Loan Treated as Deemed Dividend u/s 2(22)(e): ITAT Sets Aside CIT(A) Order
The ITAT found that the assessee was not given a proper opportunity to present documents supporting the nature of the transaction as a business advance
The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) set aside the order passed by the Commissioner of Income Tax (Appeals)[CIT(A)], where a loan was treated as deemed dividend under Section 2(22)(e) of the Income Tax Act,1961.
Yashvardhan Gokuldas BinaniYashvardhan Gokuldas Binani,appellant-assessee,filed the original income tax return on 20/07/2012, declaring income of INR 23,750. The Assessing Officer (AO )received information that Decon Mercantile Pvt. Ltd., a closely held company, gave a loan of INR 1,33,05,699 to another closely held company, Francis Klein & Co. Pvt. Ltd., during the 2011-12 financial year. Decon Mercantile had accumulated profits of INR 1,60,12,093 at that time. The appellant held 16.34% shares in Decon Mercantile and 21.47% in Francis Klein & Co.
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Because of this, the AO applied Section 2(22)(e) for deemed dividend. A notice under Section 148 was issued on 28/03/2019, but the assessee did not respond. A show-cause notice was also ignored. The AO then completed an ex-parte best judgment assessment under Section 144 read with Section 147 on 18/12/2019, treating the loan amount as deemed dividend.
The assessee appealed to the CIT(A), arguing that no proper hearing was given and the transaction was a regular business loan, not a deemed dividend. The CIT(A) rejected the appeal on 19/06/2024. The assessee then appealed before the tribunal.
The two member bench comprising Rahul Chaudhary (Judicial Member) and Vikram Singh Yadav (Accountant Member) considered the submissions from both sides. It found that the assessee’s claim that the transactions were normal business dealings was not examined because the appellant did not provide the necessary documents. The tribunal also noted that Circular No. 19 of 2017 gave examples where courts held similar transactions outside Section 2(22)(e).
The assessee’s representative asked for a chance to present the case with documents from the Paper Book, but these were not submitted to the CIT(A). So, the appellate tribunal sent the case back to the CIT(A) for a fresh decision. The CIT(A) was instructed to give the appellant a fair opportunity to submit documents and explain the case.
The earlier order by the CIT(A) dated 19/06/2024 was set aside. The assessee was told to cooperate and submit all relevant documents quickly. The CIT(A) could decide the case based on the submissions or, if the assessee failed to appear or submit documents, decide on the available record.
Since the tribunal did not decide the case on its merits, all issues and rights of both sides remained open.The appeal was allowed for statistical purposes.
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