SANJAY SHANKARRAO JADHAO,AMRAVATI vs. DEPUTY COMMISSIONER OF INCOME TAX, AMRAVATI CIRCLE, AMRAVATI, AMRAVATI

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ITA 261/NAG/2025Status: DisposedITAT Nagpur16 June 2026AY 2014-201514 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the delayed deposit of PF and ESIC contributions was justifiable due to intervening holidays. Regarding the deemed dividend, it was held that the opening balance of Rs. 1,29,07,644 was not taxable in the current year as it represented a carry-forward from previous years.

What were the facts?

The assessee's return was selected for scrutiny, leading to disallowance for delayed deposit of employee contributions to PF and ESIC. Additionally, a significant amount was added as deemed dividend under Section 2(22)(e) of the Income Tax Act.

What were the issues?

Whether the delayed deposit of employee contributions to PF and ESIC is allowable, and whether amounts received from a company by a director, particularly an opening balance, constitute deemed dividend under Section 2(22)(e).

Which sections of the Income-tax Act were involved?

Section 2(22)(e),Section 10

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, NAGPUR BENCH :: NAGPUR

For Appellant: Shri Manoj G. Moryani, Adv. &, Shri Bhavesh M. Moryani, Adv
For Respondent: Shri Surjit Kumar Saha, Sr. DR
Hearing: 09.06.2026Pronounced: 16.06.2026

PER ANUBHAV SHARMA, JM:

This appeal filed by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeal) (for short, “CIT(A)”), dated 03/04/2025 passed under section 250 of the Income Tax Act, 1961 (for short, “Act”), for the Assessment Year (AY) 2014-15.

2.

Heard and perused the record.

3.

The assessee is an individual and proprietor of M/s. Jadhaao Gears, Jadhao Cotex and Jadhao icons, carrying the business of engineering goods. Return for A.Y. 2014–15 was picked up for scrutiny on limited issue, but subsequently it was converted into complete scrutiny and based upon the queries raised, Ld. Assessing Officer had made a disallowance of `. 1,07,425/– on account of delayed deposit of employees contribution to provident fund and ESIC. Then Ld. Assessing Officer has made an addition of `. 1,67,57,644/– on account of alleged deemed dividend. The same has been partly sustained by Ld. CIT(A) for which the assessee is in appeal.

4.

As with regard to ground Nos. 2 and 3 concerning ESIC and PF contribution being deposited beyond the due date, from the assessment order itself, it can be observed that as per Assessing Officer, due date was 15.06.2013 and the actual date of payment was 17.06.2013. Ld. Counsel has rightly submitted that the intervening period was Saturday 2 and Sunday on which it was not possible to make the deposits and thus, Ld. Tax Authorities have failed to give assessee benefit of Section 10 of the General Clauses Act. Therefore, these grounds deserve to be sustained.

5.

The next issue covered by Ground no. 4–6 has been sufficiently captured on facts by Ld. First Appellate Authority and for convenience, relevant paras are as under:–

