2014 (2) TMI 475 - AT - Income Tax

Deemed dividend u/s 2(22)(e) of the Act - Amount paid as loan and advances to Director Held that - There was credit balance of the assessee in the books of the company as on 1.4.2005 - the nature of the transaction is clearly in the nature of loan/advance received by the assessee from the company which is repaid in the subsequent year - Merely because there was a credit balance of the assessee with the company, it cannot be said that more amount received after the repayment of assessee s credit balance is not in the nature of loan and advance - After the repayment of the credit balance of the assessee in the books of the company, if assessee has received further amount, it was certainly in the nature of loan/advance which is to be repaid by the assessee and actually repaid by the assessee in the subsequent year the arrangement between the assessee and the company was merely for the sake of convenience arising out of business expediency - no such business expediency has been established by the assessee in the case under appeal decided against Assessee.

Summary

Issues:
1. Opportunity to present the case not given by CIT(A)
2. Treatment of amount as deemed dividend under Section 2(22)(e) of the Income-tax Act, 1961

Analysis:
1. The appeal was against the order of CIT(A) for AY 2006-07. The assessee contended that CIT(A) did not provide sufficient opportunity to present their case. The assessee, a director and major shareholder in a company, received a loan/advance from the company, which was treated as deemed dividend by the Assessing Officer under Section 2(22)(e). The Assessing Officer's decision was upheld by CIT(A), leading to the appeal.

2. The crux of the issue revolved around whether the amount received by the assessee from the company constituted a loan/advance or deemed dividend under Section 2(22)(e). The company had accumulated profits, and the assessee had a credit balance with the company. The assessee argued that the amount received was not a loan/advance but repayment of the credit balance and additional funds for personal use. However, the tribunal disagreed, stating that the transaction was indeed a loan/advance as it exceeded the credit balance and was repaid in the subsequent year. The tribunal distinguished a previous case where business expediency was established, which was not the case here. Consequently, the appeal was dismissed, affirming the treating of the amount as deemed dividend.

In conclusion, the tribunal's decision highlighted the importance of analyzing the nature of transactions under Section 2(22)(e) to determine whether amounts received are deemed dividends or loans/advances. The case underscored the need for clear evidence to establish the nature of transactions and the absence of business expediency to support the assessee's claim.