2012 (9) TMI 154 - AT - Income Tax

Deemed Dividend - addition of advance salary as deemed dividend - Held that - From the facts and circumstances of the case, it is observed that the debit balance in the account of assessee at a given point of time is not in the nature of loan or advance. But, it is a running account wherein the assessee had taken the amount as adjustable against future salaries which were being credited to his account monthly. Therefore, advance was not in the nature of loan and hence cannot be treated as deemed dividend u/s 2(22)(e) - Decided in favor of assessee.

Summary

Issues:
1. Addition of advance salary as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.

Analysis:
The case involved an appeal filed by the assessee against the order of CIT(A) confirming the addition of advance salary as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The assessee, a salaried employee/director of a company, had received an amount over and above his monthly salary, which the Assessing Officer treated as deemed dividend. The AO relied on the judgment in Tarulata Shyam vs CIT(1977) to support this decision.

The assessee contended before CIT(A) that the advance salary was not in the nature of a loan but a payment in advance for services rendered, citing the judgment of NH Securities Ltd. Vs. DCIT. The assessee argued that the amount was adjusted against future salaries and not a loan, as erroneously mentioned by the AO. Further, the assessee challenged the decision based on doubts and suspicions, emphasizing that the advance was not a loan.

The CIT(A) upheld the AO's decision, leading the assessee to appeal to the tribunal. The assessee's representative argued that the advance was not a loan but a running account, citing various judicial pronouncements. The tribunal, after considering the arguments and evidence, concluded that the advance was not in the nature of a loan and therefore could not be treated as deemed dividend under section 2(22)(e) of the Act.

In light of the above analysis, the tribunal allowed the appeal filed by the assessee, setting aside the addition of advance salary as deemed dividend.