TMI Blog2016 (2) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed dividend under sec. 2(22)(e) of the Act is not sustainable in the hands of assessee, if at all the dividend is taxable, it is reasonable to consider the addition to the extent of 20% of the accumulated profits in the hands of assessee and the remaining may be ordered to be assessed in the hands of other four shareholders, as all the shareholders have taken advance from the company, therefore, the amount is liable to be taxed in the hands of all the directors according to their share holding. We have considered the arguments of the assessee and we find that there is no merit in the arguments of the assessee. The assessee keeps on changing his arguments at each stage of proceedings and from this inconsistent explanation of the assessee, we find that there is no bonafiedness in the claim of the assessee. Initially, he has chosen to declare the deemed dividend in his hand, later come with different explanation at different levels. - Decided against assessee - I.T.A.No.308 to 310/Vizag/2011 - - - Dated:- 8-1-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri Madhusudhan, AR For The Respondent : Shri G. Guruswa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and justice and also to be in conformity with the provisions of law. 2. The assessee, by memorandum of additional grounds dated 15-10-2015 has raised the following additional ground. 1. Taking cognizance of the fact as transpired and established by the AUDITED FINANCIAL STATEMENTS forming part of the return of income for the assessment year under review, viz., AY 2008-09 that the appellant held a profit sharing ratio of only 20%, the addition if at all considered necessary u/s 2(22)(e) of the Act, the same may be restricted to 20% of the accumulated profit of ₹ 40,15,919/- and there from the claim of TELESCOPING sought for may be considered. 2. It is earnestly prayed in the Grounds of Appeal annexed to Form 36 for the Assessment Year 2008-09 in para 5, line 3, ₹ 40,15,919/- may be replaced for ₹ 3,53,661/- mentioned which is a typographical error. 3. The brief facts extracted from ITA.No.308/Viz/2011, are that the assessee is an individual derived income from salary, income from House property and Income from other sources. The assessee has filed his return of income for the A.Y. 2007-08 on 23-07-2007 declaring total income of ₹ 30,98,66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship of more than 10% shares in the company and the company has accumulated profit of ₹ 3,53,661/-, therefore, the loan taken by the assessee is hit by the provisions of section 2(22)(e ) of the Act. Hence, made addition of ₹ 3,53,661/- under sec. 2(22)(e ) of the Act. 4. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee contended that the loan taken from the company represents the advance for purchase of lands, therefore, the A.O. was not justified in invoking the provisions of section 2(22)( e) of the Act. The assessee further submitted that the A.O., without appreciating the facts in right perspective, brush aside the claim of the assessee without causing independent enquiry just relied upon the sworn statement given during the search operation. The assessee further submitted that the assessee has made voluntary disclosure of ₹ 16,65,000, so as to cover the inherent deficiencies in the books of account maintained by him, therefore, the authorities should have been telescoped the said amount against the addition made towards deemed dividend under sec. 2(22) (e) of the Act. The CIT (A), after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all the directors according to their share holding. Therefore, requested to set aside the assessment order. 7. On the other hand, the learned departmental representative strongly supported the order of CIT(A). The ld. D.R. further submitted that the assessee has accepted the said finding of fact before the investigation officer and agreed to disclose the additional income to the extent of accumulated profit under sec. 2(22)(e) of the Act, has changed his stand and come up with a explanation that the impugned loan is a housing loan. The D.R. further submitted that the additional ground cannot be accepted at this stage as the same was neither claimed before the A.O. nor before the CIT(A). Therefore, the assessment order should be upheld. 8. We have heard both the parties and perused the materials available on record. The factual matrix of the case is that the assessee is shareholder and director in a closely held company having beneficial ownership of more than 10% shares. A search operation was conducted in the residential premises of assessee and his group cases. During the course of search operation, it was noticed that the assessee has taken loan from company. When thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Navneet Lal C. Jhaveri vs. K K Sen (1965) 56 ITR 198 (S.C), that the provisions of section 2(22) (e ) of the Act must be made applicable, where dividend is paid in the guise of loan or advance to avoid tax. But, to apply the provisions of section 2(22)(e) of the Act, a honest attempt is to be made to understand, whether the impugned amount is a loan or advance within the meaning of said section. In the present case on hand, from the finding of fact by the A.O., it is clear that the assessee has taken various loans from the company. It was also an undisputed fact that the assessee has accepted the facts at the time of search proceedings and agreed to disclose income and pay tax, which is evident from the sworn statement recorded during the course of search. But, during the assessment proceedings, the assessee has retracted his admission and explained that the amount received from the company is not a loan, but it is an advance for purchase of land for company, therefore, the provisions of section 2(22)(e) cannot be applied. Though, the assessee claimed to have received the amount in the normal course of business for the purpose of purchase of land for the company, he is failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sec. 2(22)(e), the additional income offered should be telescoped against the deemed addition made under sec. 2(22)(e). We do not find any merits in the arguments of the assessee, as the addition made under deeming provision is nothing to do with the income offered to cover up the deficiencies in the books of accounts. Insofar addition under sec. 2(22)(e) is concerned, the said addition is made under deeming provision, therefore, it cannot be said that the disclosure made by the assessee before the A.O. is on account of deemed dividend. Hence, the contention of the assessee is rejected. 12. Now, coming to the additional ground raised by the assessee. The assessee, has taken alternative plea by way of additional ground that without prejudice to the claim that the addition towards deemed dividend under sec. 2(22)(e) of the Act is not sustainable in the hands of assessee, if at all the dividend is taxable, it is reasonable to consider the dition to the extent of 20% of the accumulated profits in the hands of assessee and the remaining may be ordered to be assessed in the hands of other four shareholders, as all the shareholders have taken advance from the company, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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