Closing debit balance of directors current account not deemed dividend u/s 2(22)(e) – ITAT

Closing debit balance of directors current account not deemed dividend u/s 2(22)(e) if no fresh loan/advance was given during the year – ITAT

ABCAUS Case Law Citation:
ABCAUS 2584 (2018) (10) ITAT

Important Case Laws Cited/relied upon by the parties:
CIT v. K. Srinivasan [1963] 59 ITR 788 (Mad.)
ITO vs Kalyan M Gupta (2007)111 TTJ (Mumbai)1005
Mrs. Rekha Modi v. ITO (2007) (13 SOT 512)
Amareswara Rao v. Dy.CIT (2016) 157 ITD 657
CIT Vs. Gayatri Chakraborty [94 taxmann.com 244]
ITO Vs. S.V. Mohan Reddy

The instant appeal by the appellant assessee was directed against the order of the Commissioner of Income Tax (Appeals) in upholding the order of the Assessing Officer (AO)  of making the addition of ‘deemed dividend’ u/s 2(22)(e) of the Income Tax Act, 1961 (the Act)

The assessee was a director of a Pvt. Ltd. company. A notice u/s 148 of the Act was issued to the assessee. Later the AO completed the assessment proceedings u/s 143 r.w.s. 147 of the Act by making the impugned addition.

Aggrieved with the above assessment order, the assessee preferred an appeal before the CIT(A) who confirmed the addition.

Aggrieved with the order of the CIT(A), the assessee preferred the present appeal before the Tribunal.

Before the Tribunal, the assessee submitted a ledger extract of current account of the director for the transactions entered, maintained as per the books of the said Pvt. Ltd. company.

It was submitted that as per the ledger extract, though the both opening and closing balances were in debit, i.e. the assessee owed to the company. However, the closing balance at the end of the year was three times less than the opening balance. However, the AO had taken the closing balance amount and treated it as ‘deemed dividend’ u/s 2(22)(e) of the Act.

It was pointed out that during the year, the assessee had repaid the advances which were taken in the previous assessment year. Therefore when the assessee, during the year in question had not taken any fresh advances from the company, there was no reason for the Assessing Officer to make addition u/s. 2(22)(e) of the Act.

The Tribunal noted that there were three payments in the ledger accounts which were followed by certain bank transfers by the assessee to the company which could not be treated as funds adjustment and could not be treated as loan taken by the assessee.

The Tribunal opined that there was however one payment made by the company on behalf of the assessee which may be treated as advances, and falls u/s 2(22)(e).

The Tribunal stated that other than the above said one payment, the addition made by the Assessing Officer was nothing but closing balance of running account maintained by the company. There were no fresh loans or advances taken by the assessee during this relevant assessment year.

The Tribunal held that the addition made by the Assessing Officer except the one payment could not be treated as ‘deemed dividend’ as there was no fresh loan taken by the assessee.

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