ITAT limits deemed dividend disallowance, reduces expenses ad-hoc disallowance. Decision on March 14, 2014. The ITAT partially allowed the Assessee's appeal by limiting the deemed dividend disallowance to the accumulated profit from earlier years and reducing ...
Cases where this provision is explicitly mentioned in the judgment/order text; may not be exhaustive. To view the complete list of cases mentioning this section, Click here.
Provisions expressly mentioned in the judgment/order text.
ITAT limits deemed dividend disallowance, reduces expenses ad-hoc disallowance. Decision on March 14, 2014.
The ITAT partially allowed the Assessee's appeal by limiting the deemed dividend disallowance to the accumulated profit from earlier years and reducing the ad-hoc disallowance of various expenses from 10% to 5%. The decision was pronounced on March 14th, 2014.
Issues: 1. Confirmation of addition made on account of deemed dividend u/s 2(22)(e) of the Act. 2. Confirmation of ad-hoc addition of 10% of various expenses.
Issue 1: The appeal was against the order passed by the CIT(A) confirming the addition made by the AO on account of deemed dividend u/s 2(22)(e) of the Act. The assessee, engaged in the business of registration of documents, received loans from a company wherein she had interest in excess of 10% of voting power. The AO invoked the provision of 2(22)(e) and made an addition of Rs.29,40,933 as deemed dividend, which was also upheld by the CIT(A). The assessee contended that current year profits should be excluded from accumulated profits for the purpose of disallowance. The ITAT referred to various legal precedents and held that current profits cannot be included in accumulated profits for the purpose of deemed dividend. Consequently, the disallowance was restricted to Rs. 1,864,751, the accumulated profit brought forward from earlier years.
Issue 2: The second issue pertained to the ad-hoc addition of 10% of various expenses debited in the profit and loss account. The AO made the disallowance due to some expenses being incurred in cash without proper vouchers, potentially having a personal element. The CIT(A) confirmed the 10% disallowance. The ITAT observed that while some personal element couldn't be ruled out in certain expenses, the lack of proper evidence made the entire claim not fully verifiable. The ITAT reduced the disallowance to 5% for a more reasonable estimation. Consequently, the disallowance of Rs. 102,235 was reduced by half.
In conclusion, the ITAT partly allowed the appeal of the Assessee by restricting the deemed dividend disallowance to the accumulated profit from earlier years and reducing the ad-hoc disallowance of various expenses to 5% instead of 10%. The order was pronounced on March 14th, 2014.
Full Summary is available for active users!
Note: It is a system-generated summary and is for quick reference only.
TaxTMI 
of 
Join Channel
TaxTMI 
