2012 (5) TMI 106 - AT - Income Tax

Deemed dividend Section 2(22) - Held that - Out of the payment of Rs. 11 lakhs, only Rs. 4,17,600/-was refundable advance and balance Rs. 6,82,400/- was towards salary and incentives on which tax was duly deducted at source, could not be disputed by the Department - it is not fair to treat the whole amount of Rs. 11,00,000/- as deemed dividend under section 2(22)(e) against revenue.

Summary

Issues:
- Appeal against the order of the ld. CIT(A)-V, Chennai directing the Assessing Officer to restrict the addition made on deemed dividend.

Analysis:
The appeal filed by the Revenue was against the order of the ld. CIT(A)-V, Chennai, dated 27.4.2010. The main issue raised in the appeal was the direction given by the ld. CIT(A) to restrict the addition made on deemed dividend. The assessee, a working director in a company, had taken a salary advance of Rs. 11 lakhs during the year, which was adjusted against incentives paid after deducting tax at source. The Assessing Officer treated this advance amount as deemed dividend under section 2(22)(e) of the Act.

On appeal, the ld. CIT(A) restricted the addition to Rs. 4,17,600. The CIT(A) observed that the advance amount was adjusted against incentives during the financial year itself, and the salary income of the appellant was included with TDS effected. The CIT(A) found that only Rs. 4,17,600 was refundable advance, and the balance was towards salary and incentives with tax duly deducted at source. The Revenue, in its appeal, could not point out any specific error in the CIT(A)'s order or provide material to dispute the findings regarding the nature of the payments made by the company to its director.

The Tribunal, after considering the submissions and orders of the lower authorities, upheld the CIT(A)'s decision. It was noted that the amount deleted by the CIT(A) was indeed payment by the company to its director for salary and incentives, with tax deductions made. The Tribunal found no reason to interfere with the CIT(A)'s order, as the Revenue failed to provide any valid grounds for appeal. Consequently, the appeal of the Revenue was dismissed, and the order of the CIT(A) was confirmed.

In conclusion, the Tribunal upheld the decision of the CIT(A) to restrict the addition made on deemed dividend, as it was found that the payments made by the company to its director were towards salary and incentives, with tax deductions duly carried out. The Tribunal emphasized the importance of proper tax treatment and upheld the CIT(A)'s order, dismissing the appeal of the Revenue.