VENUGOPAL SETTY SARVISETTY,HYDERABAD vs. DCIT, CENTRAL CIRCLE-2(1), HYDERABAD

The brief facts of the case are that, assessee, who is an individual, filed his return of income for the assessment year 2022-23 on 30.07.2022 declaring total income of Rs.4,68,71,775/-. A search and seizure operation under Section 132 of the Income Tax Act, 1961 was conducted in the case of M/s. Honer Group and others on 14.10.2022. As part of the search operation, the case of the assessee was also covered under Section 132 of the Act. Consequent to search, a case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that, the assessee is the Managing Director and called upon the assessee to submit the details of transactions with M/s. Vital Therapeutics Private Limited and M/s. Vital Therapeutics and Formulations Private Limited and to submit the copy of ledger account. On perusal of the submissions made by the assessee, the Assessing Officer noticed that, the

The A.O., after considering the submissions of the assessee and also taking note of the provisions of Section 2(22)(e) of the Act, observed that, the assessee is a shareholder, holding more than 40% shares in M/s. Vital Therapeutics Private Limited, and therefore, the advance received by the assessee in the ordinary course of business is towards payment of self-assessment tax falls within the ambit of loans or advances as per Section 2(22)(e) of the

Aggrieved with the assessment order, the assessee preferred an appeal before the Ld. CIT(A) and before the Ld. CIT(A) the assessee submitted that although there is no dispute about payment of Rs.27,10,000/- towards self-assessment tax of the assessee by the company, but fact remains that the said amount has been adjusted in the same financial year to the current account of the director within a short period of time and thus, the same cannot be treated as loan or advances within the meaning of Section 2(22)(e) of the Act. The Ld. CIT(A), after considering the submissions of the assessee and also taking note of the relevant facts, observed that, since the assessee is a shareholder holding more than the specified percentage of share capital in the company, any loan or advance received by the assessee from the company partakes the nature of loans or advances and consequently, the said loan or advances fall within the ambit of Section 2(22)(e) of the Act. Therefore, the Ld. CIT(A) rejected the

Aggrieved by the Ld. CIT(A)’s order, the assessee is now in appeal before the Tribunal.

The learned counsel for the assessee, Shri S.K. Gupta, Advocate, submitted that the Ld. CIT(A) erred in sustaining the additions made by the A.O. towards deemed dividend under Section 2(22)(e) of the Act, for Rs.27,10,000/- towards self- assessment tax payment of the assessee by the company without appreciating the fact that the said amount has been subsequently repaid within the same financial year through the current account of the director and thus, the same cannot be treated as deemed dividend within the meaning of Section 2(22)(e) of the Act. In this regard, he relied upon the decision of ITAT, Chennai Bench in the case of V. Sriram (HUF) v. ACIT in ITA No.863/Chny/2022, dated 22.02.2023.

The learned CIT-DR for the Revenue, Ms. Seema Meena, on the other hand, supporting the orders of the authorities below submitted that, any loan or advance or deposit given by any

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that the self- assessment tax payment of the assessee has been paid by the company i.e., M/s. Vital Therapeutics Private Limited, and the same has been repaid in the same financial year, leaving no debit balance in the name of the assessee in the books of accounts of the company. The A.O. treated the sum of Rs.27,10,000/- as loan or deposit within the meaning of Section 2(22)(e) on the ground

In the present case, there is no dispute with regard to the fact that the sum of Rs.27,10,000/- paid by the company towards the tax liability of the assessee has been subsequently repaid in the same financial year and therefore, by respectfully following the decision of ITAT, Chennai Bench in the case of V. Sriram (HUF) v. ACIT (supra), we are of the considered view that the A.O. was not justified in treating the transaction between the assessee and the company as deemed dividend under Section 2(22)(e) of the Act. The Ld. CIT(A), without appreciating the facts, simply sustained the addition made by the A.O. Thus, we set aside the order of Ld. CIT(A) and delete the additions made by the A.O. towards deemed dividend under Section 2(22)(e) of the Act.

In the result, the appeal filed by the assessee is allowed.