4.3.2 The Assessing Officer tabulated the amounts received by the appellant from M/s Jadhao Gear Pvt Ltd as under:–

Date Amount in (`.) 01.04.2013 1,29,07,644/– 31.12.2013 2,50,000/– 12.01.2014 30,00,000/– 06.03.2014 6,00,000/– Total 1,67,57,644/– 4.3.3 The AO has invoked section 2(22)(e) to treat these amounts received by the appellant as deemed dividend. During appeal proceedings, the appellant has made the following submissions as to why the said amounts must not be treated as deemed dividend: 1. The assessee respectfully submits that assessee is a director of M/s. Jadhao Gears Pvt. Ltd. The assessee is drawing managerial remuneration from M/s. Jadhao Gears Pvt Ltd. During the previous year relevant to Asstt Year 2014- 15 assessee has received managerial remuneration of Rs. 75,00,000/- and also deducted TDS on remuneration at Rs. 3 20,61,000/- and same were duly shown in the capital account of the assessee in the books of M/s. Jadhao Gears Pvt Ltd. During the previous year relevant to asstt year 2014-15 assessee also received rental income at Rs.3,06,000/- from M/s. Jadhao Gears Lvt Ltd and same were duly shown in the capital account of the assessee in the books of M/s. Jadhao Gears Pvt Ltd. The same is evident from the copy of account of assessee in the books of Jadhao Gears Pvt Ltd. Reproduced at page 5 of assessment order. 2. The assessee had opening balance of `. 1,29,07,644/– as payables and the same was also mentioned at Page 7 3.5 of Assessment order. The Company, M/s. Jadhao Gears Pvt Ltd has also made an arrangement with the assessee to adjust the remuneration amount paid towards the outstanding balance of assessee & the same were business transaction of assessee. The amount received by the assessee at Rs. 1,67,57,644/- is not in the nature of loan or advances as envisaged under the provisions of Section 2(22)(e) of the Income Tax Act, 1961. 3. The assessee respectfully submitted that assessee is a director of M/s. Jadhao Gears Pvt Ltd and holding 84% of equity shareholding. The assessee has provided his own assets as collateral security to the Small Industries Development bank of India (SIDBI) for term loans obtained by M/s. Jadhao Gears Pvt Ltd. The assessee encloses herewith the Sanction letters for your kind perusal which is on Page 37 to 40 of paper book. The assessee draw attention that assessee has mortgaged the properties in favour of SIDBI for enabling the Company M/s. Jadhao Gears Pvt Ltd. to take benefit of the term Joans. The assessee has also furnished irrevocable and unconditional personal guarantee as it is evident from sanction letter which is on page 37 to 40 of paper book, to facilitate the company to obtain loan from bank. 4. The assessee has also mortgaged his own properties to enable the company M/s. Jadhao Gears Pvt Ltd to take benefit of CC limit and bank guarantee provided by SBI bank the same is evidenced through sanction letter submitted by the assessee. The assessee has provided personal guarantee in order to facilitate the company M/s. Jadhao gears Pvt Ltd to obtain loan from State bank of India. 5. It is respectfully submitted that at the time of extending guarantee and providing his own assets as collateral securities the assessee has sought liberty to withdraw funds from M/s. Jadhao Gears Pvt Ltd. as and when required by him for his personal purposes. On this basis the assessee has withdrawn money from M/s. Jadhao Gears Pvt Ltd which was subsequently been repaid by the assessee. Therefore the transaction of assessee and the company was purely out of business consideration. If the assessee had not given bank guarantee the company's business would have suffered because of shortage of funds. It is purely commercial transaction and hence does not fall for consideration under the provisions of Section 2(22)(e) of the Income Tax Act 1961. The amount received by assessee from M/s. Jadhao Gears Pvt Ltd is a matter of commercial consideration as company is benefited from assessee. The amount given in such conditions cannot be termed as loan or advances as provided under section 2(22)(e) of the Income Tax Act. The issue of the assessee is covered by assessee's own case for the A.Y. 2013- 14 by the Judgement of Jurisdictional Bench of Hon'ble Income tax Appellate Tribunal vide ITA No. 307/Nag/2017 in the case of DCIT-Vs.- Shri Sanjay Shankarrao Jadhav where revenue appeal was dismissed and it was held that "amount received by the assessee from Company is not in the nature of loans and advances as envisaged u/s 2(22)(e) of the Income Tax Act, 1961 and hence the addition made by the assessing officer was not found justified and sustainable and was rightly deleted by the Ld. Commissioner of Income Tax(Appeals)". 7. The assessee further places reliance on the following judgements: 1. ITA No 5194/Mum/2014 (ITAT Mumbai) ACIT-Vs. - Shri Mahesh K. Shah 2. (2012) 138 ITD 0427 (ITAT Chennai) Assistant Commissioner of Income Tax-Vs.- Smt. G. Sreevidya 3. ITA No 94/Nag/2013 (ITAT Nagpur) In the case of Shree Deepak Chawdhary

4.

CIT (A)-1/131/2016-2017 in the assessee own case for AY 2013-14 8. The ratio laid down by the aforesaid decisions is squarely applicable the facts in the case of assessee and considering the same addition made by the assessing officer may kindly be deleted. The learned assessing officer in the assessment order has referred various decisions but none of such decision were applicable in the case of the assessee. The aforesaid decisions are distinguishable on the facts and were not applicable in the case of assessee. In view of the above assessee respectfully prayed that nothing adverse be drawn from the said decision relied by the assessing officer in the case of assessee.

9.

