2015 (3) TMI 812 - HC - Income Tax

Deemed dividend - all the payments made by KIPL to the assessee upto 31.3.09 by way of loans and advances should be treated as deemed dividend as per AO - According to the CIT (Appeals)and also confirmed by Tribunal, the provisions of Section 2 (22) (e) stand attracted, however, in calculating the dividend amount, the Assessing Officer had erred in not taking into consideration the amount that has been repaid by the assessee to KIPL - Held that - There is no dispute that the company is a controlled (private limited) company in which the public are not substantially interested. Further, the assessee is admittedly a shareholder and Director of KIPL. It is also beyond controversy that at all material times, the company possessed accumulated profits in excess of the amount which the assesseeshareholder was paid during the previous year. The Income-tax Officer found that surplus reserve of the company for the year ending 31.3.09 stood at ₹ 10,26,62,126/-. The assessee drew money for the purpose of making payments, which were personal in nature, aggregating ₹ 76,86,829/-, which amount was shown as loan or advance in the books of accounts of KIPL. The company s business is not money-lending and it could not be said that the loans had been advanced by the company in the ordinary course of its business. In such circumstances, in the instant case, all the amounts advanced to the assessee/appellant under the head loans and advances fall squarely within the ambit of Section 2 (22) (e) of the Income Tax Act Assessing Officer has taken the entire amount of ₹ 76,86,829/- received by the assessee from the company as dividend, while computing the income, but has lost sight of the payment made. In such circumstances, this Court is of the considered opinion that the CIT (Appeals) has rightly come to the conclusion that the position as regards each debit will have to be individually considered, because it may or may not be a loan. The AO is, therefore, directed to verify each debit entry on the aforesaid line and treat only the excess amount as deemed dividend u/s 2 (22) (e) of the Act . We find such a direction issued by the CIT (Appeals), as upheld by the Tribunal is in consonance with the provision of Section 2 (22) (e) of the Act, and only those amounts, which reflect in the debit side of the books of accounts of the company falling under the definition of loans and advances, with regard to the shareholder, in the relevant year will be entitled to be taken as deemed dividend. - Decided in favour of the Revenue

Issues Involved:
1. Differentiation of two accounts of the appellant in the books of M/s. Kapoor Imaging Private Ltd.
2. Consideration of only the 'Sunil Kapoor' account for deemed income.
3. Non-consideration of the opening balance in 'Sunil Kapoor-Loan' account.
4. Separate maintenance of accounts for convenience.
5. Interest paid on the outstanding balance considering both ledgers.
6. Monthly salary receipts and their ledger entries.

Issue-Wise Detailed Analysis:

1. Differentiation of Two Accounts:
The appellant argued that the Tribunal erred in differentiating the two accounts ('Sunil Kapoor' and 'Sunil Kapoor-Loan') as they relate to the same individual. The Tribunal, however, held that the accounts were separate and distinct, which was evidenced by the interest paid and TDS deducted on the 'Sunil Kapoor-Loan' account. This differentiation was deemed correct and justified by the CIT (Appeals) and upheld by the Tribunal.

2. Consideration of Only 'Sunil Kapoor' Account:
The Tribunal considered only the 'Sunil Kapoor' account for ascertaining deemed income, leaving aside the 'Sunil Kapoor-Loan' account. The CIT (Appeals) noted that the 'Sunil Kapoor-Loan' account had a separate and distinct treatment, including interest payments and TDS, and thus could not be combined with the 'Sunil Kapoor' account for determining deemed dividend under Section 2 (22) (e) of the Income Tax Act.

3. Non-Consideration of Opening Balance:
The appellant contended that the opening balance of Rs. 42,55,699/- in the 'Sunil Kapoor-Loan' account should be considered as the starting point for transactions during the year. The CIT (Appeals) held that this balance could not be given credit while considering deemed dividend as it pertained to a distinct and separate account. This view was upheld by the Tribunal.

4. Separate Maintenance of Accounts:
The appellant maintained that the two accounts were kept separately for convenience. The CIT (Appeals) and the Tribunal found that the separate maintenance of accounts was justified and necessary for clarity and proper accounting, especially given the distinct nature of transactions and interest payments involved.

5. Interest Paid on Outstanding Balance:
The appellant argued that the interest paid should consider both ledgers ('Sunil Kapoor' and 'Sunil Kapoor-Loan'). The CIT (Appeals) found that interest was paid only on the 'Sunil Kapoor-Loan' account, and thus, the accounts could not be merged for the purpose of calculating deemed dividend.

6. Monthly Salary Receipts:
The appellant claimed that the salary of Rs. 1,50,000/- per month should be deemed to have been received every month, despite the ledger showing only two entries. The Tribunal upheld the CIT (Appeals)'s view that the ledger entries accurately reflected the actual transactions, and thus, the monthly receipt argument was not valid.

Conclusion:
The Tribunal and CIT (Appeals) were justified in their findings that the transactions in question fell under the definition of "Deemed Dividend" under Section 2 (22) (e) of the Income Tax Act. The appeal was dismissed, and the Tribunal's order dated 25.6.2013 was confirmed. The issue was answered in favor of the Revenue, and there was no order as to costs.

← Previous Next →