2017 (2) TMI 284 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - Held that - The assessee has advanced interest free loans to the company and it is only for a brief period of 34 days in the A.Y 2009-10 that there was a small amount of ₹ 3,34,000/- as on 03-04-2011 debit balance in favour of the assessee in the books of the company. Even if the assessee s contentions about receiving the consideration towards development agreement is not acceptable, the decision of the Hon ble Punjab & Haryana High Court in the case of CIT Vs Suraj Dev Dada 2014 (5) TMI 625 - PUNJAB & HARYANA HIGH COURT would apply to the facts of the case on hand. Therefore, respectfully following the same, we hold that this amount cannot brought to tax u/s 2(22)(e) of the Act in the hands of the assessee for both the assessment years.

Summary

Issues Involved:
1. Validity of proceedings under Section 153C of the Income Tax Act.
2. Addition made under Section 2(22)(e) of the Income Tax Act as deemed dividend.

Issue-wise Detailed Analysis:

1. Validity of proceedings under Section 153C of the Income Tax Act:

The first issue pertains to the validity of the proceedings initiated under Section 153C of the Income Tax Act for the assessment year 2009-10. The assessee argued that the notice issued under Section 153C did not mention the particulars regarding the person in whose case the search was conducted or the details of the seized items belonging to the assessee. The assessee contended that the satisfaction recorded by the Assessing Officer (AO) was not valid, rendering the proceedings invalid ab initio.

The Departmental Representative (DR) produced the satisfaction recorded by the AO, which referred to the search conducted on M/s. NCC Ltd. and the documents relating to the assessee. The Tribunal found that the satisfaction recorded by the AO met the requirements for assuming jurisdiction under Section 153C. Consequently, the Tribunal rejected the additional ground of appeal for the assessment year 2009-10, upholding the validity of the proceedings under Section 153C.

2. Addition made under Section 2(22)(e) of the Income Tax Act as deemed dividend:

The second issue concerns the addition made under Section 2(22)(e) of the Income Tax Act, treating certain amounts as deemed dividend in the hands of the assessee for the assessment years 2009-10 and 2011-12. The AO observed debit balances in the assessee's ledger account in the books of M/s. RRV Infrastructure Ltd. and treated these amounts as deemed dividend under Section 2(22)(e).

The assessee argued that he had a running current account with the company and had been advancing interest-free loans to the company. The debit balances were for brief periods, and hence, should not be treated as deemed dividend. The assessee relied on the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT Vs Suraj Dev Dada, where it was held that such transactions do not attract the provisions of Section 2(22)(e) if the assessee has a running current account with the company.

The Tribunal noted that the assessee had a running current account with the company and had been advancing money to the company. The debit balances were for brief periods, similar to the facts in the Suraj Dev Dada case. Respectfully following the decision of the Punjab & Haryana High Court, the Tribunal held that the amounts in question could not be treated as deemed dividend under Section 2(22)(e) and allowed the assessee's grounds of appeal on merits for both assessment years.

Case of Shri R. Ravi Varma:

The facts and circumstances in the case of Shri R. Ravi Varma, the brother of Shri Rudraraju Rajendra Verma, were similar. The AO treated a debit balance in the assessee's ledger account as deemed dividend under Section 2(22)(e). The assessee contended that the amount was an advance received for a development agreement, which was later canceled. The CIT(A) did not accept this explanation, and the assessee appealed to the Tribunal.

The Tribunal observed that the assessee had advanced interest-free loans to the company and the debit balance was for a brief period. Even if the development agreement explanation was not acceptable, the facts were similar to the Suraj Dev Dada case. Following the same reasoning, the Tribunal held that the amount could not be treated as deemed dividend under Section 2(22)(e) and allowed the assessee's appeals on merits for both assessment years.

Conclusion:

The Tribunal upheld the validity of the proceedings under Section 153C for the assessment year 2009-10. On merits, the Tribunal allowed the appeals of both assessees for the assessment years 2009-10 and 2011-12, holding that the amounts in question could not be treated as deemed dividend under Section 2(22)(e) of the Income Tax Act. The appeals for the assessment year 2009-10 were partly allowed, and the appeals for the assessment year 2011-12 were fully allowed.