2024 (10) TMI 528 - AT - Income Tax

Deemed dividend u/s. 2(22)(e) - addition made on the ground that the assessee had taken loan from company in which the assessee is 66.22% shareholder - Assessee argued these transactions are for commercial expediency and are not in the nature of loans and advances - HELD THAT - We find that the transactions between the assessee and the EIHCPL are not in the nature of loans and advances but are transactions of commercial expediency and business exigencies. Since, the assessee is the key person looking after the day-to-day affairs of the hospital and considering the need of funds required by the hospital for day-to-day business, sometimes the funds are made available by the assessee to the hospital and sometimes hospital provides funds to the assessee for carrying out certain transactions on behalf of the hospital. Further, we find that these transactions have been consistently carried out for past many years and have been accepted by the Revenue Authorities. We are of the considered view that Section 2(22)(e) of the Act cannot be invoked on the given set of transactions in the instant appeal. Decided in favour of assessee.

Summary

Issues Involved:
Addition of deemed dividend u/s. 2(22)(e) of the Income Tax Act amounting to Rs. 2,99,87,804 confirmed by CIT (A).

Detailed Analysis:

Issue 1: Addition of Deemed Dividend
- The appeal concerns the addition of deemed dividend u/s. 2(22)(e) of the Act amounting to Rs. 2,99,87,804, confirmed by CIT (A).
- The assessee, a doctor running a hospital, had taken a loan from a company in which he held a substantial share. The AO and CIT (A) treated this loan as deemed dividend under section 2(22)(e) of the Act.
- The company had provided funds to the assessee for the purchase of flats, which were intended to be used as a guest house for visiting doctors. The funds were transferred back due to non-utilization.
- The AO and CIT (A) concluded that the transactions were not genuine business transactions but a way to divert company funds for personal benefit, upholding the addition.
- The appellant contended that the transactions were for commercial expediency, citing judgments and a CBDT circular supporting their argument.
- The Tribunal analyzed the ledger accounts and transactions between the assessee and the company, finding them to be regular business transactions for commercial expediency, not loans or advances.
- Referring to judicial precedents and the CBDT circular, the Tribunal held that section 2(22)(e) could not be invoked in this case. The addition was reversed, and the appeal was allowed.

Conclusion:
- The Tribunal reversed the addition of deemed dividend under section 2(22)(e) of the Act, as the transactions between the assessee and the company were found to be for commercial expediency and not loans or advances, following judicial precedents and a CBDT circular.
- The appeal was allowed in favor of the assessee.