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ITO, Ward-13 (4) , New Delhi Versus Sandeep Sabharwal

2015 (11) TMI 1282 - ITAT DELHI

Deemed dividend u/s 2(22)(e) - CIT(A) deleted the addition - whether the payment made by the company to the assessee falls under the category of loans and advances - whether the entire amount of payment of ₹ 38,60,000/- given by the company to the assessee or the peak amount appearing in ‘Sandeep Sabharwal advance Account’?- Held that:- The assessee is also one of the Director who has received loan out of ₹ 35,13,939/-. Further ,clause 3(a) of the annexure referred to in paragraph 3 .....

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ee, who is director and covered by the persons in respect of whom entries are to be made in register maintained u/s 301 of the Companies Act.

We also don’t agree with assessee that ₹ 2,27,997 was advance against salary because firstly, there was no such advance given by the company , which can be confirmed from the fact that no such advance was mentioned in Annual statement of the company, secondly, the amount was derived merely after subtraction of ₹ 20,40,000/- claimed b .....

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assessee and same are held to be in the nature of deemed dividend under section 2(22) of the Act.

The provisions of section are very much clear in this respect and according to which , any loan and advance subject to fulfillment of conditions laid down in section, shall be treated as deemed dividend. So, once an amount is held as deemed dividend, then incremental loan amount thereafter, will only be added to the deemed dividend. Accordingly , we hold that the peak amount in the Advanc .....

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C. Gupta, Hon ble Vice President And Sh. O. P. Kant, Accountant Member For the Appellant : Sh. Sujit Kumar, Sr. DR For the Respondent : Sh. Ved Jain, CA ORDER Per O. P. Kant AM This appeal of the Revenue is directed against the order dated 31.01.2011 of learned Commissioner of Income-tax (Appeals) -XVI, New Delhi for Assessment Year 2007-08, raising following grounds of appeal:- 1. On the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of ₹ .....

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d. that as per Schedule-G: under the head "loans & advances", 'Advance recoverable in cash or for kind' has been shown at ₹ 1,01,8767-only. 3. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in accepting the contention of the assessee that the "amount of ₹ 20,40,0007-was security towards rent" without appreciating the facts of the case and without verifying from the Balance-sheet M/s Overseas Connexion Ltd. that as per S .....

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2)(e) but the addition was made only in respect of amount received by the assessee as per copy of ledger account i.e. "Sandeep Sabharwal Advance A/c" 2. The facts in brief as culled out from the orders of lower authorities are that during the year under consideration, the assessee was one of the Directors of M/s Overseas Conexion Ltd. I (in short company ) and was having substantial investment in share capital of the company i.e. having more than 10% share capital. The assessee filed i .....

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ances of ₹ 38,60,000/- from the company during the year and said loans /advances received by him were satisfying all the conditions liable for holding such loan/advances as deemed dividend . In response to the show cause notice issued to the assessee as why the loans/ advances received by the assessee might be treated as deemed dividend u/s 2(22)(e) of the Act, the assessee submitted that out of the payments received in Advance Account , an amount of ₹ 20,40,000/- was received as sec .....

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e balance sheet of the company as on 31.03.2007, it was specifically mentioned that loans of ₹ 35,13,933/- was given to the Directors of the company and there was no mention of such security amount in the balance sheet of the company. The learned Assessing officer also did not accept the contention of the assessee that amount of ₹ 2,27,997 was advance salary as he was of the view that if the salary was received in advance, then it was also taxable in the hands of the assessee, but , .....

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assessee and were liable for deemed dividend under section 2(22) of the Act. The relevant para of the order of the AO is reproduced as under:- To summarize the facts and circumstances of the case against the conditions as laid down in section 2(22) (e) and the case law on the subject, it is clear that the above overdrawals and advances are hit by the mischief of section 2(22)(e) ;- (i) The assessee is the beneficial owner of shares of M/s Overseas Connextion Ltd., holding 18% of equity shares i .....

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ns of section 2(22(e). Therefore, it is the total of every overdrawal in the account by the recipient of advance/loan that becomes taxable as "deemed dividend" under section 2(22(e), albeit to the extent of the available accumulated profits in the company. 3. Aggrieved, the assessee filed an appeal before the learned Commissioner of Income-tax (Appeals). Before the learned Commissioner of Income-tax (Appeals), the assessee submitted that as per the provision of section 2(22)(e) of the .....

