Briefly the facts relating to this issue are, during assessment proceeding, AO noticed that assessee is also a director in M/s Euro Construction Pvt. Ltd. and during the year under consideration, assessee has received a total amount of Rs. 45 lakhs on different dates as loan/advance from the said company. AO further observed that on examining the receipts and payments account submitted by assessee, it was found that loan taken from the company was utilized for assessee’s personal purposes like investing in M/s Mirra Packaging and others. He further found that as assessee is holding shares of 95.249% and the company had also accumulated profits during the year, the amount given as loan/advance to assessee have to be treated as deemed dividend u/s 2(22)(e) of the Act. Accordingly, he issued a notice to assessee to explain. In response to the show cause notice, it was submitted by assessee that the amount received from the company was not in the nature of loan/advance, but, is actually towards purchase of property in the name of the company which did not materialize. AO, however, disbelieved the explanation of assessee in absence of supporting evidence. AO observed that as all the conditions of section 2(22)(e) are satisfied, the amount of Rs. 45 lakh received by assessee from M/s Euro Construction Pvt. Ltd. has to be treated as deemed dividend u/s 2(22)(e) and accordingly made the addition. Though, assessee challenged the addition made in appeal before ld. CIT(A), but, ld. CIT(A) also confirmed the addition made by accepting the view expressed by AO.
Ld. AR, reiterating the submissions made before the departmental authorities, submitted before us that the amount received from the company is not in the nature of loan/advance, but, for the purpose of investing in properties on behalf of the company. When the deal did not materialize, assessee refunded back the money to company. Therefore, the amount received not being in the nature of loan/advance, provisions of section 2(22)(e) is not attracted. Ld. AR submitted that this is only a running account with the company. Further, ld. AR referring to the account copy of assessee in the books of account of the company as well as company’s account in the books of assessee, submitted that if at all the amount received from the company is to be treated as deemed dividend, then, repayments made by assessee also has to be set off.
The ld. DR, on the other hand, submitted that not only before AO, but, also before ld. CIT(A), assessee could not substantiate its claim that the amount received from the company was towards purchase of land on behalf of the company. Therefore, assessee’s claim that the amount received is not in the nature of loan/advance cannot be accepted. It was submitted, as the amount received satisfied all the conditions of section 2(22)(e), addition made was justified.
We have considered the submissions of the parties as well as perused the materials on record and the orders of revenue authorities. There is no dispute to the fact that assessee on different dates during the relevant FY has received an amount of Rs. 45 lakh from M/s Euro Constructions Pvt. Ltd. wherein assessee is the Managing Director and majority shareholder. It is also not disputed that the said company is a company wherein public are not substantially interested. It is also a fact on record that during the year the company had accumulated profits. Therefore, all the conditions of section 2(22)(e) are satisfied. Though, assessee has claimed that the amount received was not in the nature of loan/advance, but, towards purchase of land in the name of company, however, assessee has not produced even a single evidence to justify the aforesaid claim. No specific evidence to show that any agreement was entered into for purchase of property or any advance was paid has been brought on record by assessee. In these circumstances, assessee’s claim that the amount received was not in the nature of loan/advance cannot be accepted. However, as can be seen from assessee’s account in the books of M/s Euro Construction Pvt. Ltd. there is a credit balance of Rs. 7,55,896.50 in February, 2009. Therefore, assessee deserves to get credit for the said amount by setting it off against total advance of Rs. 45 lakh. In the aforesaid view of the matter, we direct AO to reduce the amount of Rs. 7,55,896.50 from the total loan/advance of Rs. 45 lakh and treat the balance amount as deemed dividend u/s 2(22)(e) of the Act. These grounds are partly allowed.