2016 (4) TMI 655 - AT - Income Tax

Deemed dividend addition under section 2(22)(e) - Held that - There has to be some material on the record to demonstrate the factual elements embedded in the arguments of the learned counsel. That s not the case here. In any event, as the Assessing Officer has very well demonstrate on the facts of this case, all the conditions for attracting the taxability under section 2(22)(e) are satisfied on the facts of this case. The assessee has received the monies from a company in which he is the shareholder, the shareholding of the assessee exceeds the specified threshold limit, the company has sufficient accumulated profits and reserves and surplus and the amounts received are in the nature of loans and advances. The plea now taken by the assessee, i.e. advances being compensation for personal guarantees, is nothing but a cover up and unsupported by material on record. The assessee s plea that these advances in the nature of transactions in the ordinary course of business has been effectively demolished by the Assessing Officer, and learned CIT(A) was quite justified in upholding these findings. Whether these advances were to help the assessee in overcoming temporary liquidity crises or not is wholly irrelevant because as long as it is in nature of loans or advances, and other pre-conditions for applicability of Section 2(22)(e) are satisfied, such loans and advances are required to be taxed as deemed dividend. We uphold very well reasoned stand of the authorities below, and decline to interfere in the matter. The order of the CIT(A) thus stands confirmed. - Decided against assessee.

Summary

Issues:
Appeal against addition of deemed dividend under section 2(22)(e) for assessment years 2008-09 and 2009-10.

Analysis:
The appeals pertain to the same assessee for two consecutive assessment years challenging the addition of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The loans received by the assessee from a company in which he held equity shareholding were treated as deemed dividend by the Assessing Officer. The assessee contended that the loans were received in the ordinary course of business and were not covered under section 2(22)(e). Various legal precedents were cited to support the argument that the advances were not deemed dividend. However, the Assessing Officer rejected these submissions and made additions for both assessment years.

The CIT(A) upheld the addition for the assessment year 2009-10 but restricted it to the maximum outstanding amount in the loan account. The assessee further appealed, arguing that the advances were given in consideration of personal guarantees and collateral provided. The appellate tribunal noted that there was no evidence to support this claim and emphasized the need for factual elements to be demonstrated. Legal judgments were cited in support of the argument, but without foundational facts, the tribunal could not accept the contention. The tribunal also referred to a similar case where the assessee failed to prove the quid pro quo between the advances and guarantees.

The tribunal upheld the stand of the authorities below, stating that all conditions for taxability under section 2(22)(e) were met. The argument that the advances were compensation for personal guarantees was deemed unsupported. The tribunal agreed that as long as the advances met the criteria for deemed dividend, they were taxable as such. Therefore, the appeals were dismissed, and the order of the CIT(A) was confirmed.

In conclusion, the tribunal upheld the addition of deemed dividend for both assessment years, emphasizing the need for factual evidence to support claims and the strict interpretation of the provisions of section 2(22)(e) in determining taxability.