ITAT deletes Addition of ‘Deemed Dividend’ in the Absence of Proof to establish Payment to Shareholder of Company [Read Order]

The Income Tax Appellate Tribunal ( ITAT ) Chennai Bench deleted the addition of “Deemed Dividend” in the absence of proof to establish payment to a shareholder or person who has a beneficiary interest in the company.

The appellant revenue challenged the order of Commissioner of Income Tax (Appeals)-6, Chennai (CIT(A)) dated 30-11-2017 in deleting the addition by holding that the AO of the recipient company can make addition u/s.2(22)(e) of the Income Tax Act,1961.

The assessee advanced sum of Rs.7.50 Crores to an entity namely M/s. Arun Priya Services Ltdon lease.The 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 has been treated by 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 a substantial interest in that entity.

The assessee stated 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.

The Tribunal observed that the only reason given was that one of the directors of the assessee-company held a substantial interest in that entity else there wasnothing on record to establish the allegation. Further observed that such addition was not to have been made in the hands of M/s. Arun Priya Services Ltd and the provisions of Sec.194 could not be invoked in the case of the assessee.

The Coram consists of Shri Mahavir Singh, Vice President and Shri Manoj Kumar Aggarwal, AM while dismissing the appeal of revenue observed that 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) and upheld the impugned order.

The assessee was represented by Shri Philip George and the revenue was represented by Shri P. Sajit Kumar.

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