DR. H M VENKATAPPA,BENGALURU vs. DCIT, CENTRAL CIRCLE - 1(3), BENGALURU

PER WASEEM AHMED, ACCOUNTANT MEMBER:

This is an appeal filed by the assessee against the order passed by the ld. CIT-A, dated 18/09/2024 in DIN No. ITBA/ALP/M/250/2024-
25/1068763837(1) for the assessment year 2018-19. 2. The only effective issue raised by the assessee is that the learned
CIT(A) erred in confirming the AO’s action of treating cash belonging to the company M/s Kanva Diagnostic Services Pvt Ltd found from the assessee’s residence and office of auditor as deemed dividend u/s 2(22)(e) of the Act.
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3. The facts in brief are that the assessee is an individual, majority shareholder and managing director of M/s Kanva Diagnostic Services Pvt
Ltd (hereafter KDSPL). The company was subject to search in connection with the residence of the assessee and the office of auditor Shri H.B.
Sunil was also covered under the search. Consequence to search, the proceedings under section 153C of the Act were initiated in case of the assessee.

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6. In response, the assessee contended that the cash in question belonged to M/s KDSPL which was generated through unaccounted sales
(suppressed V-series bills). He maintained that the money remained the company’s property and was never withdrawn or used by him for personal purposes. He argued that the seized cash found at Shri H.B.
Sunil’s office and his own residence was still in the company’s possession, and had not been used as a loan or advance by him. He denied any personal utilization or diversion of funds from the company.
However, the AO rejected the assessee’s contention, citing that the cash amounting to ₹1,61,98,000/- was already handed over to Shri H.B. Sunil for the purchase of property in the name of Dr. Venkatappa’s (assessee) and his son’s personal names, which constituted a personal benefit. Shri
H.B. Sunil admitted in his sworn statement the purpose of the cash, which was not disputed by assessee. As such, the AO held that the cash, though unaccounted, was withdrawn from the company for personal use and hence, qualifies as a deemed dividend under section 2(22)(e) of the Act. The fact that these transactions were not recorded in the company’s books further supports this conclusion. Consequently, the AO assessed
₹2,29,85,400/- as deemed dividend income in the hands of appellant assessee.

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payment made by the company to him in the nature of a loan or advance. The assessee claimed that he merely held the cash in a fiduciary capacity on behalf of M/s KDSPL, and the seized funds were not used for any personal gain or purpose. To support his claim, the assessee cited the decision of the Pune Bench of the ITAT in the case of ACIT v Anilkumar Phoolchand Sanghvi reported in [2022] 144
taxmann.com 163, where it was held that if a director holds company funds in a fiduciary role and the money is not used for personal purposes, section 2(22)(e) of the Act is not attracted. It was further contended that a company is only an incorporated entity which function through natural persons such as directors or BOD or authorised personal. It is the natural person who controls and handles all the assets owned by the company, but such natural person can never be regarded as the owner of the property held by the company. In the present case, he (the assessee) also kept cash of the company M/s KDSPL as mere custodian.

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The assessee to support his contentions also filed additional evidence in the form of board resolution authorising the assessee to keep custody of all the assets including cash.