2016 (3) TMI 173 - AT - Income Tax

Deemed dividend addition under section 2(22)(e) - rectification of mistake - Held that - The judgment in the case of CIT v. Smt. Savithiri Sam 1997 (9) TMI 32 - MADRAS High Court was in connection with the transfer of debit balance in the account of the deceased shareholder to the account of his wife in the books of account, who is not a shareholder. In that circumstances, it was held by the jurisdictional High Court that the provisions of section 2(22)(e) of the Act are not applied. It is pertinent to mention here that there is a direct judgment from the jurisdictional High Court in the case of CIT v. L. Alagusundaram Chettiar 1976 (10) TMI 22 - MADRAS High Court wherein it was observed that loan advanced by the company to Hindu undivided family of one K, the low paid employee of the company was karta and K in turn, advancing loan to the assessee, managing director of the company, was deemed dividend in the hands of the assessee in view of admission by the assessee that when required loan, he obtained it through K in this manner. In view of contradictory judgments, the issue arising from the miscellaneous petition is a debatable one and it cannot be said that it should be rectified under section 254(2) of the Act. Under section 254(2) only a mistake, which is apparent from the face of the record, could be rectified and not a debatable issue. If it is so, it is only an error in judgment and not a mistake apparent from the record amenable to rectify under section 254(2) of the Act. In our opinion, the order of the Tribunal to be read as a whole and not in a piecemeal manner. Accordingly, the order of the Tribunal on these issues is not liable to be interfered with unless the Tribunal has not taken into consideration any irrelevant material or has failed to take into consideration any relevant material or the conclusion arrived at by the Tribunal is perverse in the sense that no reasonable person, on the basis of the facts before the Tribunal, could have come to the conclusion to which it has come. In view of the above discussion, we find no merit in the miscellaneous petition filed by the assessee and it deserves to be dismissed. - Decided against assessee

Summary

Issues:
1. Recall of the order of the Tribunal in I. T. A. No. 445/Mds/ 2015 dated July 17, 2015.
2. Deemed dividend under section 2(22)(e) of the Act.
3. Application of Explanation 3(b) to section 2(22)(e) of the Act.
4. Adjudication of miscellaneous petition and stay petition.

Issue 1: The appellant filed a miscellaneous petition seeking the recall of the order of the Tribunal in I. T. A. No. 445/Mds/ 2015 dated July 17, 2015.

Issue 2: The Tribunal decided the issue of deemed dividend under section 2(22)(e) of the Act against the assessee. The Tribunal noted that the assessee, a director of a company, had received a sum shown as loans and advances in the company's accounts. The Tribunal observed that the assessee failed to provide evidence regarding the actual purpose of the amount received and how it helped the company. The Tribunal rejected the argument that the transaction was a notional payment, emphasizing that the amount was shown as loans and advances in the company's balance sheet. The assessee relied on certain High Court decisions, but the Tribunal found them inapplicable to the case.

Issue 3: The appellant contended that the Tribunal wrongly applied Explanation 3(b) to section 2(22)(e) of the Act. The appellant argued that the Explanation only applies to a specific part of section 2(22)(e) and is not relevant to the case. The Tribunal considered the arguments but found no merit in the appellant's contentions.

Issue 4: The Tribunal dismissed the miscellaneous petition filed by the assessee, stating that the order should be read as a whole and not in a piecemeal manner. The Tribunal emphasized that under section 254(2) of the Act, only a mistake apparent from the face of the record could be rectified, not a debatable issue. As the issue was debatable and not a clear error, the Tribunal found no reason to interfere with its original order. Consequently, the Tribunal also dismissed the stay petition as the main appeal was disposed of.

In conclusion, the Tribunal upheld its original order, rejecting the appellant's arguments regarding the deemed dividend issue and the application of Explanation 3(b) to section 2(22)(e) of the Act. The Tribunal emphasized the need for clear errors to rectify an order under section 254(2) of the Act and found no such errors in this case.