Tribunal rules sum not deemed dividend & deletes cash credit addition The Tribunal ruled in favor of the assessee, stating that the sum received from a company in which the assessee held shares was not deemed dividend under ...
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Tribunal rules sum not deemed dividend & deletes cash credit addition
The Tribunal ruled in favor of the assessee, stating that the sum received from a company in which the assessee held shares was not deemed dividend under section 2(22)(e) as it was in the ordinary course of the company's business. Additionally, the Tribunal upheld the Commissioner's decision to delete the addition of cash credit under section 68, emphasizing the lack of evidence disputing the source of cash deposits. The assessee's appeal was allowed for the section 2(22)(e) addition, while the Revenue's appeal for the cash credit addition was dismissed.
Issues: 1. Addition under section 2(22)(e) of the Income Tax Act, 1961 as deemed dividend. 2. Addition of cash credit under section 68 of the Act.
Issue 1: Addition under section 2(22)(e) - Deemed Dividend
The dispute in this case revolved around the assessment of Rs. 3,00,000 received by the assessee as a loan from a company in which the assessee held more than 10% shareholding, categorized as deemed dividend under section 2(22)(e) of the Act. The Assessing Officer contended that the company was not regularly involved in financing business and, therefore, treated the sum received as deemed dividend. The assessee argued that lending and advancing money was part of the company's business activities, supported by past assessments where interest income was treated as business income. The Tribunal found that the company had been accepting interest income from loans and advances as business income, as accepted by the department in previous assessments. Consequently, the Tribunal ruled in favor of the assessee, stating that the sum received was in the ordinary course of the company's business, and hence, not deemed dividend.
Issue 2: Addition of Cash Credit under section 68
Regarding the addition of Rs. 16,25,000 as cash credit under section 68 of the Act, the Assessing Officer questioned the source of cash deposits made by the assessee in the bank account. The assessee explained that the cash was from the sale of land, supported by balance sheet details. The Assessing Officer rejected the explanation, citing the prolonged holding of cash and lack of a cash book. However, the Commissioner (Appeals) accepted the assessee's explanation, noting that there was no adverse material to dispute the source of cash. The Tribunal upheld the Commissioner's decision, emphasizing that there was no evidence of the cash being utilized elsewhere and no legal prohibition on holding cash. Therefore, the addition made by the Assessing Officer was deemed unjustified, and the Commissioner's decision to delete the addition was upheld.
In conclusion, the Tribunal allowed the assessee's appeal regarding the addition under section 2(22)(e) and dismissed the Revenue's appeal concerning the addition of cash credit under section 68.
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