9911796707
TMI Blog2015 (11) TMI 1282X X X X Extracts X X X X X X X X Extracts X X X X ..... intained u/s 301 of the Companies Act. We also don’t agree with assessee that ₹ 2,27,997 was advance against salary because firstly, there was no such advance given by the company , which can be confirmed from the fact that no such advance was mentioned in Annual statement of the company, secondly, the amount was derived merely after subtraction of ₹ 20,40,000/- claimed by the assessee as security deposit and credit balance of ₹ 4,52,003 out of ₹ 27,18,692 claimed as peak of ‘Sandeep sabharwal Advance Account’. Further, even if amount was advance against salary , transaction between an employee and company cannot acquire character of business transaction. Thus we are of the opinion that the payments advanced appearing in the ‘Sandeep sabharwal Advance Account’ by the company to the assessee are purely in nature of loans or advances to the assessee and same are held to be in the nature of deemed dividend under section 2(22) of the Act. The provisions of section are very much clear in this respect and according to which , any loan and advance subject to fulfillment of conditions laid down in section, shall be treated as deemed dividend. So, once an am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the contention of the assessee that ₹ 2,27,9977- was advance against salary and in deleting the addition made u/s 2(22)(e) without' appreciation the facts and more particularly this amount was not included in the addition of ₹ 38,60,000/- u/s 2(22)(e) but the addition was made only in respect of amount received by the assessee as per copy of ledger account i.e. Sandeep Sabharwal Advance A/c 2. The facts in brief as culled out from the orders of lower authorities are that during the year under consideration, the assessee was one of the Directors of M/s Overseas Conexion Ltd. I (in short company ) and was having substantial investment in share capital of the company i.e. having more than 10% share capital. The assessee filed its return of income on 31.03.2009 declaring total income of ₹ 14,30,997/- under the heads income from salary and income from the house property etc . The case was selected for scrutiny and notice u/s 143(2) of the Income-tax Act, 1961 (in short Act ) was issued. In the course of scrutiny, the learned Assessing Officer observed from one of the ledger accounts of the assessee namely Sandeep Sabharwal Advance Account maintaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and advances are hit by the mischief of section 2(22)(e) ;- (i) The assessee is the beneficial owner of shares of M/s Overseas Connextion Ltd., holding 18% of equity shares issued by the assessee company. (ii) The above company is having accumulated profits amounting to ₹ 1,14,55,867/- as on 1-4-2006 and ₹ 61,52,890/- as on 31-3-2007 (iii) Lending of money is not the substantial part of the business of M/s Overseas Connextion Ltd. (iv) It is well- settled that it is not the closing balance alone at (lie end of (lie year that becomes taxable as ''deemed divided in the hands of the recipient. Every overdrawal is separately hit by the provisions of section 2(22(e). Therefore, it is the total of every overdrawal in the account by the recipient of advance/loan that becomes taxable as deemed dividend under section 2(22(e), albeit to the extent of the available accumulated profits in the company. 3. Aggrieved, the assessee filed an appeal before the learned Commissioner of Income-tax (Appeals). Before the learned Commissioner of Income-tax (Appeals), the assessee submitted that as per the provision of section 2(22)(e) of the Act only loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds are disposed off together 5. At the time of hearing, the learned Senior Departmental Representative (in short Sr. D R ) relied on the order of the learned Assessing Officer and further submitted that in normal circumstances, security deposit against property are not received in installments., Further, he argued that amount of ₹ 2,27,997/- was in not the nature of advance against salary or advance salary and but only an advance to the assessee by the company. Further, he argued that had it been salary in advance, then it should have been reflected in the return of the assessee and TDS should have been deducted. Further, he submitted that the said amount of so called advance against salary and security deposit against property were not appearing in Audited Annual Statements of the company, hence these explanation are only after thought of the assessee, and therefore , the learned Commissioner of Income-tax (Appeals) was not justified in deleting the addition. On the other hand, the learned Authorised Representative of the assessee submitted a written synopsis , relevant part of which is reproduced as under: 6. Firstly, the AO while making the impugned addition has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Tribunal has held as under: 5. We heard the rival submission and perused the material on record. On perusal of the copy of ledger account of the assessee with M/s A.K.J. Industries Ltd. extracted in the assessment order, it is clear that there were continuous transactions of receipt and payment of money to the assessee by the said company. There are some debit balance and after some time it was converted into credit balance and finally at the end of accounting year, there was a debit balance of ₹ 53,28,853/-. Out of this, there were entry made on 31st March, 2009 towards TDS payable of ₹ 29,51,460/-. Thus, there are mutual transactions between the said company and the assessee throughout the year. 5 Therefore, in our considered opinion, this account is in the nature of a current account, and moreover, the salary payable is also credited in this account and wherever there are payments in excess of the salary, it was submitted that it was an advance salary received from the company. Therefore, in our considered opinion, these transactions one in ordinary course of business of the said company, cannot be treated as deemed dividend. 