KRISHNA DAKSHINKAR,THANE vs. ITO, WARD 1(3), THANE, THANE

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ITA 5308/MUM/2026Status: DisposedITAT Mumbai15 September 2026AY 2016-175 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the lower authorities had not properly adjudicated the Assessee's contentions regarding the running account and the security deposit. The matter was remanded for fresh consideration.

What were the facts?

The Assessee, a Director and 50% shareholder in a company, received Rs. 8,50,000 which was treated as deemed dividend under Section 2(22)(e). The Assessee claimed part of it was a security deposit and the rest was part of a running account.

What were the issues?

Whether the amount received by the Assessee constituted deemed dividend under Section 2(22)(e), considering the claims of a running account and a security deposit.

Which sections of the Income-tax Act were involved?

Section 2(22)(e)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “J (SMC

Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI MAKARAND VASANT MAHADEOKAR

Pronounced: 15.09.2026

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “J (SMC)”, MUMBAI BEFORE SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER And SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No. 5308/M/2026 Assessment Year: 2016-17 Krishna Dakshinkar, ITO, Ward 1(3), Ashar IT Park, 6th Floor, 1803, Vasant Lawns Pokhran Road no. 1, Thane, Maharashtra Vs. Road no. 16Z, Wagle - 400602 Industrial Estate, Thane PAN – AAGPD8712L West, Maharashtra - 400604 (अपीलार्थी/ Appellant) (प्रत्यर्थी /Respondent) Present for: निर्धाऩिती द्वधिध/Assessee Shri Tanmay Phadke, Adv represented by: िधजस्‍व द्वधिध/Revenue represented Ms. Jayshree Thakur, SR DR by:

सुनवाईकीतारीख/Date of conclusion of hearing: 29.07.2026 घोषणाकीतारीख/Date of pronouncement: 15.09.2026

O R D E R Per : Narender Kumar Choudhry, Judicial Member:

This appeal has been preferred by the Assessee against the order dated 02.03.2026, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeals) [in short, “Ld. Commissioner”] u/s 250 of the Income Tax Act, 1961 (in short, “the Act”), for A.Y. 2016-17.

2 ITA No. 5308/M/2026 Krishna Dakshinkar 2. The sole substantive ground relates to the addition of Rs.8,50,000/- made by the AO and sustained by the Ld. Commissioner as deemed dividend u/s 2(22)(e) of the Act.

3.

Briefly stated, the AO noticed that the Assessee, being a Director and holding 50% shares in M/s Aesthetic Kitchen Equipment (I) Pvt. Ltd., received Rs.8,50,000/- from the said company on 17.03.2016, which was thereafter utilised for purchasing debentures. Considering that the company had free reserves of Rs.31,23,281/-, the AO treated the entire receipt as deemed dividend u/s 2(22)(e) of the Act.

4.

Before the Ld. Commissioner, the Assessee submitted that the account with the company was a running/current account in which receipts, payments and Director’s remuneration were regularly recorded. According to the Assessee, immediately before the impugned credit, an amount of Rs.5,30,880.59 stood receivable by him from the company. It was, therefore, contended that the credit of Rs.8,50,000/- could not be considered in isolation and that, even if section 2(22)(e) were otherwise applicable, the amount capable of consideration could not exceed Rs.3,19,119.41.

5.

The Assessee further submitted that, out of the aforesaid amount, Rs.5,00,000/- represented an interest-free security deposit given by the company for using the Assessee’s residential address as its registered office. Reliance was placed upon the Board resolution appearing at page 14 of the paper book, CBDT Circular No. 19/2017 dated 12.06.2017 and the decision of the Hon’ble Allahabad High Court in CIT v. Atul Engineering Udyog, Income Tax Appeal No. 223 of 2011, decided on 26.09.2014, to contend that a genuine commercial security deposit does not fall within the ambit of section 2(22)(e).

3 ITA No. 5308/M/2026 Krishna Dakshinkar 6. The Ld. Commissioner observed that, although the Board resolution had been furnished, no lease deed, rent arrangement, terms governing the deposit or mechanism for its adjustment had been produced. The alleged security deposit was, therefore, held to be lacking in commercial character and the entire addition of Rs.8,50,000/- was sustained. However, the separate contention concerning the running/current account and the amount stated to be receivable by the Assessee immediately before the impugned credit was not adjudicated.

7.

The Ld. AR reiterated the aforesaid submissions and contended that the nature of the transaction could be determined only after considering the complete running account and the contemporaneous evidence supporting the security deposit.

8.

On the contrary, the Ld. DR supported the orders of the authorities below and submitted that the Assessee admittedly held substantial interest in the company, which possessed sufficient accumulated profits, and that the amount was transferred directly to him. The Ld. DR further submitted that merely describing a part of the payment as a security deposit would not take it outside section 2(22)(e), particularly in the absence of contemporaneous evidence establishing its commercial character.

9.

The Assessee had raised two distinct contentions: first, that Rs.5,00,000/- constituted a commercial security deposit; and secondly, that the payment formed part of a running/current account in which Rs.5,30,880.59 was stated to be receivable by the Assessee immediately before the impugned credit. While the first contention was rejected by the Ld. Commissioner, the nature and effect of the running account and the preceding balance were neither examined nor adjudicated.

4 ITA No. 5308/M/2026 Krishna Dakshinkar 10. Determination of the amount, if any, falling within section 2(22)(e) requires examination of the complete ledger account and the nature of the reciprocal transactions instead of considering the impugned credit in isolation. The claim of a commercial security deposit also requires verification of the Board resolution, actual use of the Assessee’s address by the company, terms and duration of the arrangement, accounting treatment in the books of both parties and other contemporaneous evidence. CBDT Circular No. 19/2017 and the authority relied upon by the Assessee shall thereafter be considered in the light of the verified facts. We may clarify that Atul Engineering Udyog involved materially different facts, including that the recipient concern itself was not a shareholder; therefore, its applicability to the present case must be examined with due regard to this distinction.

11.

In these circumstances, without expressing any opinion on the merits, the impugned order qua this issue is set aside and the matter is restored to the file of the Ld. Commissioner for decision afresh. The reconsideration shall be confined to:

(i) the nature and effect of the running/current account, including the balance of Rs.5,30,880.59 as on 16.03.2016; (ii) the nature and evidentiary support of the alleged security deposit of Rs.5,00,000/-; and (iii) the consequent amount, if any, chargeable u/s 2(22)(e), after examining all the statutory conditions, including the extent of accumulated profits. 12. Suffice to say, that the Ld. Commissioner shall afford a reasonable opportunity of being heard to the Assessee, consider the material already filed and any further relevant evidence produced, and pass a speaking order in accordance with law.

5 ITA No. 5308/M/2026 Krishna Dakshinkar

13.

In the result, the appeal of the Assessee is allowed for statistical purposes.

Order pronounced in the open court on 15.09.2026.

Sd/- Sd/- (MAKARAND VASANT MAHADEOKAR) (NARENDER KUMAR CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER (ANKIT SWARNKAR) Private Secretary Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench

//True Copy// By Order

Dy/Asstt. Registrar, ITAT, Mumbai.

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