[aaykarbhavan] NO 2(22)e on amount debited in running account

 ITAT HYDERABAD - Income Tax

Mr. S. Sambeshwar Rao, Hyderabad Versus ACIT, Circle 1(2), Hyderabad

Deemed dividend u/s 2(22)(e) of the Act – Withdrawal of amount - Held that:- The assessee has contributed substantial funds towards "Share Application account" - the assessee is having a running account with the company, wherein the transactions relating to remuneration, rent, salaries etc. are accounted for - the amount refunded to the assessee during June, 2008 and in subsequent months was debited by the company and the same has converted the credit balance into debit balance on certain dates - the assessee has also prepared combined ledger account combining both his Running account and the balance available in the Share Application account - the assessee's account was always having credit balances, the assessee has not withdrawn any money over and above the money already contributed by him – there was merit in the contentions of the assessee that the "Running account" was wrongly debited with the amounts refunded, instead of debiting the same to the Share Application Account – thus, the assessee should not be penalized for the mistake committed by the company in not accounting the transactions properly - the factual position also shows that there was no intention to avoid payment of taxes by distributing money in the form of loan or dividend instead of distributing the same as dividend.

Relying upon M.D. Jindal Vs. CIT  CALCUTTA High Court] - the company only possesses the funds belonging to the assessee, if both the Running account and Share application money contributed by the assessee is taken together - the amounts debited to the Running account of the assessee cannot be considered as deemed dividend in terms of the provisions of sec. 2(22)(e) of the Act - they represents money refunded out of the contribution made by the assessee towards Share Application account – thus, the order of the CIT(A) set aside – Decided in favour of Assessee

Regards

Prarthana Jalan

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