Deemed Dividend can’t be assessable in the hands of Director when AO accepted Company’s Return without any Objection: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Delhi bench held that the director cannot be assessed for the deemed dividend when the Assessing Officer had accepted the Company’s return without any objection.

The assessee, holding 99% of shares in M/s Robin Software Pvt. Ltd, received a loan from the said Company during the year under consideration. These loans have been advanced out of the business proceeds/of the company. The Assessing Officer held that the amount received shall be deemed as dividend for the purpose of Section 2(22)(e) of the Income Tax Act.

On appeal, the CIT(A) observed that AO has wrongly made the addition u/s. 2(22)(e) by holding that there are accumulated profits in the hands of M/s Robin Software Pvt. Ltd. Ld. CIT(A) has also noticed that the AO has completed the assessment of M/s Robin Software Pvt. Ltd. for the assessment year 2012-13 and no addition has been made in the hands of that company and return of loss has been accepted.

The bench observed that the Ld. CIT(A) has rightly cancelled the order of the AO by holding that if the AO has accepted the income returned by the said company and not made any changes in the return of income and assessed the income as declared by the said company, he cannot hold that there was accumulated profits for the purpose of section 2(22)(e) of the Income Tax Act.

The bench further noted that the CIT(A) has observed that assessment of M/s Robin Software Pvt. Ltd has been completed vide order of the same Assessing Officer on 26.3.2014 and AO has accepted the returned of loss Rs. 1,05,460/- as on 28.3.2012 of that company.

“This being so the same AO could not have adopted a different income/profit figure to make addition u/s 2(22)(e). Hence, Ld. CIT(A) noted that when AO assesses the income of M/s Robin Software Pvt. Ltd. as loss for the same financial year, there could be no ground available to hold that the said company had accumulated profits at the time of making loans/advances. Therefore, the addition made as deemed dividend u/s. 2(22)(e) of Rs. 13,88,23,000/- was rightly deleted by the Ld. CIT(A) for want of fulfillment of the required conditions stipulated under the said section, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) and reject the ground raised by the Revenue.”