Snehal Rajvibhai Patel Vs DCIT (ITAT Ahmedabad)
Assessee, Managing Director of M/s SPC Life Sciences Pvt. Ltd. & holding 35.26% shares, filed return declaring Rs.68,47,390/-. Case was reopened u/s 147 based on findings in company assessment that Assessee received loan of Rs.56,09,015/- from the company, which AO treated as deemed dividend u/s 2(22)(e) since accumulated profits exceeded the loan advanced. In reassessment order u/s 143(3) r.w.s 147, AO taxed entire amount as deemed dividend.
Before CIT(A), Assessee argued that the loan was a commercial transaction in the nature of mutual financial accommodation between Director & company, supported by the fact that in other years Assessee had advanced funds to the company & loan was repaid in subsequent year. Assessee relied heavily on CBDT Circular No.19/2017 (12.06.2017) which clarifies that trade advances in commercial transactions do not fall within section 2(22)(e). CIT(A), however, rejected the claim stating that Assessee failed to furnish necessary details proving commercial nature of the transaction, and confirmed the addition.
Before Tribunal, no one appeared for Assessee, but written submissions before CIT(A) were on record. Tribunal examined the material & observed that CIT(A) had misapplied CBDT Circular 19/2017—having correctly noted that commercial transactions fall outside 2(22)(e), he still confirmed the addition without verifying whether the loan was indeed repaid & whether mutual accommodation existed. Tribunal held that proper verification was essential & that Assessee should be given opportunity to produce proof of repayment in subsequent year.
