Case Law Details
K P Nanjundi Vishwakarma Vs ACIT (ITAT Bangalore)
In this case, the appeal was filed against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2018-19 concerning the addition of Rs.79,73,599 as deemed dividend under Section 2(22)(e) of the Income Tax Act.
A search and seizure operation under Section 132 was conducted on 4 January 2018. During the search proceedings, a discrepancy of Rs.79,73,599 was found between the cash book balance and the physical cash available. The Manager of Lakshmi Gold Khazaana Pvt. Ltd. stated in a statement recorded under Section 132(4) that the amount represented personal withdrawals made by the assessee. The assessee also confirmed that he had withdrawn the amount and declared it as unaccounted income for Assessment Year 2018-19. However, the amount was not disclosed in the return of income filed by the assessee.
The Assessing Officer noted that the assessee was the Managing Director of the company and held more than 10% shareholding. Since the company had accumulated reserves of Rs.79,73,599, the Assessing Officer treated the alleged withdrawal amount as deemed dividend under Section 2(22)(e) and added it to the assessee’s income. The assessment order determined total income at Rs.1,36,16,202.
The assessee challenged the addition before the Commissioner of Income Tax (Appeals), but the appellate authority confirmed the addition. The assessee then appealed before the Income Tax Appellate Tribunal.
Before the Tribunal, the assessee argued that it was uncertain whether the cash shortage was found in the books of the private limited company or in the books of the assessee’s proprietary concern. According to the assessee, the shortage actually related to the proprietary concern and therefore Section 2(22)(e) relating to deemed dividend was not applicable. The Departmental Representative initially stated that the shortage was found in the books of the company but later sought confirmation on the issue.
The Tribunal examined the material on record, including the statements recorded during the search proceedings. It observed that if the cash shortage was found in the books of the company where the assessee was a shareholder, then the addition under Section 2(22)(e) would be justified. However, if the shortage related to the proprietary concern of the assessee, then the deemed dividend provisions would not apply.
The Tribunal referred to Question No. 36 in the statement recorded from the assessee, which specifically related to Lakshmi Gold Palace, the proprietary concern of the assessee. The cash balance extracted from Tally software showed a balance of Rs.2,18,02,299 whereas physical cash found was Rs.1,38,28,700, resulting in a shortage of Rs.79,73,599. The Tribunal noted that the question was raised in relation to the proprietary concern and not Lakshmi Gold Khazaana Pvt. Ltd.
The Tribunal further observed that the Revenue failed to produce any material proving that the cash shortage existed in the books of the private limited company. Since the evidence indicated that the shortage pertained to the proprietary concern of the assessee, the Tribunal held that the provisions of Section 2(22)(e) could not be invoked. Accordingly, the Tribunal directed deletion of the addition of Rs.79,73,599 made as deemed dividend.
Other grounds raised in the appeal were not pressed and were dismissed. The appeal of the assessee was partly allowed. The order was pronounced on 20 May 2026.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal is filed by Shri K P NANJUNDI VISHWAKARMA [the Assessee / Appellant] against the appellate order of The COMMISSIONER OF INCOME TAX (APPEALS)-11, BENGALURU [ The Ld. CIT (A) ] dated 16-Sep-2025 for the Assessment Year 2018-19 wherein the appeal filed by the assessee against the assessment order passed u/s. 143(3) of the Income Tax Act, 1961 [the Act] by the ACIT, CC 1(2), Bengaluru [ld. AO] was dismissed.
2. The only dispute in this appeal is the addition of difference in cash book and physical cash found during search in case of a company where assessee is a substantial shareholder holding more than 10 % of share capital chargeable to tax in the hands of the assessee u/s. 2(22)(e) of the Act as deemed dividend as assessee stated to have withdrawn the differential cash.
3. The brief facts of the case show that search & seizure u/s. 132 of the Act was carried out in the case of assessee on 4.1.2018. The assessee filed return of income u/s. 139(1) of the Act at a total income of Rs.55,36,000. Necessary notices were issued.
