ITAT confirms disallowance under section 2(22)(e) for deemed dividends.

The ITAT upheld the disallowance under section 2(22)(e) of the Act, emphasizing the financial implications of journal entries and the absence of evidence to refute the treatment of the entries as deemed dividends. The appeal of the assessee was dismissed, and the order was pronounced on 22nd November 2017.

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Issues:
Disallowance under section 2(22)(e) of the Act.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax(A)-1, Chennai regarding the disallowance under section 2(22)(e) of the Act for the assessment year 2007-08. The assessee, a director in two companies with significant equity holdings, had entries in the books of one company showing amounts transferred to the assessee and another director. The Assessing Officer treated these entries as deemed dividends in the hands of the assessee, leading to a disallowance. The assessee contended that the entries were mere book entries and no actual payment was made to them. The CIT(A) upheld the Assessing Officer's decision, prompting the appeal before the ITAT.

The assessee argued that the CIT(A) erred in applying section 2(22)(e) without considering that the entries were reversed the following year, indicating no actual payment. The assessee claimed that no loan was provided, and the CIT(A) should have considered the company's confirmation of the same. The assessee emphasized that the section requires actual cash or cheque payments, which were absent in this case. The assessee sought deletion of the disallowance under section 2(22)(e).

On the other hand, the Departmental Representative contended that section 2(22)(e) encompasses payments by a company to a shareholder with substantial interest, even if the amounts are adjusted later. Citing relevant case laws, the Department argued that the book entries, even without cash outflow, constituted a loan under the section. The Department supported the lower authorities' decisions.

The ITAT reviewed the arguments and material on record. It noted that the company had accumulated profits and considered the financial implications of the journal entries. Referring to a previous Tribunal decision, the ITAT emphasized that journal entries also have financial implications and cannot be disregarded. The ITAT found no evidence to support the assessee's claim that the entries should not be treated as deemed dividends. Consequently, the ITAT confirmed the CIT(A)'s order, dismissing the assessee's appeal.

In conclusion, the ITAT upheld the disallowance under section 2(22)(e) of the Act, emphasizing the financial implications of journal entries and the absence of evidence to refute the treatment of the entries as deemed dividends. The appeal of the assessee was dismissed, and the order was pronounced on 22nd November 2017.

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