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 loan but claimed it was advance salary. AO treated it as deemed dividend citing lack of documentary evidence and absence of TDS deduction before survey date. However, ITAT found the amount was genuinely advance remuneration later adjusted with proper TDS deduction, supported by ledger entries. The tribunal emphasized that double taxation on single receipt is impermissible under law. Since no revenue loss occurred as assessee paid tax at maximum marginal rate, CIT(A)'s deletion of addition was upheld.

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Issues Involved
1. 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 Judgment

Issue 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 Evidence
The 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.

Conclusion
The 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.

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