2015 (9) TMI 1243 - HC - Income Tax

Deemed dividend u/s 2(22)(e) - loan or advance - difference between the amount paid and received during the year - Held that - The AO has simply proceeded on the assumption that since there is an opening debit balance in the account, it should be treated as an outstanding loan and that every payment thereafter made by the Assessee to DIPL should be taken to be in the nature of repayment of the loan. The stand of the Assessee that the opening debit balance cannot be treated as a starting point for considering the nature of the payments made during the year finds support in the decision of the High Court of Madras in Sunil Kapoor v. Commissioner of Income Tax 2015 (3) TMI 812 - MADRAS HIGH COURT . One of the questions considered by the Madras High Court in the said decision was whether the Tribunal in that case was right in not taking into consideration the opening balance in the Assessee s loan account as a starting point of the transactions carried on during the year. The High Court answered the question in the affirmative holding that it is only the relevant entries during the year in question that had to be looked into and that only those amounts paid to the Assessee by the company during the relevant year, less the amount repaid by the Assessee in the same year, should be deemed to be dividend. No legal infirmity in the order of the ITAT. No substantial question of law arises - Decided against revenue.

Summary

Issues: Appeal by Revenue against ITAT order treating certain amounts received by the Assessee as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961 for the Assessment Year 2009-10.

Analysis:

1. The Assessee, a shareholder of a company, received amounts from the company during the Assessment Year, which the Assessing Officer treated as deemed dividend under Section 2(22)(e) of the Act.

2. The Assessee's appeal was dismissed by the Commissioner of Income Tax (Appeals), following which an appeal was filed before the ITAT.

3. The ITAT examined the Assessee's account in the company's books and found that the transactions were related to cheque discounting, not loans or advances. The ITAT accepted the Assessee's explanation and reduced the deemed dividend amount to a nominal sum.

4. The Revenue contended that the outstanding debit balance in the account should be considered as a loan, and the repayments made by the Assessee were towards this loan. However, the Court disagreed, citing a decision by the High Court of Madras which held that only relevant entries during the year should be considered for determining deemed dividend.

5. The Court found no legal infirmity in the ITAT's order and dismissed the appeal, stating that no substantial question of law arose for determination.

In conclusion, the Court upheld the ITAT's decision, emphasizing the importance of considering relevant entries during the year for determining deemed dividend, as established in legal precedents.