2018 (11) TMI 1008 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - assessee contended that amount given not for the benefit of person but for the benefit of the Company - Held that - Company has given official imprest amount of ₹ 1,35,000/- to the assessee for incurring certain expenses in connection with seeking professional work for the Company. Therefore, explanation of assessee is substantiated that it was an ordinary business transaction and that small imprest amount was given to the assessee to incur expenditure on behalf of the Company. Therefore, provisions of Section 2(22)(e) would not be attracted in this case. Considering all it is clear that all the amounts in question have not been given to the assessee for his personal benefit but these amounts have been given for the benefit of the Company. These were ordinary business transactions and as such, would not attract the provisions of Section 2(22)(e). We, accordingly, set aside the Orders of the authorities below and delete the above additions. Appeal of Assessee is partly allowed.

Summary

Issues:
1. Addition of deemed dividend under section 2(22)(e) for amounts received from various companies.
2. Challenge to additions before Ld. CIT(A) on the grounds of business transactions.

Analysis:

Issue 1: Addition of deemed dividend under section 2(22)(e)
The assessee, an architect, received significant amounts from companies in which he was a Director and shareholder. The Assessing Officer added back these amounts as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The Ld. CIT(A) upheld these additions after considering explanations provided by the assessee. The first company, M/s. Designarch Infrastructure Pvt. Ltd., had given amounts for salary, rent, and security deposit. The second company, M/s. Designarch Consultants Pvt. Ltd., provided an advance for property sale. The third company, M/s. Jinendra Securities Pvt. Ltd., gave an official imprest. The Ld. CIT(A) confirmed the additions, emphasizing the application of section 2(22)(e) based on the nature of transactions and the benefit to the assessee.

Issue 2: Challenge to additions before Ld. CIT(A)
The assessee contended that the transactions were business-related and not subject to deemed dividend provisions. The Ld. CIT(A) scrutinized the details of each transaction, including rental agreements and confirmations. The Ld. CIT(A) observed discrepancies in the documents submitted by the assessee, leading to the confirmation of additions. However, the assessee argued that the transactions were normal business dealings, supported by banking records and agreements. Citing legal precedents and the nature of the transactions, the assessee's counsel asserted that the amounts were not for personal benefit but for the benefit of the companies involved. The Tribunal agreed with this argument, overturning the decisions of the lower authorities and deleting the additions.

In conclusion, the Tribunal partially allowed the appeal of the assessee, emphasizing that the transactions were ordinary business dealings and did not fall under the purview of deemed dividend provisions. The judgment highlighted the importance of analyzing the purpose and nature of transactions to determine the applicability of tax provisions accurately.