1980 (11) TMI 93 - AT - Income Tax

Loan amount treated as deemed dividend under Income Tax Act; Tribunal affirms CIT (A) decision.

INCOME TAX OFFICER. Versus SMT. SAVITHRI SAM.

The Tribunal confirmed the CIT (A)'s determination that the loan amount was Rs. 15,542, to be treated as deemed dividend under Section 2(22)(e) of the ... - Issues Involved:1. Determination of deemed dividend under Section 2(22)(e) of the Income Tax Act.2. Compliance with the Tribunal's directions by the CIT (A).3. Correctness of the loan amount determined by the CIT (A).Issue-wise Detailed Analysis:1. Determination of Deemed Dividend under Section 2(22)(e) of the Income Tax Act:The primary issue revolves around the determination of the deemed dividend under Section 2(22)(e) of the Income Tax Act. The assessee's husband had withdrawn large sums from M/s Sujani Textiles Ltd., which were reflected in the company's balance sheet. The ITO initially assessed Rs. 1,72,795 as deemed dividend in the hands of the assessee, which was the balance of accumulated profits after accounting for previously assessed deemed dividends. The AAC, however, reduced this amount to Rs. 18,753, which was further contested by the Department. The Tribunal remanded the case back to the CIT (A) for a fresh determination, emphasizing the need to consider current profits and provisions for proposed dividends in the accumulated profits.2. Compliance with the Tribunal's Directions by the CIT (A):The Department contended that the CIT (A) did not follow the Tribunal's directions. However, the Tribunal clarified that the CIT (A) was authorized to re-evaluate the entire issue de novo, including determining the loans taken by the shareholder. The Tribunal noted that the CIT (A) correctly prioritized determining the loan amount before addressing the accumulated profits, as the loan amount was significantly less than the disputed accumulated profits. The Tribunal found no misdirection by the CIT (A) and confirmed that the CIT (A) had complied with the Tribunal's directions.3. Correctness of the Loan Amount Determined by the CIT (A):The CIT (A) determined that the actual loan amount taken by the assessee was Rs. 15,542, significantly lower than the previously contested amounts. This determination was based on the assessee's account in the company's books, which showed a peak debit of Rs. 15,542. The CIT (A) also considered the transfer of a debit balance of Rs. 4,73,241 from the account of the assessee's husband to the assessee's account. The Tribunal upheld the CIT (A)'s view that this transfer did not constitute a payment by the company to the assessee, as it did not involve an actual cash movement. The Tribunal referenced the Madras High Court decision in G.R. Govindarajulu Naidu and Another vs. CIT, which clarified that a payment under Section 2(22)(e) must involve an outgoing of cash from the company to the shareholder.Conclusion:The Tribunal confirmed the CIT (A)'s determination that the loan amount was Rs. 15,542, which should be treated as the deemed dividend under Section 2(22)(e) of the Income Tax Act. The Tribunal dismissed the Department's appeal, affirming that the CIT (A) had correctly followed the Tribunal's directions and that the determination of accumulated profits became irrelevant given the lower loan amount.