10. The iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce was not in the nature of loan and hence cannot be treated as deemed dividend u/s 2(22)(e) of the Act. In view of the above, the appeal filed by assessee is allowed. 11. Further reliance is placed on the following judgments: Ishwar Chand Jindal, New Delhi Versus ACIT, Central Circle -16. New Delhi [ITA No. 2967/Del/2012, ITA No. 2002/Del/2013 Dated - May 29,2015 ITAT Delhi] Mr. Purushottam Das Mimani Versus Dy. Commissioner of Income Tax, Central Circle-V Kolkata [IT (SS) A Nos. 60 to 62/Kol/2011, IT (SS) A Nos. 73 to 76/Kol/2011 Dated October 17. 2014 ITAT Kolkata] HIGH COURT OF ALLAHABAD Commissioner of Income-tax, Agra v. Atul Engineering Udyog [2014] 51 taxmann.com 569 (Allahabad) Section 2(22) of the Income-tax Act, 1961 - Deemed dividend (Loans and advances to shareholders/Commercial transaction) -Assessment year 2006-07 - Assessee-firm entered into an agreement with its sister concern to supply its generator sets against a floating security deposit by said concern - In turn, sister concern would supply electricity to assessee at concessional rate -Assessing Officer treated security deposit as deemed dividend in hands of assessee - Whether sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urism industry and, thus, transactions-in-question could not be described as advances or loans forming distinct category of financial transactions -Accordingly, Tribunal concluded that provisions of section 2(22)(e) were not at all applicable - Whether since assessee was involved in booking of resorts for customers of these companies and had entered into normal business transactions with companies as a part of its day-to-day business activities, Tribunal was right in holding that provisions of section 2(22)(e) were not applicable - Held, yes. HIGH COURT OF DELHI Commissioner of Income-tax v. Arvind Kumar Jain [2012] 18 taxmann.com 132 (Delhi) Section 2(22) of the Income-tax Act, 1961 - Deemed dividend -Whether where assessee holding 50 per cent shares in a company, received certain amount from said company on account of trading transaction between parties, amount so received could not be added to assessee's income as deemed dividend merely because said amount had been reflected as 'unsecured loan' in assessee's books of account - Held, yes. 13. The provisions of section 2(22)(e) of the Act are applicable to only loans or advances given by the company, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned Assessing Officer as deemed dividend. The learned Assessing Officer has held that the transactions in Advance Account were only loans and advances given by the company to the assessee, so the controversy between the assessee and the Revenue is in respect of the payment made by the company to assessee and recorded in Advance Account. The learned Assessing Officer has held that those payments as loan and advances whereas, the assessee is contending those payments as security deposits and advance salary. 11. For the purpose of having clarity of the transactions in Sandeep sabharwal Advance Account, we would like to reproduce the relevant Advance Account as under: Overseas Connexion Ltd. 8/19, West Extension Area, Smile Chamber, Karol Bagh, Delhi-110005 Sandeep Sabharwal Advance A/c Ledger Account 1-Apr-2006 to 31-Mar-2007 12. It is clear from above Account that payments made by the company on different dates i.e 6-4-206 onwards have been treated as security deposits by the assessee. During the hearing, the ld. AR affirmed to the bench that property was rented to the company during the year, however, the assertion of the fact, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was no such advance given by the company , which can be confirmed from the fact that no such advance was mentioned in Annual statement of the company, secondly, the amount was derived merely after subtraction of ₹ 20,40,000/- claimed by the assessee as security deposit and credit balance of ₹ 4,52,003 out of ₹ 27,18,692 claimed as peak of Sandeep sabharwal Advance Account . Further, even if amount was advance against salary , transaction between an employee and company cannot acquire character of business transaction. 15. In the case of Percy Peshotan baltivala Vs. ITO (Supra) relied by the learned AR, the payments were in running account, where in the instant case , the running account is separate and payments in that accounts have not been held as deemed dividend, hence the ratio of the decision is not applicable. In other decisions cited by the assessee also the business transactions or payments in current account are were involved, where as in the case in hand such transaction have already excluded from the ambit of deemed dividend, and hence, the ratio of those decisions does not apply. In the case of ACIT vs Madurai Properties (p) Ltd , the advance we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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