2022 (7) TMI 1221 - AT - Income Tax

Tribunal overturns CIT(A) decision on Section 2(22)(e) deemed dividend, ruling in favor of business purpose.

Archana Sharma Versus DCIT Circle – 1 Ghaziabad

Archana Sharma Versus DCIT Circle – 1 Ghaziabad - TMI Issues Involved:1. Non-acceptance of additional evidence by CIT(A).2. Addition of Rs. 64,05,565/- under Section 2(22)(e) of the Income Tax Act.3. Nature of the transaction and whether it constitutes a deemed dividend under Section 2(22)(e).Detailed Analysis:Non-acceptance of Additional Evidence by CIT(A):The assessee contended that the CIT(A) erred in not accepting additional evidence relevant for the proper disposal of the appeal. However, this ground was not pressed by the assessee during the appeal, and thus, it was dismissed as not pressed.Addition under Section 2(22)(e):The primary issue was the addition of Rs. 64,05,565/- as deemed dividend under Section 2(22)(e). The assessee, an individual and promoter of Ganesh Hospital Pvt. Ltd., had purchased a property for Rs. 3.6 crores for the hospital's expansion. Payments were made through the company's bank account, but the property was registered in the assessee's name due to zoning restrictions. The AO deemed this transaction as a loan or advance to the assessee, attracting Section 2(22)(e).Nature of the Transaction:The assessee argued that the transaction was for business purposes and not a loan or advance. The property was intended for the hospital's expansion, and the purchase in the assessee's name was a necessity due to the residential zoning of the area. The assessee further argued that the transaction was to prevent forfeiture of an advance payment of Rs. 90 lakhs made by the hospital and was supported by a loan obtained from Axis Bank in the assessee's name.Legal Precedents and Judicial Decisions:The assessee cited several judicial decisions, including CIT vs. Rajkumar and CIT vs. Creative Dyeing and Printing (P) Ltd., arguing that advances for business purposes do not fall under Section 2(22)(e). The Tribunal considered these precedents, noting that advances made for business expediency or benefiting the company do not constitute deemed dividends.Tribunal's Findings:The Tribunal found that the assessee had demonstrated that the transaction was for business purposes and not a gratuitous loan. The property was reflected in the hospital's books, and the transaction was to protect the advance payment from forfeiture. The Tribunal referred to the Hon'ble Calcutta High Court's decision in Pradip Kumar Malhotra, which held that advances benefiting the company are not deemed dividends.Conclusion:The Tribunal concluded that the CIT(A) was not justified in upholding the addition made by the AO under Section 2(22)(e). The transaction was not a gratuitous loan but was made for business expediency. The addition of Rs. 64,05,565/- was set aside, and the assessee's appeal was partly allowed.Order Pronouncement:The order was pronounced in the open court on 26.07.2022, resulting in the appeal being partly allowed.