2021 (1) TMI 667 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - shareholding of the assessee was more than 10% in company imparting advances to assessee - HELD THAT - Assessee though herself did not dispute about her shareholding more than 10% in M/s Saraswati Agro Chemicals (India) Pvt. Ltd., she has also not disputed that she took a loan of ₹ 3,07,230/- during this year and the CIT(A) has also confirmed the addition to this extent only. Her case is that the company has distributed the dividend @ ₹ 4/- per share and has deposited dividend distribution tax. This amount of ₹ 3,07,230/- has been adjusted with the dividend amount distributed by the company, therefore, within the meaning of sub-clause (3) of Section 2(22) this adjusted amount is to be excluded from the deemed dividend under sub-clause (e) of Section 2(22). A perusal of the impugned order of ld. First Appellate Authority would indicate that this aspect has not been considered by the ld. CIT(A). We find force in the contention of ld. counsel for the assessee and allow the appeal of the assessee.

Summary

Issues:
Interpretation of Section 2(22)(e) of the Income Tax Act regarding deemed dividend treatment based on advances received by the assessee.

Analysis:
1. The assessee appealed against the CIT(A)'s order confirming the addition of ?3,07,230 out of a total addition of ?31,98,948 made by the AO under Section 2(22)(e) of the Income Tax Act for assessment year 2012-13.
2. The AO contended that the advance received by the assessee from a company in which she held shareholding exceeding 10% should be treated as deemed dividend, resulting in the addition.
3. The assessee argued before the CIT(A) that the actual advance taken during the year was only ?3,07,230, which was adjusted against dividends in the following year, falling under an exception to Section 2(22)(e).
4. The CIT(A) confirmed the addition, stating that advances from earlier years cannot be added to the current year's advances for calculating deemed dividend, overlooking the adjustment made against dividends.
5. The assessee further contended that the adjusted amount should be excluded from deemed dividend under Section 2(22)(e), citing specific provisions and submissions made before the CIT(A).
6. The ITAT considered the submissions and found merit in the assessee's argument, noting that the adjusted amount should indeed be excluded from deemed dividend treatment as per Section 2(22)(e).
7. Consequently, the ITAT allowed the appeal of the assessee, deleting the addition confirmed by the CIT(A) and ruling in favor of the assessee based on the interpretation of Section 2(22)(e) and the specific circumstances of the case.

This detailed analysis of the judgment highlights the key legal arguments, interpretations of relevant sections, and the final decision of the ITAT in favor of the assessee.