2015 (11) TMI 733 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - Held that - For qualifying any loan or advance as deemed dividend it must fulfill all the conditions of the section 2(22)(e) of the Act on the date of such loan or advance received by that person. Therefore in view of above we hold that the loan/ advance obtained from the company by assessee till the date of sale of shares when he ceased to be beneficial owner of shares not less than 10% of voting powers was liable for the deemed dividend as per provisions of section 2(22)(e) of the Act and any loan or a advance received thereafter will not qualify as deemed dividend. The said share transfer form is filed in the office of the Registrar of Companies on 27.07.2007 so the date of transfer should be taken as 27.07.2007 however the assessee in its submission has mentioned the date of share transfer deed as 30.07.2007 So even if we taken 30.07.2007 as date of transfer of shares it does not make any material difference in present case. Thus finding of the AO and the ld CIT(A) as regards to considering the advance of Rs. 9.83 lakhs as deemed dividend is not based on the correct appreciation of the law as well as facts and therefore we hold that the loans/ advances given by the company to the assessee during the year under consideration till the date of sale of shares by the assessee should only be considered for deemed dividend. Accordingly we remit the matter back to the file of the AO and direct the AO to compute the loan/ advances given by the company till the date of sale of shares by the assessee as deemed dividend subject the availability of accumulated profit of the company.- Decided in favour of assessee for statistical purposes. Addition against low house withdrawals - Held that - The wife of the assessee as well as his father also contributed towards the household expenses which increases the house hold withdrawal to Rs. 3, 63, 000/-. In our opinion looking the family size of the assessee and living standard the house hold withdrawals are sufficient and therefore addition made by the AO is deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Taxability of a sum of Rs. 6,36,117/- as 'deemed dividend' under section 2(22)(e) of the IT Act.
2. Justification of enhancing Rs. 80,000/- on account of low household withdrawals as undisclosed income.

Detailed Analysis:

Issue 1: Taxability as 'Deemed Dividend' under Section 2(22)(e)
The assessee challenged the addition of Rs. 6,36,117/- as 'deemed dividend' under section 2(22)(e) of the Income Tax Act, 1961. The facts reveal that the assessee, an individual, was a director and held 50.81% of the equity shares in M/s. CASCO Electronics Pvt. Ltd. (CEPL) at the beginning of the year. The AO noted that the assessee had received loans/advances from the company, which were considered as deemed dividend due to the beneficial ownership of more than 10% shares.

The assessee contended that since he resigned and sold his shares during the financial year, he should not be liable for deemed dividend. Alternatively, the assessee argued that only the amount of loans/advances received up to the date of sale of shares should be considered, subject to the limit of accumulated profits of the company, which was Rs. 81,000/- according to the assessee.

The AO, however, computed accumulated profits as Rs. 6,36,117/- and restricted the addition to this amount. The CIT(A) upheld the AO's decision, distinguishing the facts from the cited case of Smt S. P. Ammal.

Tribunal's Findings:
The Tribunal examined whether the advance received by the assessee from the company qualifies as deemed dividend by fulfilling three conditions:
1. CEPL was not a company in which the public was substantially interested.
2. The assessee was a beneficial owner of shares holding not less than 10% of the voting power.
3. CEPL had accumulated profits at the time of the advance.

The Tribunal noted that the AO overlooked the fact that the assessee sold his shares during the year. The Tribunal emphasized that for an advance to be considered as deemed dividend, the recipient must be a shareholder on the date of the loan. Citing judicial precedents, the Tribunal held that only advances received up to the date of sale of shares should be considered as deemed dividend.

The Tribunal determined the date of sale of shares as 30.07.2007 based on the share transfer form and directed the AO to compute the deemed dividend accordingly, subject to the availability of accumulated profits.

Issue 2: Addition of Rs. 80,000/- for Low Household Withdrawals
The AO added Rs. 80,000/- to the household withdrawals declared by the assessee, considering them insufficient for the economic status and family size. The CIT(A) upheld this addition.

Tribunal's Findings:
The assessee argued that his wife and father also contributed to household expenses, increasing the total household withdrawals to Rs. 3,63,000/-. The Tribunal found this sufficient given the family size and living standard, and thus, deleted the addition of Rs. 80,000/-.

Conclusion:
The appeal was allowed for statistical purposes, with the Tribunal directing the AO to recompute the deemed dividend and deleting the addition for low household withdrawals. The judgment was pronounced on 30/09/2015.