SH. PANKAJ JAIN,MEERUT vs. ACIT, MEERUT

The only grievance of the assessee in this appeal relates to the addition of Rs. 7,03,357/- made by the AO u/s 2(22)(e) of the Income Tax Act, 1961 (hereinafter referred to as the Act).

Facts of the case in brief are that the assessee filed the return of income on 27.07.2006 declaring an income of Rs. 6,67,672/- which was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny. During the course of assessment proceedings the AO 2 Pankaj Jain noticed that the assessee was a director having substantial share holding in company M/s Saru Nagar, Sardhana Road, Merrut, the said company possessed accumulated profit of Rs. 7,03,357/- and that the assessee had raised loans to the tune of Rs. 13,05,000/-. The AO asked the assessee to explain as to why deemed dividend to the extent of accumulated profits i.e. Rs. 7,03,357/- be not added to the income of the assessee. In response, the assessee submitted that he was having salary income which was credited to his personal account each month @ 25,000/- but the amount withdrawn had been debited to his loan account instead of personal account. The AO however noted that there was opening balance in the loan account of the assessee at Rs. 29,73,671/- and a sum of Rs. 13,05,000/- was received during the year while an amount of Rs. 18,90,000/- was paid on different date. As such the closing balance in the loan account was at Rs. 23,88,671/- and if the benefit out of credit balance of salary account amounting to Rs. 4,28,687/- was to be given, then the balance in loan account remained at Rs. 19,59,984/-. The AO added the amount of Rs. 7,03,357/- to the income of the assessee u/s 2(22)(e)(ii) of the Act.

Being aggrieved the assessee carried the matter to the ld. CIT(A) who confirmed the addition by observing that there was no reason to doubt the stand taken by the AO.

3 Pankaj Jain 5. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that neither the AO nor the ld. CIT(A) appreciated the facts in right prospective. He further submitted that the assessee was having credit balance and thereafter had taken the loan but the AO had not considered the credit balance and only on the basis of debit balance in the loan account invoked the provisions of Section 2(22)(e) of the Act. He requested to remand the issue back to the file of the AO for consideration of credit balance and proper verification while applying provisions of Section 2(22)(e) of the Act.

In his rival submissions the ld. Sr. DR although supported the orders of the authorities below but did not object if the issue is sent back to the AO for verification and adjudication.

I have considered the submissions of both the parties and perused the material available on the record. In the present case, it seems that neither the AO nor the ld. CIT(A) have considered the facts in right prospective. I, therefore, set aside the impugned order and remand the same to the file of the AO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. He is also directed to verify this contention of the ld. Counsel for the assessee that there was credit 4 Pankaj Jain balance in the account of the assessee which was not considered by the AO.

In the result, the appeal of the assessee is allowed for statistical purposes. (Order Pronounced in the Court on 06/10/2015)