No question of Treating Amount withdrawn by Assessee as Partner in nature of Loan: ITAT deletes Addition on account of Deemed Dividend [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has deleted addition on account of deemed dividend as no question of treating amount withdrawn by assessee as partner in nature of loan.

There was a loan or advance from M/s Orient Craft Ltd. (OCL) to the appellant, Sudhir Dhingra whereas the case of the assessee was that there was no loan or advance received by the assessee, much less from M/s Orient Craft Ltd. and further, for that matter, no loan was received by the assessee from M/s Olympus Realtors P. Ltd. and hence there was no question of any deemed dividend to be assessed in his hands.

There is no loan or advance received by the assessee from M/s Orient Crafts Ltd. It is seen that even as per the case of the A.O. made in the assessment order, the loan or advance has been received by the assessee from M/s SKA Enterprises which was a partnership firm and where the assessee was one of the partners. Therefore, as per the admitted case of the A.O., such loan or advance having not been received by the assessee from a closely held company, i.e. from Orient Craft Ltd. or Olympus Realters P Ltd. cannot be treated as dividend u/s 2(22)(e), since the first ingredient of section 2(22)(e) itself is not met in this case.

As per the case made out by Ld. A.O. in the assessment order, amount in question has not been received by the assessee from M/s Orient Craft Ltd. Rather it is seen that CIT (A) has recorded a finding at para 7.1.2 (a) of the appeal order that Orient Craft P Ltd. had not given advance to M/s Super Connection India P. Ltd during the year under appeal. It is important to submit that there is no appeal filed by the revenue against such finding of fact recorded by CIT (A). As noted above several times that advance was not given by M/s Orient Craft Ltd. to M/s Super Connection India P. Ltd during the year under appeal.

The coram of Accountant Member, B.R.R. Kumar and Judicial Member, Amit Shukla held that there is no question of treating the amount withdrawn by the assessee as partner from the partnership firm namely M/s SKA Enterprises in the nature of loan and advance and treat it as deemed dividend under section 2(22)(e) of the Income Tax Act. None of the ingredients of section 2(22)(e) stand satisfied in the instant case.

“We thus hold that the addition deleted on account of the deemed dividend u/s 2(22)(e) by CIT(A) was rightly deleted. Hence, we uphold the Order of CIT(A) who deleted the addition made u/s 2(22)(e). Thus, the entire addition of Rs. 13,45,00,000/- made by the assessing officer stands deleted. In the result, appeal of the revenue is dismissed,” the ITAT ruled.

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