2022 (11) TMI 309 - AT - Income Tax

Revision u/s 263 - Deemed dividend u/s 2(22)(e) - only contention is that excess receipt by the assessee on each date is to be calculated by including the opening excess receipt and every such excess receipt so arrived at is to be treated as independent receipt from the said company and thus treated as deemed dividend u/s 2(22)(e) - whether peak excess receipt, considered by the AO for the purpose, is incorrect ? - HELD THAT - No merit in this contention of the CIT. The account of the assessee with Tristar Security Pvt. Ltd., wherein the impugned amounts have been received, is undisputedly in the nature of a current account with numerous transactions of giving and receiving amounts to the said company. This is a fact on record and is not disputed. The assessee had explained the nature of transactions between the two as relating to lending and receiving back money from the said company by the assessee to help it tide over short term financial requirements.This explanation of the assessee is reproduced of the Ld.PCIT s order. No infirmity has been pointed out by the PCIT in the same. Considering the fact that the transactions of the assessee with the said company are in the nature of current account transactions with repeated receipt and payment to the said company, the loans are repeatedly being paid back by the assessee within a few days itself and therefore it is only the peak credit which is to be considered for determining the amount advanced to the assessee qualifying as deemed dividend. There is no error, we hold, in the order of the AO treating only the peak withdrawal as deemed dividend. We therefore set aside the order of the Ld.Pr.CIT passed under section 263 - Appeal of the assessee is allowed.

Summary

Issues:
1. Validity of order passed under section 263 of the Income Tax Act, 1961.
2. Correct calculation of deemed dividend under section 2(22)(e) of the Act.
3. Treatment of peak credit balance for determining deemed dividend.

Issue 1: Validity of order under section 263:
The appeal was filed against an order passed by the Principal Commissioner of Income-Tax, Jamnagar under section 263 of the Income Tax Act, 1961. The assessment order was found erroneous by the Principal Commissioner due to incorrect addition made by the Assessing Officer (AO) under section 2(22)(e) of the Act. The AO had added Rs. 3,77,450 as deemed dividend, while the Principal Commissioner contended it should have been Rs. 53,48,045. The assessee argued that the order was bad in law and facts, as the amount received did not exceed Rs. 3,77,450 during the year.

Issue 2: Correct calculation of deemed dividend:
The AO had considered transactions between the assessee and Tristar Security Pvt. Ltd. as deemed dividend under section 2(22)(e) of the Act. The AO calculated the amount withdrawn by the assessee as Rs. 3,77,450 based on overdrawn balances. However, the Principal Commissioner disagreed, stating that the opening balance should also be considered, and each overdrawn balance should be treated as a separate withdrawal for determining deemed dividend. The Principal Commissioner's view was that the peak credit balance should not be the sole basis for calculating deemed dividend.

Issue 3: Treatment of peak credit balance:
The Principal Commissioner argued that the opening balance and subsequent overdrawn amounts should be cumulatively considered for calculating deemed dividend. The Principal Commissioner's contention was that each excess receipt should be treated as an independent receipt, leading to a higher amount of deemed dividend. However, the tribunal held that the transactions were in the nature of a current account with repeated receipts and payments, and only the peak credit balance should be considered for determining the amount qualifying as deemed dividend. The tribunal set aside the order passed under section 263 of the Act, ruling in favor of the assessee.

In conclusion, the tribunal allowed the appeal, emphasizing that only the peak credit balance should be considered for determining deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.