MAHESWARI YUVARAJ,CHENNAI vs. ACIT, CHENNAI

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) III, Chennai, dated 04.11.2013 relevant to the assessment year 2008-09.

The grievance of the assessee is with regard to confirmation of addition by the ld. CIT(A) at ₹.27,58,349/- by invoking the provisions of section 2(22)(e) of the Income Tax Act, 1961 [“Act” in short].

Facts of the case are that while completing the assessment under section 143(3) of the Act, the Assessing Officer has observed that the assessee has advance an amount of ₹.47,42,657/- and since the assessee failed to give satisfactory explanation, the Assessing Officer invoked the provisions of section 2(22)(e) of the Act and made the addition of ₹.27,58,349/-, which was confirmed by the ld. CIT(A). Against this, the assessee is in appeal before us.

According to the ld. Counsel for the assessee, the assessee has advanced a sum of ₹.8,81,435.89 during the earlier years and the same is appearing as opening balance in the books of accounts of the assessee. The property belongs to the assessee and the payments were made piecemeal basis and were debited to the Directors account instead of advance for purchase of flat. The assessee, being a Director, is entitled for monthly salary of ₹.75,000/- and let her property to the company for a monthly rent of ₹.60,000/- per month. These amounts were routed through Director’s current account and the end of the year, corresponding entry of salary was made and this was resulted in day-to-day balance in Director’s account being a running account. According to the ld. AR, if we consider this aspect, there cannot be any reason invoking the provisions of section 2(22)(e) of the Act. The ld. AR has submitted that the advance paid to the assessee on day-to-day basis cannot be set off against the subsequent entry towards salary and rent or sale of property. He relied on the judgement in the case of Miss P. Sarada v. CIT 229 ITR 444(SC), wherein, it was held that withdrawal made by the share holder on various dates, the amounts to the current account of the Director, in terms of section 2(22)(e) of the Act, even though ultimately the amount was adjusted against the current balance of another share holder at the end of the year.

We have heard both sides, perused the materials on record and gone through the orders of authorities below. In this case, the Assessing Officer has not disputed that the Director of the assessee company is not entitled for salary and rent from company M/s. Thiruvonam Impex Pvt. Ltd. If this fact is true and if the said amount is ultimately adjusted towards salary and rent at the end of the year that amount cannot be considered for invoking the provisions of section 2(22)(e) of the Act. Further, the plea of the assessee is that the assessee has received a sum of ₹.54,20,000/- towards sale of flat. If this amount is emanated from the sale of flat and ultimately sale took place and adjusted towards sale consideration then also this amount goes out of the purview of section 2(22)(e) of the Act. Further, regarding opening balance, if it is not considered in earlier assessment year then only it should be considered for applicability of section 2(22)(e) of the Act. With these observations, we are inclined to remit to the file of the Assessing Officer for fresh consideration and decide the issue de novo after allowing sufficient opportunity of hearing to the assessee. Thus, the ground raised by the assessee is allowed for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on the 30th June, 2016 at Chennai.