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Tax Publishers Assetz Infrastructure (P) Ltd. v. Dy. CIT [ITA No. 563/Bang/2019, ITA No. 983/Bang/2019, dt. 2-12-2020] : 2020 TaxPub(DT) 5022 (Bang-Trib) Addition of deemed dividend under section 2(22)(e) on net basis *Facts:* Assessee in the business of real estate was in receipt of a loan of Rs. 8.99 crores from its subsidiary in which assessee held 99.99% shares. The reserves of the subsidiary was Rs. 22.67 crores with the P&L balance being Rs. 4.42 crores. Accordingly out of the said loan Rs. 4.42 crores to the extent of P&L account was read as deemed dividend under section 2(22)(e). On appeal the Commissioner (Appeals) acceded to the plea of the assessee that the said balance with the subsidiary was a running account where in amounts for Rs. 5.11 crores were received and Rs. 4.99 crores were paid. On appeal the Commissioner (Appeals) took the net amount (5.11 - 4.99) and taxed the remaining 0.11 crores as deemed dividend under section 2(22)(e). On appeal the assessee's plea was the balance in the reserves comprised share premium which is not part of free reserves which was also accepted by the assessing officer as well. Bereft this assessee claimed that the profit and loss account balance of Rs. 4.42 crores arose out of the profits of the immediate previous year wherein deferred tax liability was reversed to the extent of Rs. 8.59 crores. Accordingly if this reversal was not there would have not been any accumulated profits to impute any deemed dividend rather it would have been an accumulated loss in the Profit and loss account thus no addition under section 2(22)(e) was warranted. Held against the assessee that the addition of 0.11 crores by the Commissioner (Appeals) on net basis was incorrect given the Apex court verdict of Miss P Sarada v. CIT (1998) 229 ITR 444 (SC) : 1998 TaxPub(DT) 1048 (SC). It has to be on gross basis to the extent of Rs. 4.42 crores as per the assessing officer. The argument of deferred taxes was also not acceptable to the ITAT. *Editorial Note:* It is to be noted that this was a case of cross appeals by both parties.

Tax Publishers

Assetz Infrastructure (P) Ltd. v. Dy. CIT [ITA No. 563/Bang/2019, ITA No. 983/Bang/2019, dt. 2-12-2020] : 2020 TaxPub(DT) 5022 (Bang-Trib)

Addition of deemed dividend under section 2(22)(e) on net basis

Facts:

Assessee in the business of real estate was in receipt of a loan of Rs. 8.99 crores from its subsidiary in which assessee held 99.99% shares. The reserves of the subsidiary was Rs. 22.67 crores with the P&L balance being Rs. 4.42 crores. Accordingly out of the said loan Rs. 4.42 crores to the extent of P&L account was read as deemed dividend under section 2(22)(e). On appeal the Commissioner (Appeals) acceded to the plea of the assessee that the said balance with the subsidiary was a running account where in amounts for Rs. 5.11 crores were received and Rs. 4.99 crores were paid. On appeal the Commissioner (Appeals) took the net amount (5.11 - 4.99) and taxed the remaining 0.11 crores as deemed dividend under section 2(22)(e). On appeal the assessee's plea was the balance in the reserves comprised share premium which is not part of free reserves which was also accepted by the assessing officer as well.

Bereft this assessee claimed that the profit and loss account balance of Rs. 4.42 crores arose out of the profits of the immediate previous year wherein deferred tax liability was reversed to the extent of Rs. 8.59 crores. Accordingly if this reversal was not there would have not been any accumulated profits to impute any deemed dividend rather it would have been an accumulated loss in the Profit and loss account thus no addition under section 2(22)(e) was warranted.

Held against the assessee that the addition of 0.11 crores by the Commissioner (Appeals) on net basis was incorrect given the Apex court verdict of Miss P Sarada v. CIT (1998) 229 ITR 444 (SC) : 1998 TaxPub(DT) 1048 (SC). It has to be on gross basis to the extent of Rs. 4.42 crores as per the assessing officer. The argument of deferred taxes was also not acceptable to the ITAT.

Editorial Note: It is to be noted that this was a case of cross appeals by both parties.