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2014 (11) TMI 1278 - AT - Income TaxDeemed dividend u/s 2(22)(e) - CIT(A) agreed with AO that loan received from the company should be treated as deemed dividend at the hands of assessee, but, he directed AO to restrict the addition to the extent of accumulated profit of the company - as argued assessee is director of the company from which advance was received and was holding more than 10% share, but, other condition of section 2(22)(e) relating to accumulated profit is not satisfied - HELD THAT:- Undisputedly, assessee has received loan of Rs. 2,59,000 from M/s Veteran Properties Pvt. Ltd.. It is also not disputed that assessee is a director in the said company and holds more than 10% of the shares. It is also not in a dispute that the company M/s Veteran Properties Pvt. Ltd. from which assessee received loan is a company in which public are not substantially interested. As company has shown profit during the year. It is the claim of assessee that profit shown by the company is notional and not real, hence, provisions of section 2(22(e) is not applicable. However, we are unable to accept assessee’s claim. On a perusal of the P&L a/c for AY 2004-05 it is seen that assessee has shown profit of Rs. 1,79,959.11 before expenditure and tax. It is also evident after claiming deduction towards expenditure, provision for income-tax etc., net surplus available to the assessee is Rs. 98,907.61. Therefore, company has accumulated profit of Rs. 98,907.61. Thus, all the conditions of section 2(22)(e) are satisfied. There is no such distinction in the provisions between real profits and notional profits as sought to be made out by ld. AR. We agree with the ld. CIT(A) and AO that the loan to the extent of accumulated profit has to be treated as deemed dividend at the hands of the assessee u/s 2(22)(e) of the Act. However, accumulated profit of the company as transferred to reserves and surplus being Rs. 98,907.61 addition u/s 2(22)(e) should be restricted to that amount in stead of Rs. 1,72,959 as directed by ld. CIT(A). Deemed dividend u/s 2(22)(e) - AO noticed that assessee has shown an outstanding liability from M/s Veteran Properties Pvt. Ltd. wherein assessee is a director and is also holding more than 10% share - CIT(A) assessee submitted that amount is neither loan nor advance but actually represents the outstanding receivable by the company towards sale of a car to assessee - HELD THAT:- CIT(A) directed AO to verify the fact whether the outstanding liability shown represent the amount payable for purchase of vehicle and if it is found to be so, then, not to treat it as deemed dividend u/s 2(22)(e) - In this context, she directed AO to verify registration documents and bank statements of assessee to ascertain whether the said transaction has actually taken place and if assessee’s claim is found to be correct, then, delete the addition made. Having perused the findings of ld. CIT(A), we do not find any serious infirmity in the order of CIT(A). Accordingly, we direct the AO to verify the fact as to whether assessee has actually purchased the car from the company as claimed and whether outstanding liability shown represents the outstanding sale consideration to be paid to company towards purchase of car. If assessee’s claim is found to be correct, no addition can be made u/s 2(22)(e) - Decided in favour of assessee.
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