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2023 (11) TMI 931 - AT - Income TaxDeemed dividend u/s. 2(22)(e) - nature of transactions between appellant and company - As per AO appellant is holding more than prescribed percentage of beneficial interest in shareholding of the company, AO treated debit balance of above three dates as deemed dividend - Also assessee has received a sum from the company and this payment is not reflected in the current account of the assessee with the company - HELD THAT - We find that, it is not a solitary transaction of loan or advance to the assessee. In fact, there are number of transactions between the assessee and the company, where various payments are routed through current account of the assessee, including remuneration and other expenses reimbursed to the appellant. Further, in most of the days, except few days, account always shows credit balance in the books of the company. Therefore, the transactions need to be examined in light of peculiar nature of transactions of the assessee with the company. If the claims of the assessee are true and the debit balance is only because of an inadvertent error and the same has been squared off within short period, then same cannot be treated as deemed dividend u/s. 2(22)(e) of the Act and this principle is supported by the decision of M/s. V. Sriram (HUF) vs ACIT (OSD) 2023 (3) TMI 91 - ITAT CHENNAI Similarly, AO has considered the payment on 31.12.2010 and according to the Assessing Officer the appellant has received a sum from the company, but said payment is not reflected in the current account of the assessee. Assessee explained that, the company has owed to Smt. Sundaravalli, mother of the appellant and her account shows a credit balance 0 The company suppose to make payment to Smt. Sundaravalli and as per the instructions of the payee, the amount has been paid to the appellant on 31.12.2010 and debited the payment to Smt. Sundaravalli account. The appellant has furnished ledger extract of Smt. Sundaravalli to prove his arguments. If the arguments of the Ld. Counsel for the assessee is correct, then said payment cannot be considered as payment of loan to appellant within the provisions of section 2(22)(e) of the Act. But, fact remains that, these facts need to be verified by the AO in light of our observations given herein above. Therefore, we set aside the order of the ld. CIT(A) and restore the issue back to the file of the AO. AO is directed to verify the claim of the assessee in light of various evidences and also decide the issue in light of our findings given herein above and decide the issue. In case, the Assessing Officer finds that the claim of the assessee is correct, then the AO is directed to delete additions made towards deemed dividend u/s. 2(22)(e) of the Act. Assessee appeal allowed for statistical purposes.
Issues Involved:
The judgment involves the assessment of deemed dividend u/s. 2(22)(e) of the Income-tax Act, 1961 for the assessment year 2011-12. Issue 1: Jurisdiction of the Commissioner of Income Tax (Appeals) The appellant contended that the order of the Commissioner of Income Tax (Appeals) was contrary to law and opposed to principles of equity, natural justice, and fair play. The appellant argued that the Assessing Officer's order lacked jurisdiction. Issue 2: Addition of Deemed Dividend The Assessing Officer treated a debit balance in the company's books as deemed dividend u/s. 2(22)(e) of the Act due to the appellant's substantial interest in the shareholding. The Commissioner of Income Tax (Appeals) upheld this addition, citing judicial precedents. Issue 3: Nature of Transactions The appellant argued that the transactions between the appellant and the company were in the nature of a current account in the normal course of business, not loans or deposits as per section 2(22)(e) of the Act. The appellant provided explanations for various debit balances and payments, emphasizing the temporary nature of the balances. Issue 4: Verification and Decision The Tribunal found that the transactions needed to be examined in light of the specific nature of the appellant's dealings with the company. Several debit balances were explained by the appellant as inadvertent errors that were promptly rectified. The Tribunal directed the Assessing Officer to verify the appellant's claims and decide the issue based on the evidence provided. In conclusion, the Appellate Tribunal ITAT Chennai allowed the appeal filed by the assessee for statistical purposes. The Tribunal set aside the Commissioner of Income Tax (Appeals) order and directed the Assessing Officer to verify the appellant's claims regarding the deemed dividend additions and decide accordingly based on the evidence presented.
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