2014 (10) TMI 847 - AT - Income Tax

Addition under Section 2(22)(e) for deemed dividend - Held that - The sum of ₹ 6,50,000/- cannot be treated as loan and advance within the meaning of Section 2(22)(e). Another sum paid by DIPL to the assessee is ₹ 9,75,000/-. We find that on the same date i.e. 4th March, 2008, there is a payment by the assessee of ₹ 10 lakhs to DIPL. Therefore, in our opinion, the sum of ₹ 9,75,000/- also cannot be treated as loan and advance within the meaning of Section 2(22)(e). For each and every transaction, there is a contra entry almost simultaneously. In most of the cases, the cheque paid by the assessee is a day earlier than the cheque received from DIPL. However, in respect of ₹ 25 lakhs only, we find that the sum of ₹ 25 lakhs is credited to the account of the assessee on 17.2.2009 and the payment of ₹ 25 lakhs i.e. by two cheques of ₹ 14,50,000/- and ₹ 10,50,000/- is debited to assessee s account on 16.2.2009. Considering these facts, we agree with the assessee s contention that the cheque was given by the assessee simultaneously and it is only a delay of deposit of that cheque by one day by DIPL. Considering the totality of the facts and the arguments of both the sides, in our opinion, the sum of ₹ 14,50,000/- and ₹ 10,50,000/- cannot be treated to be in the nature of loan and advance so as to treat the same as deemed dividend within the meaning of Section 2(22)(e). In view of the above, in our opinion, only a sum of ₹ 1 lakh is liable to be taxed as deemed dividend. Accordingly, the addition of ₹ 45,36,024/- is reduced to ₹ 1,00,000/-. - Decided in favour of assessee in part.

Summary

Issues:
- Addition of Rs. 45,36,024 under Section 2(22)(e) as deemed dividend.

Analysis:
1. Deemed Dividend Addition: The Assessing Officer treated the sum of Rs. 45,36,024 as deemed dividend under Section 2(22)(e) in the hands of the assessee. The assessee contended that the amounts received were not in the nature of loans or advances. The Tribunal examined each alleged loan/advance transaction.

2. First Debit Transactions: The Tribunal found that the debit of Rs. 11,024 was for audit fee provision and not a loan. Regarding the Rs. 3 lakhs transaction, it was determined that it was a repayment of an earlier advance and not a new loan, thus not falling under Section 2(22)(e).

3. Rs. 1 Lakh Debit Balance: The Rs. 1 lakh paid by DIPL to the assessee was considered a loan as there was no prior payment by the assessee to DIPL. However, the sum of Rs. 6,50,000 and Rs. 9,75,000 were not treated as loans as the assessee had made larger payments to DIPL before these transactions.

4. Harsh Dhir Loan Account: Transactions of Rs. 14,50,000 and Rs. 10,50,000 were debited to this account. It was argued that these were cheque discounting transactions, not loans. The Tribunal agreed, noting that most transactions had immediate contra entries and only a minor delay in one instance. Therefore, these amounts were not deemed dividends.

5. Final Decision: The Tribunal concluded that only the Rs. 1 lakh debit balance qualified as deemed dividend, reducing the addition from Rs. 45,36,024 to Rs. 1,00,000. The appeal was partly allowed, and the decision was pronounced on 21st October 2014.