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2016 (7) TMI 1591 - AT - Income TaxDeemed dividend u/s 2(22)(e) - two companies have made payments on various dates to the Directors/Shareholders, who held substantial interest in the mentioned companies - whether debit balances in the accounts can be construed as “advance” or “loan” by the companies.? - contention of A.R is that the assessee herein is also given advance to those companies and the companies are also benefitted from the loans given to Directors and these are running accounts between the directors and the companies and the running account - HELD THAT:- In view of the binding decision of jurisdictional High Court in the case of SUNIL KAPOOR [2015 (3) TMI 812 - MADRAS HIGH COURT] wherein observed that any amount paid to the assessee by the company during the relevant year, loan amount repaid by the assessee in a same year should be deemed to be construed as “dividend” for all purposes. While computing the deemed dividend one has to be considered the payments made by the assessee to the company. Hence as observed each debit will have to be individually considered because it may or may not be a loan. AO is, therefore, directed to verify the each debit entry on the aforesaid loan and treat only the excess amount of debit in the books of accounts of the company as a deemed dividend u/s.2(22)(e). Only those net amounts which reflected the debit side of the books of accounts of the assessee falling under the definition of the loans and advances, is with regard to these assessee in the relevant assessment years will be entitled to be taken as a deemed dividend. AO has to compute the day to day debit balance of these assessee in the books of accounts and thereafter the AO has to arrive at average yearly balance of the debit in the books of account of each company and compare with it, accumulated profit in respect of each company and lower of these to be considered as deemed dividend in the hands of present assessee. With this observation, we remit the issue to the file of AO for fresh consideration. Whether only peak debit balance of loans of each director in the books of accounts in respect of company to be considered to arrive at deemed dividend in terms of Sec.2(22)(e)? - This argument of the ld.A.R is devoid of merit. If we accept this contention of the ld.A.R, it leads to absurdity and makes the Sec.2(22)(e) of the Act as redundant. Since provision is applicable for each payment, then there is no question of arriving at deemed dividend in the hands of Director. Hence, we are not in a position to consider these arguments of the ld.A.R that only peak credit to be considered to determine the deemed dividend. Double entry of book keeping, the journal entry is also have the financial implication and it cannot be ignored as argued by the ld.A.R. The journal entries are also to be considered while computing the yearly debit balance in respect of loans and advances.
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