The Delhi Bench of Income Tax Appellate Tribunal (ITAT) presided by Mr. Anil Chaturvedi, Accountant Member, and Ms. Astha Chandra, Judicial Member has held that gratuitous loan by the company to shareholders in return to an advantage cannot be treated as a deemed dividend and deletes addition u/s 2(22)(e).
The appellant, Archana Sharma is an individual who electronically filed her return of income declaring total income at Rs.18,06,090/-. During scrutiny assessment, it was observed that the appellant had purchased a property for Rs.3,60,00,000/- for the purpose of expansion of Ganesh Hospital Pvt. Ltd. of which the assessee was a promoter.
The AO noted that the assessee had made a payment of Rs.73,70,000/- to Shri Chander Prakash Bagai for the purchase of an adjacent old residential house in her own name but the payment was made through the bank account of Ganesh Hospital Pvt. Ltd. Thus, the AO determined the total income of the appellant at Rs. 82,11,655/-. The aggrieved appellant filed an appeal before the CIT(A), which dismissed the appeal. Hence the appellant filed an appeal before the ITAT.
The appellant submitted that when the company fails to acquire the required loan from the banks in its name for making the balance payment of the consideration and there was every likelihood of the advance of Rs. 90 lacs that was given to the seller for the purchase of the property being forfeited, the loan was obtained in the individual name of the assessee and the property was purchased. The property that has been purchased is also reflected in the books of account of the hospital.
The Tribunal observed that the provisions of Section 2(22)(e) of the Act are applicable only if the advance or loan paid by the company is for the individual benefit of the assessee or the alleged business transaction is a mere smoke screen to cover a benefit obtained by an assessee from the company in which he is a shareholder, without any business expediency. The revenue fails to place any material on record to demonstrate that the impugned transaction was a smoke screen to cover a benefit obtained by the assessee from the company in which the assessee is a shareholder.
The Tribunal by relying on the decision of the Calcutta High Court in the case of Pradip Kumar Malhotra further observed that if a loan or advance is given to a shareholder as a consequence of any further consideration which is beneficial to the company, in such a case such loan or advance cannot be said to be deemed dividend within the meaning of the Act.
The Tribunal while allowing appeal has held that “we are of the view that the CIT(A) was not justified in upholding the addition made by AO by invoking the provisions of s. 2(22)(e) of the Act. We, therefore, set aside the addition made by AO and confirmed by CIT(A)”.
Mr. Akhilesh Kumar and Mr. Rajinder Jha appeared on behalf of the appellant and respondent.
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