ITAT sets aside deemed dividend order under section 2(22)(e), remands case for fresh verification of current account transactions

The ITAT Chennai set aside the CIT(A)'s order regarding deemed dividend u/s 2(22)(e) and remanded the matter to the AO for fresh examination. The case involved debit balances in the appellant's current account with the company and a payment received on 31.12.2010. The tribunal found that transactions between the appellant and company were not solitary but involved multiple payments through current accounts, mostly showing credit balances. The appellant claimed debit balances resulted from inadvertent errors and were squared off quickly, and the disputed payment was actually made on behalf of the appellant's mother per her instructions. The ITAT directed the AO to verify these claims and delete deemed dividend additions if found correct.

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Issues Involved:
The judgment involves the assessment of deemed dividend u/s. 2(22)(e) of the Income-tax Act, 1961 for the assessment year 2011-12.

Issue 1: Jurisdiction of the Commissioner of Income Tax (Appeals)
The appellant contended that the order of the Commissioner of Income Tax (Appeals) was contrary to law and opposed to principles of equity, natural justice, and fair play. The appellant argued that the Assessing Officer's order lacked jurisdiction.

Issue 2: Addition of Deemed Dividend
The Assessing Officer treated a debit balance in the company's books as deemed dividend u/s. 2(22)(e) of the Act due to the appellant's substantial interest in the shareholding. The Commissioner of Income Tax (Appeals) upheld this addition, citing judicial precedents.

Issue 3: Nature of Transactions
The appellant argued that the transactions between the appellant and the company were in the nature of a current account in the normal course of business, not loans or deposits as per section 2(22)(e) of the Act. The appellant provided explanations for various debit balances and payments, emphasizing the temporary nature of the balances.

Issue 4: Verification and Decision
The Tribunal found that the transactions needed to be examined in light of the specific nature of the appellant's dealings with the company. Several debit balances were explained by the appellant as inadvertent errors that were promptly rectified. The Tribunal directed the Assessing Officer to verify the appellant's claims and decide the issue based on the evidence provided.

In conclusion, the Appellate Tribunal ITAT Chennai allowed the appeal filed by the assessee for statistical purposes. The Tribunal set aside the Commissioner of Income Tax (Appeals) order and directed the Assessing Officer to verify the appellant's claims regarding the deemed dividend additions and decide accordingly based on the evidence presented.

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