DEOHOOTI JANMEJAY VYAS,AHMEDABAD vs. DCIT, CENT CIR 2(2) AHMEDABAD, AHMEDABAD

The ld. CIT(A) had disposed of the assessee’s appeal for the Asst. Years 2014-15, 2015-16, 2016-17, 2018-19 and 2020-21 by a common order.

The only issue before us is in respect of an addition of Rs.20,00,000/- u/s 2(22)(e) of the Act in A.Y. 2015-16. The relevant part of order of the CIT(A) dealing with this issue is reproduced below: “16. The ground of appeal no. 4 relates to the AO making addition of Rs. 20,00,000/- u/s 2(22)(e) of the Act. 16.1 While passing the assessment order, AO observed that the appellant received a loan of Rs.20,00,000/- from Bhadraraj Holding Pvt. Ltd., in which she holds 12.08% shareholding. Based on this shareholding and the fact that the payment was made to her personally, the AO concluded that the conditions of Section 2(22)(e) were satisfied. The AO has observed that the company is one in which the public is not substantially interested, the appellant is a significant shareholder (more than 10%), and therefore any loan or advance given to her must be treated as deemed dividend to the extent of the accumulated profits of the company. The AO further observed from the seized digital data, that Bhadraraj Holding Pvt. Ltd. has sufficient accumulated reserves and surplus amounting to Rs.3.72 Crores as on 31st March 2015 and the appellant has failed to demonstrate with cogent documentary evidence the actual application of loan towards any commercial purpose. The AO has treated the entire Rs. 20,00,000/-as taxable deemed dividend in her hands. 16.2 On the other hands, the appellant has argued that the addition of Rs.20,00,000/- u/s 2(22)(e) of the Act is wholly unjustified, as the amount received from Bhadraraj Holding Pvt. Ltd. was not a loan or advance in the nature contemplated under the deemed-dividend provisions. Instead, the appellant explains m I that the payment was a trade or business advance, given specifically for business-related expenses such as consultancy, legal fees, travelling, and other operational outlays, as evidenced by the company’s Board Resolution submitted during assessment. The appellant also relied on CBDT Circular No. 19/2017, which clarifies that commercial/trade advances do not fall within the meaning of “advance” u/s 2(22)(e) of the Act and therefore cannot be treated as deemed dividend and the addition deserves to be deleted. 16.3 I have carefully considered the assessment order and submission filed by the appellant. It is observed that the appellant is significant shareholder in company in which the public is not substantially interested and she has taken loan of Rs.20,00,000/- which attracts the provision of section 2(22) (e) of the Act. During the course of assessment proceedings as well as appellate proceedings, the appellant has submitted that the amount was advanced for commercial purpose and relied on CBDT Circular No. 19/2017. However, the appellant has not submitted any cogent evidence which proves that such advances are for commercial purpose. A mere 2 reference to the CBDT Circular and submission of a Board Resolution is not enough to conclusively prove that the advance was a genuine commercial transaction. Therefore, based on the overall facts and circumstances of the case, it is concluded that the Assessing Officer was justified in treating the sum of Rs. 20,00,000/- as deemed dividend u/s 2(22)(e) of the Act. Thus, ground of appeal no. 4 is dismissed.”

We have heard the Ld. A.R. Shri Dhrunal Bhatt and the Ld. CIT-DR Shri Kiran Unavekar. The Ld. A.R. submits that the amount given by the company to the assessee was not in the nature of loans and advances as contemplated in Section 2(22)(e) but was a regular advance payment of all business expenses such as constructing legal fees, travelling etc. It is stated that relevant board resolution were submitted during assessment. The Ld. A.R. states that the assessee has failed to submit further details at the time of assessment and also subsequently at the time of hearing of appeal before the Ld. CIT(A), and prays that the matter should be set-aside to the A.O. to give the assessee an opportunity to submit all the relevant details and get the issue examined by the A.O. with reference to the details. The Ld. A.R. submits that since these details were not filed before the CIT(A), the issue has go back to the A.O. for a remand report. Therefore it is submitted that restoring to the issue to the A.O. for fresh consideration would best serve the interest of justice.

The Ld. CIT-DR while relying on the order of the CIT(A) has no objection to the suggestion of the Ld. A.R. We therefore set- aside this issue of determining the nature of the payment of Rs.20,00,000/- to the assessee by the company. The A.O. shall determine the applicability of section 2(22)(e) of the Act to this payment of Rs.20,00,000/- having regard to the details that the assessee submits in the set-aside proceedings and in accordance with law.

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