Deemed dividend requires proof of an actual loan or advance; presumptive cash generation cannot sustain the addition.

Deemed dividend under section 2(22)(e) was held unsustainable because there was no evidence of any actual advance or loan by the company to the shareholders or directors. The addition had been built on a disallowance of bogus purchases and on assumptions about presumed dividend distribution, but a fiscal charging provision must be construed strictly and its deeming fiction cannot be extended beyond its clear terms. On that basis, the addition was deleted in full and the assessees succeeded while the Revenue's cross appeals failed.

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Issues: Whether the addition made as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961 was sustainable in the absence of any actual advance or loan by the company to the shareholders/directors.

Analysis: The provision applies only where there is a payment by a company by way of advance or loan to a shareholder. On the facts found, there was no material to show that the company had made any such payment to the assessees. The addition was made by treating a disallowance of bogus purchases as if it represented dividend distribution, which rested only on assumptions and presumptions. A charging provision in a fiscal statute must be construed strictly, and the deeming fiction could not be extended beyond its clear terms.

Conclusion: The deemed dividend addition was unsustainable and was deleted in full, in favour of the assessees.

Final Conclusion: The assessees succeeded and the Revenue's cross appeals failed, with the entire addition under section 2(22)(e) set aside.

Ratio Decidendi: Section 2(22)(e) can be invoked only on proof of an actual advance or loan by the company to a shareholder, and a deemed dividend cannot be inferred merely from unrelated disallowance or presumptive cash generation.

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