Deemed dividend not attracted for loan in the course of business transactions – Mum ITAT

Mrs Amisha B Koradia v ITO (ITA No.03/Mum/2011 dtd 19.04.2013) Mumbai ITAT


The assessee is a beneficial shareholder in M/s Koradia Construction Pvt Ltd, and has 50% of share-holding. During the course of assessment proceedings, the AO  noted that the assessee has taken loan of Rs. 78,10,000/- various dates from this company which has accumulated profit of Rs. 8,00,97,861/-. In the absence of explanation, the AO treated the loan as deemed dividend u/s 2(22)(e) of the Act and added Rs. 78,00,000/- to the income of the assessee. 

The assessee filed an appeal before the CIT(A) and argued that the AO ignored the fact that the said sum includes remuneration of Rs 2 lacs, opening debit balance of Rs 5,32,396, other debit balances of Rs 4,75,000 amounting to Rs 12,10,396. Further, it includes a sum of Rs. 58 lacs represents advance received from the company towards purchase of flat which ultimately could not go through and the amount was later on refunded. The CIT(A) granted relief to the extent of Rs 12,10,396 and confirmed the balance addition. 

Assessee’s contentions:

  • Schedule E to the Balance Sheet for current asset, loans and advances indicates the advances given by the company to the assessee as advance for the purchase of flat.
  • Advance was given in the ordinary course of the business of M/s Korodia construction P Ltd
  • This amount was refunded by the assessee subsequently when the purchase of flat could not materialize due to the objections of the Society. The ld AR has filed a copy of the agreement for the purchase and sale of flat and submitted that the said amount was advanced to the assessee in pursuant to the said agreement/MoU for purchase of flat
  • Section 2(22)(e) creates legal friction and artificial liability which should be given a strict interpretation

Tax Authority’s arguments:

  • The assessee has not produced the evidence to show as how the transaction of purchase and sale of flat could not materialize due to refusal of permission by the Society. 
  • The MoU is between the closely related parties; therefore, it is a self serving document and cannot be relied upon.


  • In view of the fact that the company is engaged in the business of construction and dealing in properties and the purpose of advancing money to the assessee, as per the record of the company is for purchase of property
  • Therefore, it falls under the business/commercial transaction between the company and the assessee.
  • Once the assessee has established that the said amount was given to the assessee for the purchase of flat which is in the nature of commercial transaction between the parties, then in the absence of proving contrary by the department, the addition to the extent of Rs. 58 lacs is not justified.

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