2013 (7) TMI 1028 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - Held that - As in the case of CIT vs. Parle Plastics Limited (2010 (9) TMI 726 - BOMBAY HIGH COURT) wherein it has been held that only that amount of loans and advances which is actually received by assessee share holder from company during relevant assessment year would fall within inclusive sub-clause(e) of definition of dividend appearing in section 2(22)(e); opening words any payment occurring in sub-clause (e) of section 2(22) contemplates actual payment made by company to assessee for being reacted as a dividend in computing income of assessee. The opening balance or loan taken in earlier year is not loan received by the assessee during the relevant previous year and could therefore be not treated as amount of loan or advance received by the assessee during the relevant previous year. Such amount therefore could not be included as deemed dividend under clause (e) of section 2(22) of the Act. In the case under consideration since the loan amount is not issued during the year therefore we find that the CIT(A) has rightly deleted the addition. Addition on account of house hold expenses - Held that - AO purely made estimated addition without bringing any material against the assessee for estimating household expenses. The contention of the ld. Counsel for the assessee that in other cases similar additions have been deleted has not been rebutted through any material on record. In the absence of any material on record in favour of the revenue we do not find any justification in making addition.

Summary

Issues:
1. Deletion of addition of deemed dividend u/s 2(22)(e)
2. Deletion of addition of house hold expenses

Deletion of addition of deemed dividend u/s 2(22)(e):
The appeal was filed by the Revenue against the order of the ld. CIT(A) for the Assessment Year 2006-07. The Revenue raised grounds questioning the deletion of additions made on account of deemed dividend u/s 2(22)(e) and house hold expenses. The assessee received loans in November 2004, and the A.O. found that lending money was not a substantial part of the company's business. However, the CIT(A) deleted the addition based on the company's diverse business activities, including money lending, as per its Memorandum of Association. The company primarily ran coaching classes and provided educational consultancy, with a significant portion of its income coming from student fees. The interest earned from money lending was regularly declared. The Tribunal noted that the loans were received in the previous year, not the assessment year under consideration, and therefore, the provisions of section 2(22)(e) did not apply. Citing the judgment of the Bombay High Court, it was held that only loans received during the relevant assessment year could be treated as deemed dividends. As the loan amount was not received during the year, the addition was deemed unwarranted.

Deletion of addition of house hold expenses:
The second ground of appeal concerned the addition of house hold expenses. The Tribunal referred to a previous order in a similar case where estimated additions were made without substantial evidence, and those additions were deleted. The ld. Authorised Representative argued that the facts of the current case were identical to the previous cases where additions had been deleted. The Tribunal, to maintain consistency, followed the previous order and upheld the deletion of the addition of house hold expenses. The appeal of the Revenue was dismissed based on these findings.

In conclusion, the Tribunal ruled in favor of the assessee, deleting the additions of deemed dividend u/s 2(22)(e) and house hold expenses based on the lack of incriminating material and the absence of loans received during the relevant assessment year. The decisions were supported by legal precedents and consistent application of principles across similar cases.