ITAT Deletes Rs. 1.95 Crore Deemed Dividend Addition in Limited Scrutiny Case

ITAT Ahmedabad deleted the Rs. 1.95 crore deemed dividend addition, holding that temporary bank-driven transfers to the director were neither within the scope of limited scrutiny nor constituted deemed dividend under Section 2(22)(e).

Anmol Himanshu Patel has filed the present appeal against the ITO in the Income Tax Appellate Tribunal (ITAT) in Ahmedabad “A” Bench, challenging an order passed by the CIT(A)/NFAC dated June 6, 2024, for the assessment year 2015-16.

During the income tax assessment, the AO found that the assessee was one of the directors in a company called Briyosis Soft Caps Pvt. Ltd., and also owned about 32.54% of shares in that company.

Further, the AO saw that the assessee had received money from this company on three different dates. Rs. 70 lakhs on September 30, 2014, Rs. 65 lakhs on December 31, 2014, and Rs. 60 lakhs on March 31, 2015. Altogether, the assessee received Rs. 1.95 crore from the company during the year.

AO asked the assessee for an explanation regarding the said amount. The assessee explained that the company had a cash credit account with the bank, and the bank required that money be withdrawn at the end of each quarter to show a debit balance. So, only to satisfy the bank’s technical requirements, the amount was temporarily transferred to the assessee’s account on the last day of the quarter and then reversed the same day or the next day. Since the money was never used and the transfer was only a temporary, technical adjustment by the bank, it should not be treated as a deemed dividend under section 2(22)(e).

In conclusion, AO made the impugned addition of Rs 1.95 crore. The CIT(A) also confirmed the addition made by the AO. Being aggrieved by the CIT(A) order, the assessee further approached the ITAT. During the hearing, the assessee cited a similar case of Sagalaxmi Agriseeds Pvt. Ltd Vs ACIT. The AR of the assessee further submitted that since the bank has duly certified that the amounts were debited from the company’s account and credited to the assessee’s bank account by inadvertent mistake and that the same entries were made by the bank on the same day, hence it was not a case of deemed dividend under section 2(22)(e) of the Act.

Therefore, the tribunal deleted the impugned addition because it was beyond the scope of limited scrutiny and was not a genuine case of deemed dividend. The Tribunal allowed the appeal of the assessee in full.