Deemed dividend – Section 2(22)(e) – A. Y. 2009- 10 – Loan to shareholder – Amounts taken as loan from company and payments also made to company – AO directed to verify each debit entry and treat only excess as deemed dividend

For the A. Y. 2009-10,
the Assessing Officer made an addition of Rs. 76,86,829/- as deemed
dividend u/s. 2(22) (e) of the Income-tax Act, 1961, being the loan
received from KIPL of which the assessee was a shareholder. The
Assessing Officer noted that there were certain payments as on
31/03/2009 and the balance due to the company was Rs.39,32,345/-. The
assessee pointed out that there was credit balance in favour of the
assessee in a sum of Rs.45,44,303/- while there was debit balance of
Rs.39,32,345/-, and accordingly, the company itself had to pay
Rs.6,11,957/-. CIT(A) and the Tribunal held that the Assessing Officer
had erred in not taking into consideration the amount that has been
repaid by the assessee to KIPL. Therefore, the Assessing Officer was
directed to verify each and every transaction and, accordingly, to
determine the dividend amount.

On appeal, the Madras High Court upheld the decision of the Tribunal and held as under:

“i)
Any amount paid to the assessee by the company during the relevant
year, less the amount repaid by the assessee in the same year, should be
deemed to be construed as “dividend” for all purposes. However, the
Assessing Officer had taken the entire amount of Rs.76,86,829/- received
by the assessee from the company as dividend, while computing the
income but had lost sight of the payments made.

ii) In such
circumstances, the Commissioner(Appeals) had rightly come to the
conclusion that the position as regards each debit would have to be
individually considered because it may or may not be a loan. The
Assessing Officer, was, therefore, directed to verify each debit entry
on the aforesaid line and treat only excess amount as deemed dividend
u/s. 2(22)(e) of the Act.”