder of the lender company. In the present case, M/s. Jet Tech Pvt Ltd has advanced a sum of Rs. 16,71,755/-, in order to attract section 2(22)(e) of the income tax act, 1961, the assessee should be share-holder of M/s Jet Tech Pvt. Ltd holding not less than 10% of the total voting share. The assessee is not the share-holder rather it is Shri Shivanshu Mishra who was holding shares in both the companies. In this situation, section 2(22)(e) cannot be attracted in the given facts and circumstances. Respectfully, following the decision of the Special Bench of the ITAT, we do not find any merit in this ground of appeal. It is dismissed.”

4. The assessee in its cross objection has submitted that Commissioner of Income Tax (Appeals) in principle upheld the addition u/s. 2(22)(e) but observed that the amount treated as deemed dividend and taxed in the hands of the assessee in Assessment Year 2004-05 may be reduced from accumulated profits of M/s JTPL and thereafter the deemed dividend will be worked out. According to the assessee, once section 2(22)(e) is not attracted upon the assessee, then, there cannot be any deemed dividend required to be assessed in the hands of assessee. Accepting this contention of the assessee that section 2(22)(e) is not applicable, we have rejected the ground of appeal raised by the revenue.

5. In view of the above discussion, we allow the grounds raised in the cross objection and direct the Assessing Officer not to treat any amount taken as advance from M/s. JTPL as deemed dividend because assessee is not a registered share-holder of M/s. JTPL and no deemed dividend can be assumed in the hands of the assessee qua advances from M/s. JTPL.

6. In the result, CO filed by assessee is allowed.

Order pronounced in the open court on 03-08-2015

Sd/-                                                     Sd/-
(PRAMOD KUMAR)              (RAJPAL YADAV)
ACCOUNTANT MEMBER    JUDICIAL MEMBER
Ahmedabad : Dated 03/08/2015