2013 (7) TMI 314 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - whether the marginal overdrawing/debit balance of the assessee director represented advance or loan to a shareholder and hence covered by the provisions of section 2(22)(e) - Held that - As there is difference in term loans and advances and the term deposits assessee had not led any evidence before the FAA or us as these were so called deposits. Any correspondence entered into by the assessee and the company evidencing the proof that transaction under consideration were deposits has not been produced. FAA has given a categorical finding that these transaction were loan and advances and all the conditions stipulated by the provisions of section 2(22)(e) were fulfilled. The basic conditions substantial interest in the company and loan/advances by the company to the assessee were satisfied and therefore AO and the FAA in the first round and the FAA in the second round of hearing had held that amounts in questions were Deemed Dividends. Besides, proof of utilisation of amounts in question for business of the company were never produced at any stage - onus was on the assessee to prove that loans received by him were for business purposes of the company. Making a claim about non taxability of any amount before the tax authorities and supporting the same with evidences is the logical sequence of events. In the case under consideration assessee has merely made a claim, but same has not been supported by any evidence. Therefore, uphold the orders of the FAA. Cases cited by the assessee are of no help for deciding the issue under consideration. Against assessee.

Issues Involved:
1. Application of Section 2(22)(e) of the Income Tax Act regarding deemed dividends.
2. Whether the marginal overdrawing/debit balance by the assessee directors represented advances or loans to shareholders.

Detailed Analysis:

1. Application of Section 2(22)(e) of the Income Tax Act regarding deemed dividends:
The core issue in all the appeals was whether the marginal overdrawing/debit balance by the assessee directors represented advances or loans to shareholders and hence was covered by the provisions of Section 2(22)(e) of the Income Tax Act. The Tribunal noted that the company, M/s Atlas Travels and Tours Pvt. Ltd., had substantial reserves, and the amounts in question were paid to the directors as loans or advances. The Assessing Officer (AO) and the First Appellate Authority (FAA) upheld the additions under Section 2(22)(e), concluding that the conditions for treating these payments as deemed dividends were satisfied. The Tribunal remitted the matter to the FAA for fresh consideration, directing the FAA to consider the assessee's submissions and documents.

2. Whether the marginal overdrawing/debit balance by the assessee directors represented advances or loans to shareholders:
Upon remand, the FAA issued notices to the group members, including the assessees, to explain their stance on deemed dividends. The FAA, after considering the written submissions and judicial decisions, held that the assessees maintained a current account with the company, often having substantial credit balances. However, for short periods, there were debit balances due to overdrawals. The FAA concluded that these overdrawals were advances or loans and thus taxable as deemed dividends under Section 2(22)(e). The FAA rejected the assessees' argument that these were trade advances, noting that the transactions were not related to the supply of goods or services.

Arguments by the Assessees:
The Authorized Representative (AR) argued that the overdrawing was marginal and for a short period, and the substantial credit balances served the company's business purposes. The AR contended that such transactions should not be covered under Section 2(22)(e). The AR cited several judicial precedents, including Rajkumar (Delhi High Court), N.H. Securities (Mumbai ITAT), and others, to support their claim that the transactions were not loans or advances but business transactions.

Arguments by the Department:
The Departmental Representative (DR) maintained that the provisions of Section 2(22)(e) applied to loans, regardless of their duration or amount. The DR cited cases such as Nagindas M. Kapadia (Mumbai High Court) and K. Srinivas (Madras High Court) to support the department's stance.

Tribunal's Findings:
The Tribunal upheld the FAA's findings, noting that the assessees failed to provide evidence that the transactions were deposits or for business purposes. The Tribunal emphasized that the basic conditions of substantial interest in the company and the receipt of loans/advances were satisfied. The Tribunal also reviewed the judicial precedents cited by the assessees and found them distinguishable on facts. The Tribunal concluded that the amounts in question were rightly treated as deemed dividends under Section 2(22)(e).

Conclusion:
The Tribunal dismissed all the appeals, confirming that the amounts in question were deemed dividends in the hands of the assessees for the respective assessment years.

Order Pronounced:
The order was pronounced in the open court on 30-04-2013.

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