The Bengaluru Bench of the Income Tax Appellate Tribunal (ITAT), Bengaluru consisting of George George K and Jason P. Boaz has clarified the actions of the revenue in regarding treating of Loans/advances for sale as “deemed dividend” as defined per section 2(22)(e) of the Income Tax Act, 1961.
The bench was hearing an appeal of Mr. Hemanth Kumar Bothra, the appellant who received an amount of Rs. 1.53 crores as an advance for a sale of property from Nokha Investments Pvt. Ltd.(NIPL). He is also a shareholder of NIPL, owning 55.05% share of the company. Moreover, the memorandum of understanding for sale was signed in both sides by himself (i.e. for him and on behalf of the company).
This attempt of the assesse to camouflage the transaction as commercial transaction so as to not bring it within the purview of “deemed dividend” as defined under section 2(22) (e) of the Income Tax Act was bared by the revenue department. This aggrieved the assesse to approach ITAT with an appeal.
Before the Tribunal, the assessee contended that when amounts are advanced for business transaction / out commercial expediency, the same would not come within the purview of deemed dividend u/s 2(22)(e) of the Act.
The bench noted that the amounts received by assessee is nothing but loan / advance from NIPL and assessee is camouflaging the same as a commercial transaction relating to sale of property in order to get over the provisions of Section 2(22)(e) of the Income Tax Act.
Shri George George K while disposing off the appeal in favor of the department was quoted, “we are of the view that the Assessing Officer was within his realm to invoke the provisions of section 2(22) (e) of the Act. In substance, we uphold the action of the authorities in the matter.”
Read the full text of the Order below.
