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

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Deemed Dividend Section 2(22)(e)

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.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied