2024 (3) TMI 1003 - AT - Income Tax

Revenue's appeal dismissed as advance salary cannot be treated as deemed dividend under Section 2(22)(e) when properly adjusted with TDS (22)(e)

ITAT Jodhpur dismissed Revenue's appeal regarding deemed dividend treatment under Section 2(22)(e). The assessee received an amount initially recorded as ... Deemed dividend - advances against remuneration - section 2(22)(e) of the Income-tax Act, 1961 - treatment of loan account versus salary in books of account - documentary evidence and TDS as proof of salary - prohibition on double taxation of the same receiptDeemed dividend - advances against remuneration - section 2(22)(e) of the Income-tax Act, 1961 - documentary evidence and TDS as proof of salary - treatment of loan account versus salary in books of account - prohibition on double taxation of the same receipt - Whether the sum recorded as short term loan/advance of Rs.1,82,00,000/- could be treated as deemed dividend under section 2(22)(e) or was an advance against remuneration, and whether the addition made by the AO required deletion. - HELD THAT: - The AO relied on impounded trial balance showing the amount in the loan & advance account and noted only Rs.57,180/- credited as salary till 20.09.2016, treating the balance as advance/loan and adding it as deemed dividend. The assessee contended the amount was advance against remuneration, subsequently adjusted and accounted as salary in computation of income; TDS was deducted and disclosed. The CIT(A) examined the computation, ledger entries and Form 26AS and found the appellant's contentions supported by documentary material, concluding the amount was remuneration and not a loan attracting section 2(22)(e), and deleted the addition. The Tribunal, after examining the record, held the AO's observation that documentary evidence was lacking to be factually incorrect because the computation and ledger established payment as salary and TDS deduction; further, there was no loss to revenue since, if treated otherwise, the sum would be set off against salary and would not result in double taxation. Applying these findings, the Tribunal sustained the CIT(A)'s conclusion that the amount could not be treated as deemed dividend and that the addition was not sustainable. [Paras 4, 7, 10, 11, 12]The addition under section 2(22)(e) disallowing Rs.1,82,00,000/- as deemed dividend is unsustainable; the CIT(A) order deleting the addition is confirmed and the Revenue's appeal is dismissed.Final Conclusion: The Tribunal upheld the Commissioner (Appeals) finding that the impugned amount was an advance against remuneration supported by ledger/computation and TDS, not a loan attracting section 2(22)(e); there was no loss to revenue and the AO's addition was rightly deleted, accordingly the Revenue's appeal is dismissed. Issues Involved1. Whether the amount of Rs. 1,82,00,000/- should be treated as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.2. Whether the claim of the assessee that the amount was an advance against remuneration is substantiated by documentary evidence.Summary of JudgmentIssue 1: Deemed Dividend under Section 2(22)(e)The primary issue was whether the amount of Rs. 1,82,00,000/- received by the assessee from M/s Wagad Infraprojects Pvt. Ltd. should be treated as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The Assessing Officer (AO) had added this amount to the assessee's income as deemed dividend, arguing that it was shown as a loan and advance in the company's books and not as remuneration.The CIT(A) observed that the amount was actually an advance against remuneration and not a loan. The CIT(A) noted that the assessee had shown this amount as part of his salary income and TDS had been deducted. Therefore, the addition made by the AO was not sustainable and was deleted.Issue 2: Substantiation by Documentary EvidenceThe AO contended that the claim of the assessee was not supported by documentary evidence, such as TDS deduction before the date of the survey. However, the CIT(A) found that the books of accounts were incomplete at the time of the survey, and the junior accountant had mistakenly posted the advance remuneration in the short-term loan account. The CIT(A) verified the computation of income and found that the assessee had correctly shown the salary income, including the disputed amount.The Tribunal upheld the CIT(A)'s decision, stating that the amount incorrectly shown as a loan was actually an advance towards remuneration, which was later adjusted, and TDS was also deducted. Thus, the amount could not be treated as deemed dividend.ConclusionThe Tribunal concluded that there was no loss to the revenue as the assessee was paying tax at the maximum marginal rate and had not taken any deductions out of the salary income. Double taxation on the same receipt was not permissible. Therefore, the addition made by the AO was rightly deleted by the CIT(A).The appeal filed by the Revenue was dismissed, and the order of the CIT(A) was sustained.Order pronounced on 03.01.2024 at ITAT Amritsar Bench, Amritsar.