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2015 (12) TMI 763 - AT - Income TaxDeemed dividend u/s 2(22)(e) - the advances had not been made in the ordinary course of business expediency and the assessee had been regularly repaying the amount received from the company - CIT(A) deleted the addition - Held that - On perusal of the copy of ledger account of the assessee with M/s A.K.J. Industries Ltd. extracted in the assessment order, it is clear that there were continuous transactions of receipt and payment of money to the assessee by the said company. There are some debit balance and after some time it was converted into credit balance and finally at the end of accounting year, there was a debit balance of ₹ 53,28,853/-. Out of this, there were entry made on 31st March, 2009 towards TDS payable of ₹ 29,51,460/-. Thus, there are mutual transactions between the said company and the assessee throughout the year. Therefore, in our considered opinion, this account is in the nature of a current account, and moreover, the salary payable is also credited in this account and wherever there are payments in excess of the salary, it was submitted that it was an advance salary received from the company. Therefore, in our considered opinion, these transactions one in ordinary course of business of the said company, cannot be treated as deemed dividend. - Decided in favour of assessee.
Issues Involved:
1. Deletion of addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. Detailed Analysis: 1. Deletion of Addition on Account of Deemed Dividend under Section 2(22)(e): The Revenue appealed against the CIT(A)'s order which deleted an addition of Rs. 53,29,843/- made by the Assessing Officer (AO) under Section 2(22)(e) of the Income Tax Act, 1961, treating it as deemed dividend. The AO observed that the assessee, who is a director and substantial shareholder of M/s A.K.G. Industries Ltd., had received this amount from the company, and therefore, considered it as deemed dividend. The CIT(A) deleted the addition, reasoning that the amount in question was part of a running account between the assessee and the company, primarily involving salary transactions. The CIT(A) noted that the assessee was drawing a salary of Rs. 7,50,000/- per month, which was credited to this account. The account was not a loan or advance but a salary account, and the debit balance arose due to salary adjustments. The CIT(A) emphasized that the provisions of Section 2(22)(e) do not apply to transactions in the ordinary course of business between an employer and employee. The CIT(A) supported this view by referring to judgments from the Delhi High Court in CIT Vs. Raj Kumar and CIT Vs. Creative Dyeing and Printing Pvt. Ltd., which held that amounts received as advances against future supplies or salaries in the ordinary course of business are not deemed dividends under Section 2(22)(e). The Revenue argued that any money received from a company where the assessee has a substantial interest should be treated as deemed dividend under Section 2(22)(e). However, the assessee's counsel contended that the transactions were in the nature of a current account involving continuous salary and advance salary payments, which were part of the ordinary course of business, and hence, not deemed dividends. The Tribunal, after reviewing the ledger account and the continuous transactions between the assessee and the company, concluded that the account was indeed a current account. The Tribunal observed that the transactions were in the ordinary course of business, and the salary payable was credited to this account. The Tribunal relied on several judgments, including CIT Vs. Raj Kumar and CIT Vs. Creative Dyeing and Printing (P.) Ltd., which supported the view that such transactions do not fall under the purview of deemed dividend. The Tribunal upheld the CIT(A)'s decision, stating that the reasoning adopted by the CIT(A) was consistent with the judicial precedents. Consequently, the appeal filed by the Revenue was dismissed, and the deletion of the addition of Rs. 53,29,843/- was affirmed. Conclusion: The appeal by the Revenue was dismissed, and the Tribunal upheld the CIT(A)'s order deleting the addition made under Section 2(22)(e) of the Income Tax Act, 1961, on the grounds that the transactions were part of a running account involving salary payments in the ordinary course of business, and hence, not deemed dividends.
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