Deemed dividend under section 2(22)(e) fails where cash shortage is traced to a proprietary concern, not the company.

Cash shortage recorded in the assessee's proprietary concern could not be treated as deemed dividend under section 2(22)(e) because the Revenue failed to show that the discrepancy arose from the books of the company or that any payment or benefit was withdrawn from the company by a qualifying shareholder. The Tribunal noted that the cash balance comparison and the statement relied on by the Revenue related to the proprietary concern, not the company, so the factual basis for the deeming fiction was absent. On that material, the addition under section 2(22)(e) was held unsustainable and deleted.

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Issues: Whether the cash shortage discovered during search was in the books of the company so as to attract deemed dividend under section 2(22)(e) of the Income-tax Act, 1961, or whether it pertained to the assessee's proprietary concern, in which case the provision would not apply.

Analysis: The decisive question was the source and location of the cash discrepancy. The record showed that the statement relied upon by the Revenue and the cash balance comparison referred to the assessee's proprietary concern, not to the company in which he held the requisite shareholding. The Revenue did not produce material establishing that the shortage arose from the books of the company or that the assessee had withdrawn the amount from the company for personal use. Since section 2(22)(e) applies only where a payment or benefit is traceable to the company's accumulated profits in the hands of a qualifying shareholder, the factual foundation for invoking the deeming fiction was absent on the material before the Tribunal.

Conclusion: The addition under section 2(22)(e) was not sustainable and was directed to be deleted, in favour of the assessee.

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