2018 (12) TMI 1825 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - loans/advances given by the company to the assessee, when the assessee mortgaged his property as a guarantee for the company to take loan of higher amount from the banks - HELD THAT - It is evident that in case of non-gratuitous advances, the provisions of section 2(22)(e) of the Act has no application. It is not the case of the Revenue that the loan taken by the assessee from the company constitutes gratuitous advances. The facts of the company taking loan from the Bank against the guarantee of property of the assessee and given loan of ₹ 2.35 crore to the assessee are undisputed. Therefore, we are of the opinion that the decision given by the CIT(A) in his order is fair and reasonable and does not call for any interference. - Decided against revenue.

Summary

Issues:
1. Addition of deemed dividend under section 2(22)(e) of the Act.

Analysis:
The appeal before the Appellate Tribunal ITAT Pune was filed by the Revenue against the order of CIT(A)-2, Nashik for the Assessment Year 2012-13. The main issue raised in the grounds of appeal was the addition of ?2,48,73,753 under section 2(22)(e) of the Act, relating to "deemed dividend." The assessee, engaged in land development business, had declared total income of ?6,35,00,717. The Assessing Officer added the amount as deemed dividend, as the assessee held shares in a company and received advances from it. The company had taken a loan against the guarantor's property, the assessee, and provided advances to the assessee. The Assessing Officer taxed this amount as deemed dividend, which the assessee contested, stating it was not gratuitous but related to the company's business interests.

During the first appellate proceedings, the CIT(A) ruled in favor of the assessee, citing a judgment of the Hon'ble Calcutta High Court where a similar situation was considered. The CIT(A) granted relief to the assessee based on this judgment. The Revenue appealed this decision before the Tribunal, arguing that the Calcutta High Court's judgment was not binding in Pune's jurisdiction. However, the Revenue failed to provide any contrary judgment on the issue at hand.

The Tribunal considered the legal proposition from the Calcutta High Court's judgment, emphasizing that non-gratuitous advances do not fall under the purview of section 2(22)(e) of the Act. Since the loan to the assessee was not gratuitous and was related to protecting the company's business interests, it was held that the provisions of deemed dividend did not apply. The Tribunal found the CIT(A)'s decision fair and reasonable, leading to the dismissal of the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s order, emphasizing that the advances were not gratuitous and were given to protect the company's business interests, thereby not constituting deemed dividend under section 2(22)(e) of the Act. The appeal of the Revenue was dismissed, and the order was pronounced on December 12, 2018.