2023 (8) TMI 516 - HC - Income Tax

Deemed dividend u/s 2(22)(e) - loan and advances obtained from company - CIT(A) allowed assessee's appeal holding that assessee shareholder had given loan to the company and it cannot be taxed as deemed dividend - ITAT confirmed deletion of addition - HELD THAT - It is not in dispute that the CIT(A) has recorded that assessee had advanced Rs.13.62 Lakhs to the company. It is also not in dispute that AO has noticed that assessee had withdrawn Rs.8.52 Crores. Thus, neither the order passed by the AO nor the CIT(A) nor the ITAT clearly show as to how much amount was advanced by the assessee and how much was repaid towards loan. In the absence of specific finding regarding repayment of loan, the amount drawn by assessee will have to be treated as dividend under Section 2(22)(e) of the Act. Thus we are of the opinion that assessee's claim that he had given loan to the company and received corresponding payment by the company towards repayment of loan has to be correctly determined. The ITAT is the last fact finding authority. We deem it appropriate to remand the matter to ITAT for re-consideration - Appeal of revenue allowed for statistical purposes.

Summary

Issues:
Challenge to order confirming deletion of addition under Section 2(22)(e) of the Income Tax Act.

Analysis:
The appeal by the Revenue was against an order dated 31.08.2017 in ITA.No.1637/Bang/2016 for the Assessment Year 2013-14. The main question of law was whether the Tribunal was correct in confirming the deletion of an addition of Rs.8,52,05,481 under Section 2(22)(e) of the Act. The Revenue contended that the provisions of Section 2(22)(e) should apply, as all the necessary ingredients were satisfied. The CIT(A) had allowed the appeal, stating that the shareholder had given a loan to the company, which cannot be taxed as deemed dividend.

A search was conducted at the assessee's residential premises, leading to the assessment proceedings. The Assessing Officer made additions amounting to Rs.8.52 Crores as deemed dividend under Section 2(22)(e) of the Act. The CIT(A) held in favor of the assessee, emphasizing that the loan given by the shareholder to the company should not be treated as deemed dividend.

The ITAT partly allowed the appeal filed by the Revenue, holding against the Revenue on the issue of dividend payment under Section 2(22)(e) of the Act. The Revenue argued that the facts were misconstrued, as the assessee had borrowed money and lent it to the company, with discrepancies in the amounts involved. The respondent submitted that the loan was given in a running account and repaid as and when due.

The Court noted discrepancies in the amounts advanced and withdrawn by the assessee, with unclear findings on the repayment of the loan. As a result, the Court decided to remand the matter to the ITAT for re-consideration to determine the correctness of the claim that the loan was given to the company and repaid accordingly. The order dated 31.08.2017 was set aside, and all contentions of the parties were kept open for reconsideration by the ITAT. The question of law raised by the Revenue was not answered, and no costs were awarded in light of the remand.