By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Chartered Accountants
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35 (2008) 26 SOT 95 (Delhi)
Sunil Sethi v. Dy. CIT
ITA No. 2131 (Delhi) of 2007
A.Y. : 2004-05. Dated : 12-9-2008
S. 2(22)(e) of the Income-tax Act, 1961 — When amount was
given by company to its director for business purposes of company i.e., to
purchase business premises, and said amount was returned since the deal could
not materialise, such amount could not be treated as deemed dividend.
During the relevant year, the assessee, who was a director in
a company and was holding 50% of the share capital of the Company, had received
Rs.30 lacs from the Company by way of an imprest to enable him to make the
payment for a proposed office complex and as the deal could not materialise, the
same was returned to the company. The Assessing Officer and the CIT(A) held such
amount as deemed dividend.
The Tribunal, following the decision in the case of Dy.
CIT v. Lakra Bros., (2007) 162 Taxman 170 (Chd.)(Mag.), held that provisions
of S. 2(22)(e) were not applicable in the assessee’s case. The Tribunal noted as
under :
1. A sum of Rs.30 lacs was given to him for the purpose of
making advance with respect to certain land dealings which were proposed to be
entered into by the company through the assessee. The assessee was a director
in the company and could lawfully execute certain agreements on behalf of the
company. Such payment was made in pursuance of a resolution passed by the
company.
2. It was not the case of the Revenue that such resolution
did not happen or it was an afterthought story. No material had been brought
on record to suggest that what was explained by the assessee was incorrect.
The sum had been treated as deemed dividend simply for the reason that it was
given to the assessee.
3. The transaction was in the ordinary course of the
business of the company, and there was no intention on the part of the company
to give a loan or advance to the assessee for his individual benefit.
4. It had been demonstrated that in the bank account of the
assessee, in which the said amount of Rs.30 lacs was credited, was always
having balance of more than Rs.30 lacs. So even for a short period the
assessee had not derived any benefit or it could not be said that the said
amount was given to the assessee by the company for his individual benefit.
The amount was lying in the bank account of the assessee, which was not
utilised at all for any purpose.
5. The amount was paid for a very short period for a
specific purpose and there was documentary evidence on record to substantiate
the explanation of the assessee that the amount was given for the business
purposes of the company.
Thus, the said amount could not be treated as deemed dividend
in the hands of the assessee.