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ng out such activities. It was further contended that in the year under consideration the assessee received an amount of ₹ 20,40,000/- as security deposit in installment as per convenience of the said company. The assessee further contended that the said amount being security deposit cannot be assessed as deemed dividend under the provision of section 2(22)(e) of the Act. Further the learned Authorised Representative of the assessee, contended that the amount of ₹ 2,27,997/- was an a .....

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dit balance of ₹ 4,52,003/- appearing in other ledger accounts of the assessee, should have been set off from ₹ 27,18,692/-. The learned Commissioner of Income-tax (Appeals) , accepted the submissions of the assessee and observed that amount appearing in Sandeep Sabharwal Advances Account were consisting of security deposit and advance against salary and remaining amount in Sandeep Sabharwal Advances Account could be set off against due amount lying in other accounts of the assessee. .....

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ntative (in short Sr. D R ) relied on the order of the learned Assessing Officer and further submitted that in normal circumstances, security deposit against property are not received in installments., Further, he argued that amount of ₹ 2,27,997/- was in not the nature of advance against salary or advance salary and but only an advance to the assessee by the company. Further, he argued that had it been salary in advance, then it should have been reflected in the return of the assessee and .....

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art of which is reproduced as under: 6. Firstly, the AO while making the impugned addition has aggregated the total debit side and after excluding the opening credit balance of ₹ 2,99,346.89 has made an addition of ₹ 38,60,000/-. It is evident from the copy of Sandeep Sabharwal Advance Account (enclosed at PB 8), that the assessee has also paid certain amounts to the said company, which aggregate to ₹ 11,40,000/-. Thus, the advance, though in the nature of a security deposit, w .....

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and the submission of the assessee of security deposit is not tenable. However, it is not out of place to mention here that the assessee was a Director of the said company. It was an arrangement between him and the company to deposit the said security in installments, depending on the availability of funds with the company. Therefore, the AO has erred in making the impugned addition without considering the circumstances prevailing in the case of the assessee. 9. The assessee has given the premi .....

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has received rent thereon, which has been duly disclosed in the computation. The said company has also deducted TDS while making the payment to the assessee. It is a settled law that the payments made against the business transactions are outside the purview of section 2(22)(e) of the Act. This issue has recently been decided by the co-ordinate Bench of this Hon'ble Tribunal in the case of ACIT Vs. Sh. Ashok Kumar Garg in ITA No. 2917/Del/2013 dated 23.09.2015, wherein the Hon'ble Tribu .....

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₹ 53,28,853/-. Out of this, there were entry made on 31st March, 2009 towards TDS payable of ₹ 29,51,460/-. Thus, there are mutual transactions between the said company and the assessee throughout the year. 5 Therefore, in our considered opinion, this account is in the nature of a current account, and moreover, the salary payable is also credited in this account and wherever there are payments in excess of the salary, it was submitted that it was an advance salary received from the .....

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assessee in the books of company was placed. In this respect, he invited our attention to the fact that account is a running account and the debit balance outstanding at some point of time had converted into credit balance and thus it is a running Account and is not in the nature of loan. In support of his pleadings, the Ld. AR relied upon the case of CIT Vs Raj Kumar, wherein Hon'ble Delhi High Court had held that the word advance which appears in the company of the word loan could only me .....

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end. Reliance was also placed on the judgement of Hon'ble Delhi High Court in the case of CIT vs. Sunil Sethi wherein it was held that the advance which had been given by company to assessee who was the director in the said company was neither a loan nor was it for individual benefit of the said assessee and further held such advance was in the nature of imprest and same could not be treated as deemed dividend under the provisions of Section 2(22)(e)of the Act. The Ld. DR on the other hand, .....

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pronouncements as relied upon by Ld. AR, we are of the view that advance was not in the nature of loan and hence cannot be treated as deemed dividend u/s 2(22)(e) of the Act. In view of the above, the appeal filed by assessee is allowed." 11. Further reliance is placed on the following judgments: Ishwar Chand Jindal, New Delhi Versus ACIT, Central Circle -16. New Delhi [ITA No. 2967/Del/2012, ITA No. 2002/Del/2013 Dated - May 29,2015 ITAT Delhi] Mr. Purushottam Das Mimani Versus Dy. Commis .....

