Deemed dividend exclusion applied where a fresh shareholder advance was later set off against dividend and deleted from income.

Fresh advances to a shareholder were examined under deemed dividend rules in section 2(22)(e), but the amount remained excluded where it was later adjusted against dividend and therefore fell within the set-off exclusion in section 2(22)(iii). The assessee did not dispute the shareholding threshold or the basic applicability of section 2(22)(e); the controversy was confined to the fresh advance during the year. As the amount of Rs. 3,07,230 was treated as covered by the statutory exclusion, it was not includible as deemed dividend and the addition was deleted.

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Issues: Whether the amount advanced to the assessee during the year could be treated as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961, or whether it was excluded by the set-off provision in section 2(22)(iii).

Analysis: The assessee did not dispute the basic applicability of section 2(22)(e) or the shareholding threshold, and the dispute was confined to the amount actually advanced during the relevant year. The record showed that the Commissioner (Appeals) had restricted the addition to the fresh advance of Rs. 3,07,230/-, after excluding earlier opening balances. The crucial contention was that this amount stood adjusted against dividend subsequently distributed by the company and, therefore, fell within the exclusion carved out by section 2(22)(iii), which provides that dividend does not include any dividend paid by a company set off against the whole or part of a sum previously treated as dividend under clause (e). That aspect had not been considered by the Commissioner (Appeals).

Conclusion: The amount of Rs. 3,07,230/- was held not to be includible as deemed dividend in the assessee's hands, and the addition was deleted.

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