Therefore, In the case of assessee, the assessee has taken funds from M/s. Jadhao Gears Pvt Ltd for the purpose of business in the earlier years and assessee has repaid the same during the previous year relevant to A.Y. 2014-15. The amount received by assessee from Company only to meet her short term cash requirements were by virtue of offering personal guarantee and collateral security for the benefit of company. Such arrangement between assessee and company were merely for sake of convenience and commercial requirement arising out of business expediency. Therefore same shall not be under the purview or character of deemed dividend. 10. The advance given by the company to the assessee is by way of compensation to the assessee for keeping his property as mortgage on behalf of the Company to reap the benefit of loan. Such transaction carinot be considered as deemed dividend within the meaning of Section 2(22)e of the Act. The advances were received in the course of business as a matter of business expediency and hence said advance was not covered by Section 2(22)(e) of the Act. 4.3.4 The appellant argues that deemed dividend provisions shall not be attracted since the said advances is a matter of commercial consideration arising out of business expediency. In this backdrop, it is relevant to examine the provisions of law relating to deemed dividend, which are as under: 2(22) "dividend" includes- (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; but "dividend" does not include … (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company: 4.3.5 In order to examine the applicability of section 2(22)(e) of the Act, it is necessary to briefly set out the conditions laid down in law. The said provision deems certain payments made by a company to be dividends in the hands of a shareholder, even though such payments are not dividends in the ordinary commercial sense. Specifically, section 2(22)(e) applies when a company, not being one in which the public are substantially interested, makes a payment by way of loan or advance to a shareholder who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend), holding not less than ten percent of the voting power in the company. Further, the payment must be to the extent of the accumulated profits of the company at the time of such payment.

4.3.6 In the present case, the appellant is admittedly a director and a major shareholder in M/s. Jadhao Gears Pvt. Ltd., holding 84% of the equity shareholding. The company is admittedly a closely held private limited company. During the relevant previous year, the assessee received certain sums from the said company which the appellant contends was not in the nature of a loan or advance, but a commercial arrangement arising out of business expediency. However, the appellant has not denied the fact that the amount was received from a closely held company, that he is a shareholder holding substantial voting rights, and that the company had sufficient accumulated profits at the time of payment. The factual foundation thus satisfies all the essential statutory conditions for the invocation of section 2(22)(e). 4.3.7 The appellant contends that the receipt of funds from M/s. Jadhao Gears Pvt. Ltd. during the relevant previous year cannot be characterised as a loan or advance within the meaning of section 2(22)(e), since the same arose out of commercial expediency. The appellant has emphasised that he had provided personal guarantees and mortgaged his own immovable properties in favour of financial institutions, enabling the company to avail loans and working capital facilities. It is argued that the company, in turn, permitted the appellant to draw funds as a matter of mutual business arrangement or convenience, and such withdrawal was subsequently squared off. According to the 8 appellant, such commercial understanding falls outside the mischief of the deeming fiction envisaged in section 2(22)(e).

4.3.8 The appellant's principal argument is that the amount received from M/s. Jadhao Gears Pvt. Ltd. represents a commercial arrangement specifically, a form of compensation for having provided personal guarantees and mortgaged immovable property to enable the company to secure financial assistance. However, a careful examination of the record and the nature of the transaction reveals that there is no live link between the funds advanced by the company and the personal guarantee or collateral arrangement cited by the appellant. 4.3.9 Firstly, there is no evidence on record to show that the payment was made pursuant to any binding agreement or pre- existing understanding between the appellant and the company to the effect that the appellant would be compensated in monetary terms for extending his guarantee or security. The appellant has not furnished any board resolution of the company, loan agreement, shareholder agreement, or any contemporaneous correspondence which would establish that the funds were disbursed in exchange for the collateral support. In the absence of such evidence, the appellant's argument remains a post-facto justification, unsupported by contractual or statutory substance.

4.3.10 Secondly, the appellant's submission that the withdrawal was permitted "as and when required by him for personal purposes undercuts the argument of business expediency. If the funds were withdrawn for personal reasons and not for the company's operations, the nature of the transaction inherently becomes one of individual benefit, which is precisely what 9 section 2(22)(e) seeks to bring to tax in the hands of significant shareholders.

4.3.11 Thirdly, even if one were to accept the appellant's argument that the funds were given as compensation for the personal guarantee and mortgage provided by him, stich compensation would be taxable as income in the hands of the appellant. If the appellant receives consideration for a service rendered in this case, enabling the company to raise loans through his personal financial standing amount paid by the company partakes the character of income, not a neutral financial adjustment. In that scenario, the payment cannot be exempted altogether; it either constitutes income taxable under the head "Income from Other Sources” of qualifies as deemed dividend under section 2(22)(e), depending on the relationship between the parties and the accumulated profits of the company.

