2022 (7) TMI 1221 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - assessee purchase of adjacent old residential house in her own name but the payment was made through the bank account of the Company - AO noted that assessee did not furnish any proof to support the claim that they had tried to get property converted for commercial use - contention of the assessee that the company had agreed to buy the adjacent old residential house for the purpose of the expansion of its hospital and for which an advance payment was made to the vendor - HELD THAT - The property that has been purchased is also reflected in the books of account of the hospital. Before us, Revenue has not placed any material on record to demonstrate that the impugned transaction was a smoke screen to cover a benefit obtained by the assessee from the company in which the assessee is a shareholder. Further, Revenue has also not placed any contrary material on record to the controvert the submissions of the Ld AR. In such a situation and in the light of the judicial decisions cited herein above, we are of the view that the amount advanced to the assessee was not a gratuitous loan but the transaction was entered to protect the advance money of Rs. 90 lacs from being forfeited and that the business expediency for entering the transaction has been proved by the assessee. As in the case of Pradip Kumar Malhotra 2011 (8) TMI 16 - CALCUTTA HIGH COURT has held that if loan or advance is given to a shareholder as a consequence of any further consideration which is beneficial to the company, in such a case such loan or advance cannot be said to be deemed dividend within the meaning of the Act. It has further held that gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of Section 2(22) but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. We are of the view that the CIT(A) was not justified in upholding the addition made by AO by invoking the provisions of s. 2(22)(e) - Decided in favour of assessee.

Summary

Issues Involved:
1. Non-acceptance of additional evidence by CIT(A).
2. Addition of Rs. 64,05,565/- under Section 2(22)(e) of the Income Tax Act.
3. Nature of the transaction and whether it constitutes a deemed dividend under Section 2(22)(e).

Detailed Analysis:

Non-acceptance of Additional Evidence by CIT(A):
The assessee contended that the CIT(A) erred in not accepting additional evidence relevant for the proper disposal of the appeal. However, this ground was not pressed by the assessee during the appeal, and thus, it was dismissed as not pressed.

Addition under Section 2(22)(e):
The primary issue was the addition of Rs. 64,05,565/- as deemed dividend under Section 2(22)(e). The assessee, an individual and promoter of Ganesh Hospital Pvt. Ltd., had purchased a property for Rs. 3.6 crores for the hospital's expansion. Payments were made through the company's bank account, but the property was registered in the assessee's name due to zoning restrictions. The AO deemed this transaction as a loan or advance to the assessee, attracting Section 2(22)(e).

Nature of the Transaction:
The assessee argued that the transaction was for business purposes and not a loan or advance. The property was intended for the hospital's expansion, and the purchase in the assessee's name was a necessity due to the residential zoning of the area. The assessee further argued that the transaction was to prevent forfeiture of an advance payment of Rs. 90 lakhs made by the hospital and was supported by a loan obtained from Axis Bank in the assessee's name.

Legal Precedents and Judicial Decisions:
The assessee cited several judicial decisions, including CIT vs. Rajkumar and CIT vs. Creative Dyeing and Printing (P) Ltd., arguing that advances for business purposes do not fall under Section 2(22)(e). The Tribunal considered these precedents, noting that advances made for business expediency or benefiting the company do not constitute deemed dividends.

Tribunal's Findings:
The Tribunal found that the assessee had demonstrated that the transaction was for business purposes and not a gratuitous loan. The property was reflected in the hospital's books, and the transaction was to protect the advance payment from forfeiture. The Tribunal referred to the Hon'ble Calcutta High Court's decision in Pradip Kumar Malhotra, which held that advances benefiting the company are not deemed dividends.

Conclusion:
The Tribunal concluded that the CIT(A) was not justified in upholding the addition made by the AO under Section 2(22)(e). The transaction was not a gratuitous loan but was made for business expediency. The addition of Rs. 64,05,565/- was set aside, and the assessee's appeal was partly allowed.

Order Pronouncement:
The order was pronounced in the open court on 26.07.2022, resulting in the appeal being partly allowed.