2015 (12) TMI 1529 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - whether the debit balance and the accumulated profits in the books of accounts of the company in the name of the assessee in the company s books, is a loan or deposit which attracts provisions of section 2(22)( e) or which is merely a sale advance? - Held that - We are of the opinion that the assessee is trying to circumvent the loan taken by her from the company by creating the sale agreement. On perusal of the sale agreement, we noticed that one of the condition of sale agreement is that the sale should be completed within one year from date of the sale agreement. The assessee could not adduce any reason for not completing the sale. It is quite unusual that agreement of sale has been prepared on stamp paper which was purchased almost two years back. Further, there is nothing in the company s books to indicate that any such transaction has been taken during the relevant financial year under consideration. The assessee is continuing to enjoy the benefits of the property by getting rent from the company. The assesse contention is that the property is given as collateral security to bank to avail the loan for the company business purpose. But, from this fact alone we cannot come to the conclusion that the company is having the possession of the property and the assessee has entered into a sale agreement. Therefore, in our opinion, the assessee is trying to circumvent the alleged loan and advances by furnishing an unregistered sale agreement, which was later not acted upon by both the parties even now. Hence, we hold that the A.O. is right in treating the loan received by the assessee as deemed dividend under the provisions of section 2(22)(e) of the Act. The CIT(A) has considered the issue elaborately and upheld the additions made by the A.O. - Decided against assessee.

Summary

Issues:
1. Whether the amount received by the assessee from the company should be treated as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961.
2. Whether the sale agreement entered into by the assessee with the company is genuine and supports her claim that the amount received was towards the sale of property.

Analysis:
1. The assessee, a shareholder and Director of a company, received an amount from the company, which the Assessing Officer (A.O.) treated as deemed dividend under section 2(22)(e) of the Act. The A.O. found that the debit balance in the company's books, in the name of the assessee, constituted deemed dividend. The assessee contended that the amount was received for the sale of property and not a loan. The CIT(A) upheld the A.O.'s decision, questioning the genuineness of the sale agreement and the nature of the transaction. The Tribunal agreed with the CIT(A) that the assessee attempted to disguise a loan as a sale advance, supporting the CIT(A) and dismissing the assessee's appeal.

2. The Tribunal analyzed the ledger account and the sale agreement provided by the assessee. It noted discrepancies in the sale agreement, such as being unregistered and dated on stamp paper from two years prior. The Tribunal found that the sale transaction was not completed, and the assessee failed to provide evidence for deferring the sale due to the company's inability to pay. The Tribunal concluded that the sale agreement was an attempt to mask the loan as a property sale, as the assessee continued to benefit from the property without completing the sale. Therefore, the Tribunal upheld the CIT(A)'s decision to treat the amount received as deemed dividend under section 2(22)(e) of the Act.

In summary, the Tribunal affirmed the decision to treat the amount received by the assessee from the company as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961, based on the analysis of the sale agreement and ledger account. The Tribunal found that the sale agreement was not genuine and was used to disguise a loan as a property sale, leading to the dismissal of the assessee's appeal.