Brief of the Case: In the case of Shri Kaushik B. Patel Vs. D.C.I.T it was held by ITAT Ahmedabad that routine business transactions/salary payments do not fall under the purview of Deemed Dividend u/s 2(22)(e) of the Act. In this case the assessee’s books nowhere treat the sums received as loan and advances to have been received from the said Company. The Company’s report also does not disclose any such loan or advance given to the assesee. The authorities below also did not observe anything about accumulated profits so as to invoke Section 2(22)(e) of the Act. The case file indicates that the impugned sums are routine business transactions/salary payments made between the Company and the assesee appellant not coming within the purview of deemed dividend u/s 2(22)(e).
Facts of the Case: The assessee is a director in M/s. B. Patel Infrastructure Pvt. Ltd. He holds more than 10% of its shares. The AO noticed him to have withdrawn excess amount of Rs.11,24,237/-. He sought to invoke deemed dividend addition u/s.2(22)(e) of the Act by treating the same as loans and advances. The assessee pleaded to have worked as a sub-contractor giving his tractor car machinery on hire basis to the company having value of more than Rs.55 lakhs. He submitted that the company had taken possession thereof by paying him a refundable deposit sum of Rs.12.50 lakhs. The Assessing Officer observed in order dated 30/11/2010 that the assessee had withdrawn excess amount to the tune of Rs.9,81,400/- from 01/04/2005 onwards. Accordingly, he treated the impugned sum of Rs.11,24,237/- as deemed dividends and made the consequential addition.
Contention of the Assessee: The appellant contended that the Company have given Rs.12.50 lakhs in lieu of the possession of vehicles valuing about Rs.41 lakhs. He further contended that the value of the assets given is more than Rs 41 lakhs against which there is debit balance in his account of Rs.20 lakhs. As such it was submitted that amount outstanding is for the purpose of business.
Contention of the Revenue: The Ld. DR of Department relied on the order of the lower authorities.
Held by CIT(A): Ld. CIT(A) observed that the assessee had not received any advance of Rs.12,50,000/- against the vehicles as claimed although the vehicles were given on rent during the period. The Ld. CIT(A) observed the following transactions from the accounts of the assessee which he reproduced in its order as follows :-
“However, the account proves otherwise from the face of it. The assessee has shown outstanding as on 1/4/2005 at Rs.880519/-. Against the outstanding of Rs.880519/- assessee has repaid Rs.595000/- till 30/4/2005.………In the month of May, 2005 from 1/4/2005 to 31/5/2005, assessee had withdrawn Rs.9,78,800/- out of which Rs.2,91,000/- were adjusted by way of salary & machinery rent. From 1/8/2005 to 30/11/2005, assessee had withdrawn Rs.9,78,800/- out of which Rs.2,91,000/- were adjusted by way of salary & machinery rent. From 1/8.2005 to 30/11/2005 assessee has withdrawn Rs.289000/-, Rs.200000/- by way of salary adjustment were recovered. From 1/12/2005 to 31/12/2005, Rs.480000/- were received, Rs.190000/-were adjusted by way of salary & machinery rent. From 1/1/2006 to 28/2/2006 assessee has received Rs.249077. In the month of March, assessee has received Rs.981400/-.”
The Ld. CIT(A) held that not only is the claim of the appellant wrong from the accounts but also it is clearly an afterthought and a story when viewed from the angel of probabilities of human behaviour and business practices. It is seen that the total value of these assets i.e. car and tractors rented out to the company is only Rs.41,00,000/- on which the assessee is getting rent of Rs.16.45 lakhs p.a. which itself is very high. No one will give another 12.5 lacs rupees as advance in such a deal. The addition u/s. 2(22)(e) made by the AO is therefore totally justified on- the facts of the case.
Further, the Ld. CIT(A) held that the reliance placed by the assessee on the two judgements namely CIT Vs. Nagindas Kapadia (177 UR 393 (Mum)) and CIT Vs. Rajkumar (318 ITR 462 (Del)) is totally misplaced because in those cases the amounts were held to be advances against trade and not loan, whereas in this case it is not even the claim of the assessee that any amount was advanced towards purchases.
The Ld. CIT(A) relied on the order of the Hon’ble Supreme Court in the case of Tarulata Shyam & Ors (108 ITR 345) wherein it was held that once the income is taxable within the law, the hardship caused to the appellant ceases to be an issue. In this case, the amount was loaned/ advanced for a very short time, but still it was held taxable. Thus, the Ld. CIT(A) dismissed the assessee’s appeal.
Held by ITAT: The Hon’ble ITAT observed that the assessee gets a monthly salary of Rs.50,000/- and also tractor rental income of Rs.1,01,000/- in May 2005 and Rs.1,40,000/- from June 2005 up to March 2006. It is further seen that the assessee also received a Qualish Car rental income of Rs.1,44,000/-. Assessee’s books record tractor rental income as Rs. 15,01,000/-. The Revenue did not dispute the assessee’s fixed assets in the shape of the aforesaid vehicles. The total value of Tractor Trolley is Rs.37,45,500/- and of Qualish Car is Rs.3,98,496/-.
Thus, the Hon’ble ITAT held that the assessee’s books nowhere treat the sums received as loans and advances to have been received from the aforesaid company. The company’s report does not disclose any such loan or advance to the assessee. The authorities below nowhere observe anything about accumulated profits so as to invoke section 2(22)(e) of the Act. The Hon’ble ITAT reiterated that this section stipulates addition of a deemed income statute liable to be strictly interpreted. The case file indicates that the impugned sums are routine business transactions/salary payments made between the company and the assessee-appellant not coming within the purview of deemed dividends u/s. 2(22)(e) of the Act.
Further, the Hon’ble ITAT quoted the case of DCIT Vs. Chariot International Pvt. Ltd. ((2014) 29 ITR 36 (Bang .Trib.) ) wherein it was held that routine commercial transactions involving trade advances are not to be treated as deemed dividends. The Revenue fails to point out any distinction on facts or law. We accept the assessee’s arguments in these facts.
The Hon’ble ITAT deleted the impugned addition of deemed dividends amounting to Rs.11,24,237/- and allowed the assessee’s appeal.