2024 (8) TMI 349

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....p the issue raised by the assessee in ground Nos. 6 to 9, wherein it was alleged that the ld. CIT(A) erred in confirming the order of the AO by sustaining the addition on account of deemed dividend u/s 2(22)(e) of the Act, whereas the transaction between the assessee and shareholder was in the nature of commercial transactions. 2.1 The necessary facts are that the assessee in the present case is an individual and declared her income under the head 'salary, house property' and 'other sources'. The assessee is a director and shareholder in the company viz., DTDC Ltd. The assessee along with other 5 Directors has received a loan and advance amounting to Rs. 39,60,000/-, which was shown by the company as an advance for the purchase of proper....

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.... of which was supposed to be acquired by the company on purchase and part of the building was to be acquired on lease hold basis. As per the ld. AR, the transaction for acquiring the building has actually taken place between the assessee and the company on a later date which was not disputed by the Revenue. Therefore, considering the commercial element in the disputed transaction, the provision of deemed dividend specified under section 2(22)(e) of the Act cannot be attracted. 6. On the other hand, the ld. DR vehemently supported the order of the authorities below. 7. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the assessee is a director in a company namel....

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....e company to the directors, proposed agreement, minutes of the meetings of the Board of Directors. Subsequently the assessee has also entered into an agreement dated 21 November 1995. 7.2 However, the AO disagreed with the contention of the assessee on the reasoning that the advances were given by the company dated 28 March 1995 whereas the agreement was entered dated 21-11-1995. As such during the intervening period from 28-3-1995 and 20-11-1995, the amount in question was a simple advance without any business/ commercial connection. 7.3 Furthermore, the transaction between the assessee along with the directors and the company was not at the arm length because it was not a normal business transaction. It is for the reason that the co....

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....d the company. 7.6 It is also important to note that the directors including the assessee in the present case were acting in dual capacity as director and in personal capacity. As such there was no reason for the directors which prevented them to enter into the formal agreement at the time of giving the advances and therefore the money receipts, proposed agreement, minutes of the Board of Directors cannot be ignored while deciding the issue whether there was a commercial element between the transaction discussed above. Thus, we hold that there was a commercial transaction between the directors and the company. 7.7 The Hon'ble Karnataka High Court in the case of Smt. Jamuna Vernekar v. Dy. CIT [IT Appeal No. 43 OF 2013, dated 10^th Feb....