2015 (10) TMI 1605 - AT - Income Tax

Deemed dividend addition u/s.2(22)(e) - Held that - The assessee has filed a paperbook on record which reveals that he gets a monthly salary of ₹ 50,000/- and also tractor rental income of ₹ 1,01,000/- in May-2005 and ₹ 1,40,000/- from June-2005 upto March-2006. It is further seen that the assessee has also received Qualish car rental income of ₹ 1,44,000/-. His books record tractor rental income as ₹ 15,01,000/-. The Revenue does not dispute the assessee s fixed assets in the shape of aforesaid vehicles. We find value of its tractor-trolly to be ₹ 37,45,500/- and Qualish Car that of ₹ 3,98,496/-. The assessee s books nowhere treat the sums received as loans and advances to have been received from the aforesaid company. The company s report does not disclose any such loan or advance to the assessee. The authorities below nowhere observe anything about accumulated profits so as to invoke section 2(22)(e) of the Act. We reiterate that this section stipulates addition of a deemed income statute liable to be strictly interpreted. The case file indicates that the impugned sums are routine business transactions/salary payments made between the company and the assessee-appellant not coming within the purview of deemed dividends u/s. 2(22)(e) of the Act. The assessee has filed a catena of case-laws. See DCIT vs. Chariot International Pvt.Ltd. 2013 (12) TMI 596 - ITAT BANGALORE holding that routine commercial transactions involving trade advances are not to be treated as deemed dividends. The Revenue fails to point out any distinction on facts or law. We accept the assessee s arguments in these facts. The impugned addition of deemed dividends is deleted. - Decided in favour of assessee.

Summary

Issues involved:
Appeal against deemed dividend addition under section 2(22)(e) of the Income Tax Act, 1961 for assessment year 2006-07.

Detailed Analysis:

1. Facts and Background:
The appellant, a director in a company, was found to have withdrawn an excess amount, leading to the invocation of deemed dividend addition under section 2(22)(e) of the Act by the Assessing Officer. The appellant contended that the withdrawals were related to business transactions, specifically the hiring of his tractor car machinery to the company for a value exceeding Rs. 55 lakhs. The Assessing Officer treated the withdrawn amount as deemed dividends, resulting in the addition of Rs. 11,24,237.

2. CIT(A)'s Decision:
The CIT(A) upheld the Assessing Officer's action, emphasizing that the appellant had withdrawn excess amounts from the company and failed to provide sufficient evidence to support his claim that the withdrawals were related to business transactions. The CIT(A) noted discrepancies in the appellant's account statements and rejected the appellant's arguments based on the nature of the transactions and the value of assets involved.

3. Appellate Tribunal's Analysis:
The Appellate Tribunal reviewed the case file and observed that the appellant's income primarily consisted of a monthly salary, tractor rental income, and car rental income. The Tribunal noted that the appellant's books did not classify the received sums as loans or advances from the company, and the company's report did not indicate any such transactions. The Tribunal stressed the strict interpretation required for deeming income under section 2(22)(e) and highlighted that routine business transactions and salary payments should not be treated as deemed dividends.

4. Legal Precedents and Conclusion:
The Tribunal referenced legal precedents, including the case of DCIT vs. Chariot International Pvt. Ltd., to support the argument that routine commercial transactions involving trade advances should not be considered as deemed dividends. The Tribunal found no distinction presented by the Revenue to counter the appellant's position. Consequently, the Tribunal ruled in favor of the appellant, deleting the addition of deemed dividends amounting to Rs. 11,24,237.

In conclusion, the Appellate Tribunal allowed the appellant's appeal, emphasizing that the transactions in question were routine business dealings and not subject to deemed dividend treatment under section 2(22)(e) of the Income Tax Act, 1961.