2020 (8) TMI 440 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - amount of loan given by the company to the assessee - HELD THAT - Assessee is a director of Sankalp Seeds Private Limited. He was summoned by ADIT (Investigation), Aurangabad for verification of cash deposits in his bank account. During the course of his statement on oath before the ADIT (Inv.), the assessee admitted to have borrowed a sum of ₹ 10,00,000 as loan from Sankalp Seeds Private Limited, which was subsequently repaid. AO found accumulated profits of the company to be much in excess of ₹ 10,00,000, being the amount of loan given by the company to the assessee. The provisions of section 2(22)(e) in such circumstances, are obviously attracted. The assessee had tried to make out a case before the authorities that the said amount of ₹ 10,00,000 was received as advance or an imprest. CIT(A) has elaborately dealt with such contentions by giving dates on which small amounts of imprest were received by the assessee. Salary received by the assessee from the company is different from such amount of ₹ 10,00,000 received by the assessee. In fact, the assessee categorically admitted before the ADIT (Inv.) that the amount of ₹ 10,00,000 received by him was subsequently repaid. If, that be the situation, we fail to appreciate as to how the rigour of section 2(22)(e) of the Act can be avoided. Case of P.Sarada Vs. CIT 1997 (12) TMI 1 - SUPREME COURT has held that section 2(22)(e) of the Act is magnetized on a shareholder receiving loan or advance from a company even though ultimately the amount stands adjusted at the end of the year. In view of the above factual scenario, we are satisfied that the provisions of section 2(22)(e) of the Act are attracted in the instant case. Thus, the addition sustained in the first appeal is hereby affirmed. Reopening of assessment u/s 147 - no return in response to notice u/s 148 was filed, the AO did not furnish any such reasons - HELD THAT - There is no legal bar on the assessee taking up such a legal ground before the Tribunal despite having desisted in the first appeal, there should be some material to fortify the stand. From the material available on record, it is observed that the assessee did not file any return in response to notice u/s 148 of the Act. Hon ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO 2002 (11) TMI 7 - SUPREME COURT has laid down the procedure for supplying the reasons recorded by the AO to the assessee only after the assessee has filed return in response to notice u/s 148 of the Act. If the assessee fails to furnish such return, obviously, there is no obligation on the part of AO to furnish a copy of reasons to assessee. In the extant case, the assessee did not furnish return in response to notice u/s 148 of the Act. That being the position, we hold that the AO was justified in not supplying the reasons before taking up the assessment u/s 147 of the Act. This ground, ergo, fails.

Summary

Issues:
1. Addition of &8377; 10,00,000 as deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961.
2. Non-provision of reasons to believe to the assessee.

Analysis:

Issue 1: Addition of &8377; 10,00,000 as deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961:
The appeal pertains to the confirmation of the addition of &8377; 10,00,000 as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961. The Assessing Officer (AO) found that the assessee, a director of a company, received a sum of &8377; 10,00,000 from the company, which was considered a violation of the provisions of section 2(22)(e). The assessee claimed the amount was an advance or imprest, later repaid. However, the AO disregarded this explanation, leading to the addition in the assessment. The CIT(A) upheld this decision, emphasizing the repayment in the subsequent year. The Tribunal noted the absence of the assessee during proceedings and upheld the addition based on the company's accumulated profits exceeding the loan amount. Citing the Supreme Court's precedent in P.Sarada Vs. CIT, the Tribunal affirmed the addition, stating the provisions of section 2(22)(e) were applicable in this case.

Issue 2: Non-provision of reasons to believe to the assessee:
The second ground raised was the AO's failure to provide the reasons to believe to the assessee. The AO issued a notice u/s 148, but as the assessee did not file a return in response, no reasons were furnished. While the assessee initially accepted this in the appeal before CIT(A), the issue was revived in the Tribunal. Referring to the Supreme Court's ruling in GKN Driveshafts (India) Ltd. Vs. ITO, the Tribunal held that the AO was not obligated to provide reasons if the assessee did not file a return in response to the notice u/s 148. As the assessee failed to furnish a return, the Tribunal deemed the AO's action justified. Consequently, this ground was dismissed.

In conclusion, the Tribunal affirmed the addition of &8377; 10,00,000 as deemed dividend under section 2(22)(e) and rejected the challenge regarding the non-provision of reasons to believe. The appeal was ultimately dismissed, with the order pronounced on 18th August 2020.