4.3.12 Therefore, whether viewed from the perspective of absence of a documented nexus, or the personal benefit arising from the arrangement, or the taxability of theso-called compensation, the payment cannot escape the mischief of section 2(22)(e). The company has made a monetary payment to a substantial shareholder outside the scope of salary, rent or contractual remuneration, and without any substantiated commercial obligation. Such a transaction is squarely hit by the deeming fiction of section 2(22)(e) and has rightly been brought to tax as deemed dividend. 4.3.13 It is also relevant to note that exception mentioned in clause (ii) below section 2(22)(e) provides that any advance or loan made to a shareholder shall not be treated as deemed 10 dividend if it is made by a company in the ordinary course of its business, and lending of money constitutes a substantial part of the business of the company. This exception is narrow and applies only where the company is primarily engaged in financing or lending activities. In the present case, the company, M/s. Jadhao Gears Pvt. Ltd., is a manufacturing concern and not a money-lending entity. There is nothing on record to show that lending forms a substantial part of its business. Hence, the appellant is not entitled to the benefit of this exception, and the payment received continues to fall within the ambit of deemed dividend under section 2(22)(e).

4.3.14 In light of the above discussion, the addition made by the AO on account of deemed dividend is upheld, and grounds 5 & 6 are dismissed 4.4 Addition of Opening Balance 4.4.1 The AO, while examining the ledger account of the appellant in the books of M/s. Jadhao Gears Pvt. Ltd., noted certain amounts credited to the account of the appellant during the relevant previous year. These amounts were tabulated in the assessment order as under: Date Amount in (`.) 01.04.2013 1,29,07,644/– 31.12.2013 2,50,000/– 12.01.2014 30,00,000/– 06.03.2014 6,00,000/– Total 1,67,57,644/– The AO treated the entire sum of 1,67,57,644 as income of the appellant under the head of deemed dividend as per section 2(22)(e) of the Act.

4.4.2 However, it is evident from the ledger that the amount of `. 1,29,07,644/– appearing on 01.04.2013 represents the opening balance carried forward from earlier years. This amount is not a fresh credit in the books of account during the relevant previous year but a continuation of an existing balance from prior years. There is no finding in the assessment order to indicate that this opening balance represents an unrecorded or unexplained credit or that it was subject to any enquiry in the present assessment proceedings. 4.4.3 It is a settled principle of law that opening balances brought forward from past years cannot be taxed in the current year, unless it is shown that they represent income of the current year based on fresh evidence or findings. In the present case, the Assessing Officer has not brought any such evidence on record to disturb the opening balance. There is no evidence on record to indicate that this amount of 1,29,07,644 represented loans or advances given by the company M/s Jadhao Gears Pvt. Ltd to the appellant during the F.Y. 2013-14. Therefore, to the extent of 1,29,07,644, the addition on account of deemed dividend for the corresponding A.Y. 2014-15 is unsustainable.

6.

We are of the considered view that the Revenue has not come in appeal and contested the benefit given by Ld. First Appellate Authority wherein the opening balance carried forward earlier years has been accepted. This assumes himself in the light of fact that the assessee relies decision of coordinate Bench in A.Y. 2013– 14 vide ITA No. 307/NAG/2017, wherein the coordinate Bench has 12 considered this issue and has held that the disputed amount have been received by the assessee not as loan or in the nature of advances as envisaged under Section 2(22)(E) of the I.T. Act, 1961, however, the same has been left out of consideration by Ld. CIT(A). Once in previous years, the amount were held to be not in the nature of loan or advances and the balances have been accepted by Ld. CIT(A) and the Department too, as the no appeal has been filed, then the money received by the assessee during the year for same set of consideration should not have been held to be deemed dividend. In fact, if we consider the consequences drawn by Ld. CIT(A) in para 4.3.11, we find that Ld. CIT(A) herself was not sure as to what is the nature of amounts received by the assessee as she observes that it is either taxable under the head income from other sources or qualifies as deemed dividend, depending on the relationship between the parties and the accumulated profits of the company.

7.

Such a finding cannot be sustained where the Department intends to tax a receipt as an income on the deeming income provisions. Thus, we are inclined to sustain these grounds too. 13

8.

As a consequence of the aforesaid, the appeal of assessee is allowed with consequences to follow as above.

Order pronounced in open Court on 16.06.2026 Sd/– Sd/– ANUBHAV SHARMA KHETTRA MOHAN ROY ACCOUNTANT MEMBER JUDICIAL MEMBER

Nagpur: Dated: 16/06/2026 Z.U, P.S Copy to: 1. The Assessee 2. The Revenue 3. The Pr.CIT concerned. 4. The DR, ITAT, Nagpur 5. Guard file. By order

Sr.PS/PS ITAT, Nagpur

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