Tribunal directs AO to recompute deemed dividend, excludes certain withdrawals. Judgment pronounced 30/09/2015.

The Tribunal allowed the appeal, directing the AO to recompute the deemed dividend considering only advances received by the assessee until the date of sale of shares. The addition for low household withdrawals was deleted as the Tribunal found the total household withdrawals sufficient given the family size and living standard. The judgment was pronounced on 30/09/2015.

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Issues Involved:
1. Taxability of a sum of Rs. 6,36,117/- as 'deemed dividend' under section 2(22)(e) of the IT Act.
2. Justification of enhancing Rs. 80,000/- on account of low household withdrawals as undisclosed income.

Detailed Analysis:

Issue 1: Taxability as 'Deemed Dividend' under Section 2(22)(e)
The assessee challenged the addition of Rs. 6,36,117/- as 'deemed dividend' under section 2(22)(e) of the Income Tax Act, 1961. The facts reveal that the assessee, an individual, was a director and held 50.81% of the equity shares in M/s. CASCO Electronics Pvt. Ltd. (CEPL) at the beginning of the year. The AO noted that the assessee had received loans/advances from the company, which were considered as deemed dividend due to the beneficial ownership of more than 10% shares.

The assessee contended that since he resigned and sold his shares during the financial year, he should not be liable for deemed dividend. Alternatively, the assessee argued that only the amount of loans/advances received up to the date of sale of shares should be considered, subject to the limit of accumulated profits of the company, which was Rs. 81,000/- according to the assessee.

The AO, however, computed accumulated profits as Rs. 6,36,117/- and restricted the addition to this amount. The CIT(A) upheld the AO's decision, distinguishing the facts from the cited case of Smt S. P. Ammal.

Tribunal's Findings:
The Tribunal examined whether the advance received by the assessee from the company qualifies as deemed dividend by fulfilling three conditions:
1. CEPL was not a company in which the public was substantially interested.
2. The assessee was a beneficial owner of shares holding not less than 10% of the voting power.
3. CEPL had accumulated profits at the time of the advance.

The Tribunal noted that the AO overlooked the fact that the assessee sold his shares during the year. The Tribunal emphasized that for an advance to be considered as deemed dividend, the recipient must be a shareholder on the date of the loan. Citing judicial precedents, the Tribunal held that only advances received up to the date of sale of shares should be considered as deemed dividend.

The Tribunal determined the date of sale of shares as 30.07.2007 based on the share transfer form and directed the AO to compute the deemed dividend accordingly, subject to the availability of accumulated profits.

Issue 2: Addition of Rs. 80,000/- for Low Household Withdrawals
The AO added Rs. 80,000/- to the household withdrawals declared by the assessee, considering them insufficient for the economic status and family size. The CIT(A) upheld this addition.

Tribunal's Findings:
The assessee argued that his wife and father also contributed to household expenses, increasing the total household withdrawals to Rs. 3,63,000/-. The Tribunal found this sufficient given the family size and living standard, and thus, deleted the addition of Rs. 80,000/-.

Conclusion:
The appeal was allowed for statistical purposes, with the Tribunal directing the AO to recompute the deemed dividend and deleting the addition for low household withdrawals. The judgment was pronounced on 30/09/2015.

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