Tribunal rules in favor of assessee on deemed dividend calculation, emphasizing peak credit balance.

The tribunal allowed the appeal, ruling in favor of the assessee, emphasizing that only the peak credit balance should be considered for determining deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The tribunal set aside the order passed under section 263 of the Act, disagreeing with the Principal Commissioner's view that each overdrawn balance should be treated as a separate withdrawal for calculating deemed dividend.

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Issues:
1. Validity of order passed under section 263 of the Income Tax Act, 1961.
2. Correct calculation of deemed dividend under section 2(22)(e) of the Act.
3. Treatment of peak credit balance for determining deemed dividend.

Issue 1: Validity of order under section 263:
The appeal was filed against an order passed by the Principal Commissioner of Income-Tax, Jamnagar under section 263 of the Income Tax Act, 1961. The assessment order was found erroneous by the Principal Commissioner due to incorrect addition made by the Assessing Officer (AO) under section 2(22)(e) of the Act. The AO had added Rs. 3,77,450 as deemed dividend, while the Principal Commissioner contended it should have been Rs. 53,48,045. The assessee argued that the order was bad in law and facts, as the amount received did not exceed Rs. 3,77,450 during the year.

Issue 2: Correct calculation of deemed dividend:
The AO had considered transactions between the assessee and Tristar Security Pvt. Ltd. as deemed dividend under section 2(22)(e) of the Act. The AO calculated the amount withdrawn by the assessee as Rs. 3,77,450 based on overdrawn balances. However, the Principal Commissioner disagreed, stating that the opening balance should also be considered, and each overdrawn balance should be treated as a separate withdrawal for determining deemed dividend. The Principal Commissioner's view was that the peak credit balance should not be the sole basis for calculating deemed dividend.

Issue 3: Treatment of peak credit balance:
The Principal Commissioner argued that the opening balance and subsequent overdrawn amounts should be cumulatively considered for calculating deemed dividend. The Principal Commissioner's contention was that each excess receipt should be treated as an independent receipt, leading to a higher amount of deemed dividend. However, the tribunal held that the transactions were in the nature of a current account with repeated receipts and payments, and only the peak credit balance should be considered for determining the amount qualifying as deemed dividend. The tribunal set aside the order passed under section 263 of the Act, ruling in favor of the assessee.

In conclusion, the tribunal allowed the appeal, emphasizing that only the peak credit balance should be considered for determining deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.

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