No deemed dividend u/s 2(22)(e) where personal property pledged as collateral security – ITAT

No deemed dividend u/s 2(22)(e) where personal property pledged as collateral security for enabling the company to obtain loan/credit facilities from bank – ITAT 

ABCAUS Case Law Citation:
ABCAUS 2123 (2017) (11) ITAT

The respondent assessee was one of the directors of a Private Limited Company with substantial interest. The Assessing officer (AO) noted that the assessee had received an advance of approx 50 lacs from the company. The assessment of the assessee was reopened by issue of notice u/s 148 of the Income Tax Act, 1961 (Act).  The AO proposed to make an addition u/s 2(22)(e) for the advance received. This explanation of the assessee was rejected by the AO who made an addition u/s 2(22)(e) of the Act.

Aggrieved, the assessee carried the matter before the CIT(A). Before the CT(A) the assessee claimed that he stood as a guarantor for some of the loan facilities taken by the company and had also pledged his personal property to the bank to borrow money for the company. Relying upon the judgment of the Jurisdictional High Court, the assessee submitted that provision of section 2(22)(e) of the Act would not be attracted.

The CIT(A) granted relief by applying the proposition of law laid down in such cases by the Hon’ble Jurisdictional High Court.

Aggrieved, the revenue was in appeal before the ITAT by way of present appeal.

The Tribunal observed that the jurisdictional High Court under similar circumstances has held that compensation paid to the assessee for keeping his property mortgage on behalf of the company to avail the benefit of loan is not hit by the provisions related to deemed dividend within the meaning of Section 2(22) (e) of the Act.

It was observed that the fact that the assessee had given his personal property as collateral security for enabling the company to obtain loan and other credit facilities was not disputed. Therefore, following the proposition of law as laid down by the Jurisdictional High Court the Tribunal upheld the order of CIT(A) and dismissed the appeal filed by the revenue.

• In absence of mala fide intention bank should not be treated as assessee in default
• Whether bank account was fraudulently open in the name of assessee is question of fact
• SBI Concurrent Auditor Empanelment of Chartered Accountant Firms 2024-25. Last date 18.05.2024
• Change in the constitution of Appellate Authority for CAs CSs and Cost Accountants
• Trade Tax refund withheld beyond stipulated period & adjusted from demand unjustified – SC