2020 (10) TMI 357 - AT - Income Tax

Dividend dividend u/s.2(22)(e) - transactions between the shareholder and company - Director of the company holding 50% shares taking temporary accommodation loans from company - HELD THAT - Regular course of transactions between the assessee and TIBPL which was for the mutual benefit of both the assessee and TIBPL, but mainly with an advantage to TIBPL. The Hon ble Calcutta High court in CIT Vs. Gayatri Chakraborty 2018 (6) TMI 1235 - CALCUTTA HIGH COURT has held that where the transactions between the shareholder and company create mutual benefits and obligations, then the provisions of treating any sum received by the shareholder does not constitute deemed dividend. In another unreported judgment in CIT Vs. Schutz Dishman Biotech Pvt. Ltd. 2016 (1) TMI 84 - GUJARAT HIGH COURT held that accommodation adjustment entries do not fall within the realm of deemed dividend u/s.2(22)(e). It is clear that the transactions between the assessee and TIBPL, in the given circumstances, do not constitute deemed dividend in favour of the assessee so as to fall within the ambit of section 2(22)(e) of the Act. We, therefore, overturn the impugned order on this score and order to delete the addition. - Decided in favour of assessee.

Summary

Issues:
Confirmation of addition under section 2(22)(e) of the Income-tax Act, 1961.

Analysis:
The appeal was against the addition of ?40,51,045 made by the Assessing Officer under section 2(22)(e) of the Income-tax Act, 1961. The Assessing Officer observed that the assessee had taken a loan from a company, where he was a Director, and made the addition based on the company's surplus funds. The assessee argued that no loan was taken but temporary accommodation loans were given when needed. The CIT(A) affirmed the addition. The Tribunal analyzed the account between the assessee and the company, noting multiple transactions where the assessee advanced money to the company, resulting in a net debit balance. Citing relevant case laws, the Tribunal concluded that the transactions did not constitute deemed dividend under section 2(22)(e) as they were for mutual benefit, mainly advantageous to the company. The Tribunal overturned the addition, stating that the transactions did not fall within the ambit of section 2(22)(e) and ordered the deletion of the addition.

Judgment:
The Tribunal allowed the appeal, pronouncing the order on 5th October, 2020.