4. During the course of search proceedings u/s. 132 of the Act in the case of Lakshmi Gold Khazaana Pvt. Ltd., a difference of Rs.79,73,599 was found in the cash book and cash available at the premises of the company. In a statement u/s. 132(4) of the Act the Manager of the company stated that the above amount being the difference is personal withdrawal by the assessee. The assessee also confirmed that he has withdrawn the amount of Rs.79,73,599 and declared his unaccounted income for AY 2018-19. However, while filing the return of income no such amount was disclosed.
5. The ld. AO noted that the assessee is a Managing Director of the company, held more than 10% of the shareholding. The company having accumulated reserve of Rs.79,73,599 and therefore cash withdrawal of Rs.79,73,599 is treated as deemed dividend chargeable to tax in the hands of the assessee u/s. 2(22)(e) of the Act.
6. The assessment order was passed determining the total income of Rs.1,36,16,202 by order dated 30.12.2019.
7. The assessee challenged the same before the ld. CIT(A), who passed a consolidated appellate order for AYs 2017-18 & 2018-19 on 16.9.2025. In para 7 of the appellate order, the addition was confirmed and therefore assessee is in appeal.
8. During the course of earlier hearing, the ld. AR, Shri V. Chandrashekar, Advocate, submitted shortage of cash was found in the case of private limited company or in the case of proprietary concern of the assessee is not certain. According to him, the shortage was found in the books of account of the proprietary concern of the assessee and therefore there is no applicability of provisions of section 2(22)(e) of the Act.
9. The ld. DR furnished a report dated 12.3.2025 and submitted that the shortage of cash was found in the books of company only where the assessee is a shareholder. However, he wanted to confirm the same.
10. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. If the shortage of cash found during the search proceedings as per the claim of the ld. AR, such shortage was found in the books of the proprietary concern of the assessee, and not in the books of account of the company. The claim of the ld. AR is that shortage of cash was found in the books of the company where assessee is a shareholder and has withdrawn the above amount for personal use. Thus, if the shortage of cash is found in the books of company, the addition of deemed dividend in the hands of the assessee is correct. However, if the shortage of cash is found in the books of proprietary concern of the assessee, the provisions of section 2(22)(e) of the Act does not apply.
11. The ld. DR has submitted a report of the AO wherein sworn statement of the Manager of the company, assessee and inventory of cash in the case of Lakshmi Gold Khazaana Pvt. Ltd. The ld. DCIT, Central Circle 1(2), Bengaluru in his report dated 6.3.2026 has stated that no statement was recorded from Shri Ramakrishna, Assistant Manager of Lakshmi Gold Khazaana Pvt. Ltd. u/s. 132(4) of the Act on 6.1.2018, but the same was recorded on 5.1.2018. The statement of the assessee was also recorded on 6.1.2018. In answer to Q.No.36 of the statement recorded of the assessee which is with respect to the fact that the statement extracted from Tally Software in the books of account of Lakshmi Gold Palace, a proprietary concern of the assessee, cash balance as per cash book was found to be Rs.2,18,02,299, however cash found was of Rs.1,38,28,700. Thus there is a shortage of cash of Rs.79,73,599. It is apparent that Q.No.36 was raised on the assessee with respect to the proprietary concern, M/s. Lakshmi Gold Palace and not with respect to Lakshmi Gold Khazaana Pvt. Ltd. Thus, it is not established that cash shortage was in the books of the company. The statement also shows that the shortage was in the proprietary concern of the assessee. The Revenue did not produce any material to show that there is any shortage int eh books of Lakshmi Gold Khazaana Pvt. Ltd. which has been withdrawn by the assessee. In view of the above facts, Ground Nos.4 & 5 of the appeal are allowed and the ld. AO is directed to delete the addition of Rs.79,73,599 u/s. 2(22)(e) of the Act in the absence of any withdrawal by the assessee from the books of account of a private limited company where he is a director, but such withdrawal is from his proprietary concern.
12. No other grounds were pressed before us and hence those are dismissed.
13. In the result, appeal filed by the Assessee is PARTLY ALLOWED.
Order pronounced in the open court on 20th May, 2026.
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