Friday, 25 September 2015

Whether it is fair on part of AO to treat opening debit balance in books as loan & every payment made thereafter is to be treated as repayment of loan - NO: HC

THE issue before the Bench is - Whether it is fair on part of AO to treat opening debit balance in books as loan and every payment made thereafter is to be treated as repayment of loan. NO is the answer.
Facts of the case
The assessee is a shareholder of Dhir International Private Limited having substantial interest of more than 20%. AO held that during the AY in question the Assessee had received certain amounts from DIPL totalling Rs.45,36,024. The AO treated the sum as deemed dividend u/s 2(22)(e). The Assessee's appeal was dismissed by CIT(A). On further appeal before ITAT, the case of assessee was that none of the amounts received by him was in the nature of loan or advance. The ITAT examined the account of the Assessee titled as 'Harsh Dhir Loan Ledger Account' in the books of DIPL. It was pointed out before the ITAT that all transactions noted in the account were in respect of cheque discounting by assessee through DIPL. It was explained that DIPL had a facility of discounting the cheque with the bank and, therefore, the Assessee issued cheque in the name of the DIPL and they paid a similar account to assessee and got the cheque discounted through the bank. The explanation offered by the Assessee that for each and every transaction a contra entry was made immediately within a few days except in two of the cases where DIPL delayed the deposit of Assessee's cheque with their bank, was accepted by the ITAT. The addition made by the AO in the sum of Rs.45,36,024 was reduced to Rs.1 lakh which sum alone was held to be in the nature of a loan or advance so as to be treated as deemed dividend u/s 2(22)(e).
Held that,
++ the Court is unable to accept the above submission. The AO has simply proceeded on the assumption that since there is an opening debit balance in the account, it should be treated as an outstanding loan and that every payment thereafter made by the Assessee to DIPL should be taken to be in the nature of repayment of the loan. The stand of the Assessee that the opening debit balance cannot be treated as a starting point for considering the nature of the payments made during the year finds support in the decision of HC of Madras in Sunil Kapoor v. Commissioner of Income Tax 2015-TIOL-697-HC-MAD-IT. One of the questions considered by the Madras High Court in the said decision was whether the Tribunal in that case was right in not taking into consideration the opening balance in the Assessee's loan account as a starting point of the transactions carried on during the year. The High Court answered the question in the affirmative holding that it is only the relevant entries during the year in question that had to be looked into and that only those amounts paid to the Assessee by the company during the relevant year, less the amount repaid by the Assessee in the same year, should be deemed to be dividend. Consequently, the Court finds no legal infirmity in the order of the ITAT. No substantial question of law arises for determination by the Court. The appeal is dismissed.

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