The Income Tax Appellate Tribunal directed the reassessment in the deemed dividend Case involving Mayflower Enterprises Pvt Ltd.
Facts
The appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax, Chennai, and pertains to assessment year 2011-12.
The assessee filed his return of income for the assessment year 2011-12 on 22.08.2011, admitting a total income of Rs. 95,05,280/-.
The case was selected for scrutiny and during the course of assessment proceedings, on examination of books of accounts of the assessee and his ledger account with M/s. Mayflower Enterprises Pvt Ltd., it was found that the assessee has a running account with the company.
The details of the shareholding pattern of M/s. Mayflower Enterprises Pvt Ltd., was also called for and found that the assessee is holding 24% share capital in the company.
As per ledger account submitted by the assessee on three occasions i.e., 25.05.2010, 08.12.2010 & 05.01.2011, there was a debit balance in the books of accounts of the company.
The Assessing Officer, further noted that on 31.12.2010, the assessee has received a sum of Rs. 12,50,000/- from the company and this payment is not reflected in the current account of the assessee with the company.
Submissions
Counsel for the assessee, submitted that the CIT(A) erred in sustaining additions made by the Assessing Officer towards deemed dividend u/s. 2(22)(e) of the Act, towards debit balance in the current account of the assessee maintained with M/s. Mayflower Enterprises Pvt Ltd., without appreciating fact that the transactions between the appellant and company is in the nature of current account, in the normal course of business of the assessee, but not a loan or deposit as per section 2(22)(e) of the Act.
AR, AR V Sreenivasan, Addl. CIT, supporting the order of the CIT(A) submitted that, the withdrawal by the shareholder who had substantial interest amounted to loan or advance by the company to shareholder, but fact that the loan or advance was ultimately adjusted at the end of the year will not alter the position and in this regard he relied upon the decision of Hon’ble Supreme Court in the case of P. Sarada vs CIT.
Decision
The division bench of Mahavir Singh, Vice President and Manjunatha. G, Accountant Member found that, it is not a solitary transaction of loan or advance to the assessee. In fact, there are a number of transactions between the assessee and the company, where various payments are routed through the current account of the assessee, including remuneration and other expenses reimbursed to the appellant.
The bench said that the transactions need to be examined in light of the peculiar nature of transactions of the assessee with the company.
The bench directed the Assessing Officer to verify the claim of the assessee in light of various evidences and also decide the issue in light of its findings given.
In case, the Assessing Officer found that the claim of the assessee is correct, then the Assessing Officer is directed to delete additions made towards deemed dividend u/s. 2(22)(e) of the Act.
Case title: Venkatachalam Mohan v/s The Joint Commissioner of Income Tax
Citation: ITA No.: 35/Chny/2022
