17 June 2024


Judgments

Income Tax Appellate Tribunal

Manav Kumar Saraf, Kolkata vs Assistant Commissioner of Income Tax, Kolkata

MANU/IK/0063/2021

23.04.2021

Direct Taxation

If loan or advance is given by Company to a shareholder for further consideration which is beneficial to the Company, such advance or loan cannot be said to be deemed dividend

Present appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals). The grounds raised by the assessee in present appeal is that, Learned C IT(A) erred in confirming the addition of Rs.5 ,10,590 made by AO invoking Section 2 (22)(e) of Income Tax Act,1961 (IT Act) being the amount of loan or advance received by the assessee shareholder from Akshat Plywood (P) Ltd.; despite such amount was received in the ordinary course of his business and interest was paid by the assessee on the said amount , the addition so made is liable to be deleted.

Further, the case of Assessee is that, learned CIT(A) erred in disallowing interest paid on housing loan arbitrarily, although said interest Rs.3,68,115 was not claimed by the Appellant and was not matter of dispute. Learned C IT(A) erred in not considering the depreciation disallowance Rs.76 ,401 on motor car, disallowance of motor car maintenance Rs.38 ,800 made by AO.

As regards the issue raised relating to the addition of Rs.5,10,590 made on account of deemed dividend under Section 2(22)(e) of the Act, the Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra vs. CIT, wherein it was held that "if such loan or advance is given by the Company to a shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, such advance or loan cannot be said to be deemed dividend within the meaning of section 2(22)(e) of the Act". Explaining further, it was observed that "the gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of Section 2(22)(e) of IT Act but not the loans or advances which are given in return to an advantage conferred upon the company by such shareholder".

In the present case, the amount of loan in question was given to the assessee by the concerned company on interest and since the said loan was not a gratuitous one and was given in return to an advantage conferred upon the company by the assessee in the form of interest, the same cannot be treated as deemed dividend within the meaning of section 2(22)(e) of the IT Act. The addition made by the Assessing Officer and sustained by the CIT(Appeals) on account of deemed dividend under section 2(22)(e) of the IT Act are deleted.

As regards the issue involved in Ground No. 2, the claim made by the assessee requires verification by the Assessing Officer. Since the assessee has also not raised any objection for getting this matter verified by the Assessing Officer, the issue is restored to the file of the Assessing Officer for the limited purpose of verifying the claim of the assessee that, deduction on account of interest on Housing Loan was claimed only to the extent of Rs.1,50,000 and not Rs.5,18,115 as wrongly taken by the learned CIT(Appeals).

As regards the issue involved in Ground No. 3 relating to the disallowance of depreciation on motor car amounting to Rs.76,401 and disallowance on motor car maintenance amounting to Rs.38,800, it is observed that the assessee was owner of two cars, one Chevrolet Beat and the other Maruti Van. Since the Maruti Van was being used by the assessee for the purpose of business, depreciation claimed on the said car was allowed by the Assessing Officer. The claim of depreciation amounting to Rs.76,401 made by the assessee on account of Chevrolet Beat car, however, was disallowed by the Assessing Officer. Even though the personal use of Chevrolet Beat car by the assessee cannot be ruled out, the claim of the assessee for depreciation on the said car cannot be entirely disallowed and it will be fair and reasonable to restrict the same to one-third for such personal use as the claim of the assessee of having used the said car for business purpose also cannot be outrightly rejected. The Assessing Officer is directed to restrict the disallowance made on account of depreciation of Chevrolet Beat car to the extent of 1/3rd. Similarly the disallowance made by the Assessing Officer on account of car maintenance for personal use to the extent of 50% is directed to be restricted to one-third. Assessee's appeal is partly allowed.

Tags : Assessment Additions Legality

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