Cash with Director Not Deemed Dividend Under Section 2(22)(e) | ITAT

Case Details: Dr. HM Venkatappa vs. Deputy Commissioner of Income-tax - [2025] 175 taxmann.com 574 (Bangalore-Trib.)

Judiciary and Counsel Details

• Waseem Ahmed, Accountant Member & Soundararajan K., Judicial Member
• E. Balasubramanian, CA for the Appellant.
• Sridhar E., CIT & Subramanian S., JCIT (DR) for the Respondent.

Facts of the Case

The assessee, a substantial shareholder and managing director of KDSPL company, was found to have unaccounted cash during the search. Assessing Officer (AO) treated the entire cash as deemed dividend under section 2(22)(e), considering it as a withdrawal of company funds for personal use.

On appeal, the CIT(A) upheld the additions, and the matter reached the Bangalore Tribunal.

ITAT Held

The Tribunal held that the assessee had explained that the cash belonged to the company and came from suppressed sales (V-series bills). He did not use it for personal expenses. He held the cash only as a custodian for the company. He did not receive it as a loan or advance. This position was supported by a board resolution, which authorised him to manage and hold the company’s assets, including cash.

No entry in the company’s books shows that any amount was paid to the assessee as a loan, and no agreement or understanding suggests that such a loan existed. Therefore, the basic requirement for invoking section 2(22)(e) was missing. A loan or advance must be shown in the records, and that was not the case here.

Therefore, it was held that the cash belonged to the company, which was duly accepted and offered to tax by the said company. It was not used for personal benefit by the assessee, and no personal use of company funds has been proved. Accordingly, the conditions of section 2(22)(e) were not satisfied.

List of Cases Reviewed

• ACIT v. Anilkumar Phoolchand Sanghvi [2022] 144 taxmann.com 163/197 ITD 439 (Pune – Trib.) (para 18.4) followed.

List of Cases Referred to

• ACIT v. Anilkumar Phoolchand Sanghvi [2022] 144 taxmann.com 163/197 ITD 439 (Pune – Trib.) (para 8)
• Shree Ram Mills Ltd. v. Commissioner of Excess Profits-tax [1953] 23 ITR 120 (SC) (para 8.1).