2019 (7) TMI 1596 - AT - Income Tax

Tribunal Upholds Deemed Dividend Addition, Rejects Commercial Expediency Argument

Shri R. Lakshminarayanamoorthy, C/o. Shri T.N. Seetharaman, Adv. Versus The Dy. Commissionerof Income Tax, Corporate Circle-1, Coimbatore.

The Tribunal dismissed the appeal, upholding the addition of deemed dividend under Sec.2(22)(e) of the Act. The appellant's argument that funds were ... Deemed dividend addition u/s 2(22)(e) - Drawing funds in the form of loans - assessee had received amounts from M/s.Chroma Print India Pvt. Ltd., when he was having debit balances, to the extent of ₹ 14,48,685/- on various dates - HELD THAT:- A perusal of the Hon’ble Calcutta High Court in the case of Shri Pradip Kumar Malhotra [2011 (8) TMI 16 - CALCUTTA HIGH COURT] shows that in the said decision, it was held that if the advance given by the company to the assessee shareholder by way of compensation, was for keeping his property on mortgage on behalf of the company to reap the benefit of a loan, it could not be treated as deemed dividend within the meaning of Sec.2(22)(e) of the Act. In the present case, nothing has been brought on record to show that the amounts received by the assessee was compensation for keeping his property on mortgage on behalf of the company to reap the benefit of a loan. In fact, the facts in the present case clearly show that the assessee has been drawing funds in the form of loans for earlier years also. Decision of the Hon’ble Calcutta High Court has no application in the facts of the assessee’s case. Further, no fresh facts have been brought out by the assessee to dislodge the findings arrived at by the co- ordinate Bench of this Tribunal in the assessee’s own case for the AY 2010-11. This being so, respectfully following the decision of the coordinate Bench of this Tribunal in the assessee’s own case for the immediately preceding assessment year, referred to supra, the findings of the Ld.CIT(A) on this issue stands confirmed. - Decided against assessee. Issues:1. Deemed dividend addition under Sec.2(22)(e) of the Act.2. Applicability of previous tribunal decisions.3. Interpretation of the decision of the Hon'ble Calcutta High Court.Deemed Dividend Addition under Sec.2(22)(e) of the Act:The appeal involved a challenge against the addition on account of deemed dividend made by the Assessing Officer under Sec.2(22)(e) of the Act. The appellant, a Managing Director of a company, received amounts from the company when having debit balances, leading to the invocation of the said provision. The Commissioner of Income Tax (Appeals) upheld the addition, relying on the decision of the Hon'ble Bombay High Court. The appellant argued that the funds received were for commercial expediency, citing a scheme of amalgamation. However, the Tribunal found that there was no authority from the company's Board of Directors to grant the amounts, thus upholding the addition as per Sec.2(22)(e) of the Act.Applicability of Previous Tribunal Decisions:The appellant contended that a previous decision of the Tribunal did not consider a judgment of the Hon'ble Kolkata High Court. However, the Tribunal noted that the said judgment did not apply to the facts of the present case. The Tribunal emphasized that no new facts were presented to distinguish the earlier tribunal decision against the appellant. Consequently, the findings of the Commissioner of Income Tax (Appeals) were upheld based on the precedent set by the previous tribunal decision.Interpretation of the Decision of the Hon'ble Calcutta High Court:The appellant relied on a judgment of the Hon'ble Calcutta High Court to argue for the deletion of the addition. However, the Tribunal found that the facts of the present case did not align with the circumstances in the Calcutta High Court judgment. It was highlighted that no evidence was presented to show that the amounts received were compensation for specific services rendered. As a result, the Tribunal dismissed the appeal, confirming the decision of the Commissioner of Income Tax (Appeals).In conclusion, the Tribunal dismissed the appeal filed by the assessee, upholding the addition of deemed dividend under Sec.2(22)(e) of the Act based on the lack of evidence supporting the appellant's claims and the alignment with previous tribunal decisions. The judgment emphasized the importance of factual evidence and precedent in tax matters, ultimately affirming the decision of the Commissioner of Income Tax (Appeals).