ITAT rules on deemed dividends to non-shareholders
The bench dismissed the appeal of the revenue department
ITAT rules on deemed dividends to non-shareholders
The bench dismissed the appeal of the revenue department
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that deemed dividend under the Income Tax Act, 1961 is not applicable to the non-shareholder company.
The Coram of Yogesh Kumar US (Judicial Member) and Dr. BRR Kumar (Accountant Member) viewed that the provisions of the Act were not applicable, as the assessee was not a registered shareholder of the company from which the advance had been received.
The bench observed that the advances could not have been added in the hands of the assessee company, being not the registered shareholder of AIPL or GSL.
The Assessing Officer (AO) observed that the gross profit of the assessee had dropped significantly for the year under consideration in comparison to the earlier Assessment Year. The gross profit for the current year was 15.24 percent – a net profit of 1.74 percent. The AO held that on deduction of income from other sources of Rs.14.46 crores, the net profit would have steeped further.
The assessee submitted that the fall in the profits was due to the renovation work that was undertaken.
But the AO maintained that the complementary expenses were not shown in the P&L account of the assessee, but only reduced from the closing stock. He added that the service charges received was also not shown in the P&L account.
The AO estimated the gross profit at the rate of 28 percent and made an addition of Rs.6.24 crores to the income of the assessee. He also made protective additions amounting to Rs.12.50 crores in the hands of the assessee and substantive additions to be made in the hands of Universal Business Solutions Limited (UBSL), a 100 percent holding company of the respondent. This was done on the ground that the transactions constituted deemed dividends in the hands of UBSL as per the provisions of the Act.
The Commissioner of Income Tax (Appeals) deleted the addition and held that since the assessee was not a registered shareholder either in AIPL or GSL, the provisions of the Act were not applicable. He observed that the entire details of complimentary expenses, the method of accounting charges, and the amount of the services charges paid for Rs.1.23 crores, were duly stated.
Further, the reasons for declining the gross profit were furnished substantiating the decline in receipts, incurring expenses of direct receipts including electricity, water, staff, music and entertainment. These were provided irrespective of the percentage of occupancy.
The tribunal, thus, dismissed the appeal of the revenue department.