Brought-Forward Loan Cannot Be Taxed without Payment During Relevant Year: ITAT Deletes ₹1.45 Cr Deemed Dividend Addition [Read Order]
The Tribunal held that in the absence of any fresh loan or payment during the year, the provisions of Section 2(22)(e), were not attracted.
Taxed without Payment - ITAT - Deemed Dividend - taxscan
Taxed without Payment - ITAT - Deemed Dividend - taxscan
The bench of the Income Tax Appellate Tribunal, Raipur, held that loans received in an earlier year cannot be treated as deemed dividend in a subsequent year when no payment was made during the relevant assessment period. Accordingly, the Tribunal deleted the addition of ₹1,45,75,000 made under Section 2(22)(e) of the Income Tax Act, 1961.
The appellant, Subramaniam Swaminathan Iyer, had filed his return of income for Assessment Year 2012-13 declaring total income of ₹2,23,52,780 along with agricultural income of ₹2,00,000. During scrutiny assessment under Section 143(3) of the Income Tax Act, 1961, the Assessing Officer (AO) noticed that the appellant had received loans aggregating ₹1,45,75,000 from a closely held company, Atmastco Private Limited, in which he held more than 10% of the shareholding.
Treating these loans as deemed dividend to the extent of the company’s accumulated profits of ₹9,43,84,584, the AO added the entire amount to the assessee’s income under Section 2(22)(e). The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [CIT(A)], affirmed this addition on the ground that the assessee had not furnished any explanation during the appellate proceedings.
Represented by Milind Bhusari, The appellant contended that the alleged loans of ₹1,45,75,000 were not advances received during the assessment year under consideration but were opening balances carried forward from the previous year.
It was argued that ₹1,35,00,000 was reflected as an opening balance in the books of M/s Apex Industries, as of 1 April 2011, and ₹10,75,000 was shown as an outstanding unsecured loan from Atmastco Private Limited in the assessee’s personal balance sheet as of 31 March 2011. Thus, since no fresh loan or advance was received in the relevant year, there was no justification for invoking Section 2(22)(e) of the Income Tax Act, 1961.
Represented by S. L. Anuragi, the Revenue contended the assessee held substantial interest in Atmastco Private Limited and that the accumulated profits available with the company exceeded the amount of loan in question. Therefore, the Assessing Officer’s action of treating the loan amount as deemed dividend under Section 2(22)(e) was justified.
The Bench comprising Judicial Member, Ravish Sood and Accountant Member, Arun Khodpia observed that the impugned loans were not advances made during the year but brought forward balances from the previous year. The Tribunal found no evidence of any fresh payment or loan transaction between the assessee and the company during the year under review.
Since Section 2(22)(e) of the Income Tax Act, 1961, applies only to payments made by a closely held company during the relevant year to its shareholders or concerns in which they hold substantial interest, the Tribunal ruled that the provision was wrongly invoked in this case.
Accordingly, it deleted the addition of ₹1,45,75,000 made under Section 2(22)(e).
Thus, allowed the appeal of the assessee on this ground.
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