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generator sets against a floating security deposit by said concern - In turn, sister concern would supply electricity to assessee at concessional rate -Assessing Officer treated security deposit as deemed dividend in hands of assessee - Whether since deposit made by sister concern was a business transaction arising in normal course of business between two concerns and assessee-firm was not a shareholder in said company, said deposit could not be treated as deemed dividend - Held, yes. IN THE ITA .....

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posits received by assessee from said company in terms of re-lease agreement being an amount received in normal course of its business activity, could not be brought to tax as deemed dividend under section 2(22) (e) - Held, yes [Para 16] 11. Further, the assessee has taken an amount of ₹ 2,27,997/- as advance against salary. The said advance against salary has been misinterpreted by the AO as advance salary. The said advance is to be repaid by the assessee to the company in future. Thus, t .....

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1961 -Deemed dividend -Assessment year 1998-99 - Assessee, engaged in business of travel agency, had entered into certain business transactions with two companies, namely, 'H' Ltd. and 'A' Ltd. - Assessing Officer took a view that because of shareholding pattern, financial transactions entered into between assessee and said companies would fall in category of 'deemed dividend' -Commissioner (Appeals) upheld order of Assessing Officer - On further appeal, Tribunal opined t .....

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ansactions with companies as a part of its day-to-day business activities, Tribunal was right in holding that provisions of section 2(22)(e) were not applicable - Held, yes. HIGH COURT OF DELHI Commissioner of Income-tax v. Arvind Kumar Jain [2012] 18 taxmann.com 132 (Delhi) Section 2(22) of the Income-tax Act, 1961 - Deemed dividend -Whether where assessee holding 50 per cent shares in a company, received certain amount from said company on account of trading transaction between parties, amount .....

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T (Appeals) was right in deleting the said addition made by the AO, and the order of the Ld. CIT (Appeals) be upheld. 6. He further argued that it is normal practice in the business that some advance is being given against salary. Further, he argued that the assessee was also maintaining running account of the company and therefore, the advance were day to day requirement of the company, as such the amount appearing in Sandeep Sabharwal Advance Account was not liable for deemed dividend. 7. We h .....

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ubstantially interested and (iii) the company should have accumulated profit at the time of receiving such loan or advance. 9. In the case of the assessee, all the above conditions are fulfilled but, the sole issue arise for consideration in the present appeal is whether the payment made by the company to the assessee falls under the category of loans and advances. If answer is yes, then such loans or advances are liable to be assessed as deemed dividend in the hands of the assessee. 10. On page .....

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of company, which were executed though the assessee, were recorded in the Current Account and therefore any payment of loan and advances in that account was also not held by the learned Assessing Officer as deemed dividend. The learned Assessing Officer has held that the transactions in Advance Account were only loans and advances given by the company to the assessee, so the controversy between the assessee and the Revenue is in respect of the payment made by the company to assessee and recorded .....

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6 to 31-Mar-2007 12. It is clear from above Account that payments made by the company on different dates i.e 6-4-206 onwards have been treated as security deposits by the assessee. During the hearing, the ld. AR affirmed to the bench that property was rented to the company during the year, however, the assertion of the fact, is not found to be true as seen from the Rent Account of the assessee maintained by the company, where some amount was due to the assessee in opening of the year. In such a .....

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mmon man s point of view and the explanation of the assessee that it was a security deposit, seems to be an afterthought. We have also observed that the fact that security deposit was not even mentioned in the original rent /lease agreement. All these facts lead us to believe that there is a strong probability that payments were not security deposit. Further, in cause 9 to the notes to account, which is part of financial statement of the company and placed at Page 20A of the paper book, it is me .....

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al & Co., which is placed at page no. 12 of the paper book, it is one again mentioned that the company has granted interest free loan aggregating to ₹ 35,13,939.26 to two Directors covered in registrar maintaining u/s 301 of the Companies Act, 1956. We find that in Audited Statement of the company for the financial year 2005-06, there is no mention of any security deposit in respect of the property, given by the company to the assessee, who is director and covered by the persons in res .....

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nd credit balance of ₹ 4,52,003 out of ₹ 27,18,692 claimed as peak of Sandeep sabharwal Advance Account . Further, even if amount was advance against salary , transaction between an employee and company cannot acquire character of business transaction. 15. In the case of Percy Peshotan baltivala Vs. ITO (Supra) relied by the learned AR, the payments were in running account, where in the instant case , the running account is separate and payments in that accounts have not been held as .....

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