TaxTMI 
TaxTMI 
TaxTMI 
2016 (3) TMI 965
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....not pressed'. 4. In grounds of appeal No.2 to 5 the assessee has challenged the order of the CIT(A) in sustaining an amount of Rs. 3,44,689/- out of the addition of Rs. 13,96,057/- by the AO u/s.2(22)(e) of the I.T. Act. 5. Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee is a director and one of the shareholders of Sunako Construction Pvt. Ltd. He further noted that the assessee has received advance/loan amounting to Rs. 2,31,164/- from the company during the year under consideration. He therefore asked the assessee to explain as to why the said income should not be taxed as deemed dividend u/s.2(22)(e) for the year under consideration. The assessee vide letter dated 22-12-2009 submitted as under which has been reproduced by the AO in the body of the assessment order : "Without prejudice to the above submissions, assuming that without admitting that the assessee has taken loan or advance, only the amount of accumulated profits of Rs. 5,80,044/- should be considered as deemed dividend. Thus the maximum balance of accumulated profits for the Assessment Year 2005-06 is Rs. 5,80,044/- and without prejudice to the cont....
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....nt. The assessee on a without prejudice basis submitted that even if the advance is considered to be falling within the ambit of deemed dividend u/s 2(22)(e), the deemed dividend is to be restricted to the extent of accumulated profits available with the company. It was argued that the maximum balance of amount advanced by the company to the assessee is of Rs. 3,44,689/-and the accumulated profits as per the balance sheet is of Rs. 13,96,057/-. Hence the disallowance be restricted only to the extent of Rs. 3,44,689/- i.e. the maximum balance outstanding during the year. 9. Based on the arguments advanced by the assessee the Ld.CIT(A) sustained an amount of Rs. 3,44,689/- out of the addition of Rs. 13,96,057/- made by the AO and gave relief of Rs. 10,51,368/- by observing as under : "4.1 The appellant's submission has been considered. It is undisputed that the company where in the appellant has substantial interest has advanced money to the appellant. The MOU signed between the appellant and Sunako Construction Pvt. Ltd dated 18-7-2003 for the purchase of 50 acres of land is the reason stated by the appellant for advancing the advances which has been treated by the A.O. to be....
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....heet of the assessee as on 31.03.2005, even though the agreement was entered on 18.09.2003. The Hon'ble Court held that the AO. rightly held the transactions as sham and treated them as deemed dividend u/s 2(22)(e) of the I.T. Act. In view of the above facts and the ratio of the decision the advances made by the company constituted the deemed dividend in the hands of the appellant. 4.2 Any loan or advance paid to a substantial shareholder with 10% interest in the company or to a concern in which such substantial shareholder has substantial interest (20%) is taxable to the extent of accumulated profit u/s 2(22)(e) of the Act. Such tax is spared only, if such loan or advance is made by a company in the ordinary course of business or where money lending is a substantial part of the assessee's business. By enacting sub clause (e) of sec.2(22) the legislature has created a fiction and has made 'payment' referred to in sub-clause (e) 'dividend' for the purpose of the I.T. Act, 1961. Thus the sub-clause (e) creates a fiction bringing in amounts paid otherwise than as dividends, into set of dividends and, therefore, this clause must be given a strict interpretation. In the ca....
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....nt credit balance in that account to absorb the debit, said debit would not be deemed dividend u/s 2(22)(e). The debit then would represent repayment by the company of a debt due to the shareholder. If there is a credit balance in that account on the date of debit which is less than the amount for which debit is made, the difference between debited amount and existing credit balance would be deemed dividend. Hence position at the time of each debit would be required to be seen as to whether the transaction resulted in deemed dividend and if so, to what extent. Debit balance at a particular point of time does not give correct picture so also balance at the end of the year specially so in an account where number of credit and debit entries are made in the course of a year. It was so held by the Bombay High Court in the case of CIT Vs P.K. Badiani (1970) 76 ITR 369 (Bom) and CIT Vs Mrs. Maya B. Ramchand (1986) 162 ITR 460 (Bom). Therefore, the maximum balance of the amount advanced by the company to the appellant is Rs. 3,44,689/- and the accumulated profits as per the balance sheet is Rs. 13,96,057/- and, therefore, the addition on account of deemed dividend u/s 2(22)(e) will have to....
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....ssessee to submit the details of advance received from the company and the accounts of the assessee in the books of the company M/s. Snako Construction Pvt. Ltd. in which the assessee is a director. From the various details filed by the assessee the AO noted that the assessee has received advance of Rs. 2,59,094/- from the said company. After setting off the amount of Rs. 75,000/- received by the assessee against the amount shown receivable of Rs. 81,250/- and rejecting the various submissions given by the assessee the AO treated the amount of Rs. 2,59,094/- as deemed dividend u/s.2(22)(e) of the I.T. Act in the hands of the assessee. He accordingly made addition to the total income of the assessee. 14. We find in appeal the Ld.CIT(A) upheld the action of the assessee by observing as under : "3.5 In the present case it is undisputed that the accumulated profit of the company Sunako Construction Pvt. Ltd. was of Rs. 13,96,057/- and the AO. has taxed the amount of advance to the tune of Rs. 2,59,094/- as income of the appellant u/s 2(22)(e) of the I.T. Act. The A.O. has also rightly given the credit for the credit balance of the appellant at the beginning of the year before arrivi....