Addition u/s. 2(22)(e) as deemed dividend unsustainable as debit balance was only an inadvertent error

Venkatachalam Mohan Vs JCIT (ITAT Chennai)

ITAT Chennai held that addition u/s. 2(22)(e) towards amount received by shareholder company treating debit balance as deemed dividend unsustainable as debit balance was only because of an inadvertent error and the same was squared off within short period.

Facts- The assessee filed his return of income for A.Y. 2011-12 admitting a total income of Rs. 95,05,280/-. The case was selected for scrutiny and during the course of assessment proceedings, on examination of books of accounts of the assessee and his ledger account with M/s. Mayflower Enterprises Pvt Ltd., it was found that the assessee has a running account with the company. The details of the shareholding pattern of M/s. Mayflower Enterprises Pvt Ltd., was also called for and found that the assessee is holding 24% share capital in the company.

Since, the appellant is holding more than prescribed percentage of beneficial interest in shareholding of the company, AO treated debit balance as deemed dividend u/s. 2(22)(e) of the Income-tax Act, 1961. AO, further noted that on 31.12.2010, the assessee has received a sum of Rs. 12,50,000/- from the company and this payment is not reflected in the current account of the assessee with the company. Therefore, the said payment has been treated as deemed dividend. To sum up, AO has treated a sum of Rs. 65,33,398/- as deemed dividend u/s. 2(22)(e) of the Act.

CIT(A) sustained the action of AO. Being aggrieved, the present appeal is filed.

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