The Chennai Income Tax Appellate Tribunal ( ITAT ) has recently held that deemed dividend would not be applicable to payment by company on behalf of shareholder for purchase property as a stop gap arrangement subsequently Re-paid.
Assessee V.Sriram (HUF) had filed return of income for the AY 2015-16 and the case was selected for scrutiny and during the course of assessment proceedings, the AO noticed that the assessee along with V.Padma (mother of assessee), purchased a flat in Chennai.
It was further noticed that the assessee’s share of investment works out to Rs.3,59,72,024/-.assessee explain the source of the investment and said that he along with his mother purchased a flat and source for purchase of property was sale of 5,00,000 equity shares of City Union Bank Ltd. AO on the basis of information furnished by the assessee noticed that a sum of Rs.2.75 Crore has been paid out of sale proceeds of CUBL shares by assessee’s mother. After analyzing assessing officer rejected arguments of the assessee and made addition of Rs.3,10,22,424/- as deemed dividend under section 2(22)(e) of the Income Tax Act 1961.Against this assessment order assessee filed an appeal before the ITAT.
R.Sivaraman, counsel for the assessee submits that,
“whatever amount paid by M/s. IEIL, has been subsequently re-paid by the assessee through his mother Smt. V. Padma account on very same day or within a short period i.e. less than one month without there being any outstanding balance in the name of the assessee in the books of M/s. IEIL. Therefore, it cannot be held that said payment comes under the provisions of Sec.2 (22)(e) of the Income Tax Act 1961.”
D. Hema Bhupal, counsel for the revenue submits that, the amount paid by the company has been subsequently re-paid by the assessee or his family members, but facts remain that the moment loan or advance taken from the company, provisions of Sec.2(22)(e) of the Income Tax Act 1961 does come into operation, even if such payment has been ultimately repaid or adjusted.
After considering the contentions of the both parties the division bench of the ITAT comprising V. Durga Rao, (Judicial Member) and G. Manjunatha, (Accountant Member) allowed the appeal filed by the assessee and observed that,
“At no point of time, M/s. IEIL has given any loan or advance to the assessee either by way of cash payment or through account transfer. Although, the company has given some payments to the third party on behalf of the assessee, but said payments have been subsequently re-paid by the assessee or his family members either on the same day or within a short period that is less than one month without there being any outstanding balance in the books of accounts of the company.
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