No deemed dividend if director deposited Co’s money in his own name to protect interest of Company: ITAT

Case Details: ACIT v. Anilkumar Phoolchand Sanghvi - [2022] 144 taxmann.com 163 (Pune-Trib.)

Judiciary and Counsel Details

• • Inturi Rama Rao, Accountant Member & S.S. Viswanethra Ravi, Judicial Member
  • S.P. Walimbe for the Appellant.
  • Jayant G. Pendse & Dr Shantanu J. Pendse for the Respondent.

Facts of the Case

The assessee was an individual and derived income from salary, business & profession, capital gains, and income from other sources. He was also a Director in M/s. Maharashtra Erectors Pvt. Ltd. (“MEPL”).

During the assessment proceedings, the Assessing Officer (AO) noted that the assessee had withdrawn the company’s funds and kept the same in his personal account as a fixed deposit. Thus, AO treated said sum as deemed dividend and made additions under section 2(22)(e).

The assessee challenged the assessment order before CIT(A). The CIT(A) deleted additions made by AO. Aggrieved-AO filed the instant appeal before the Tribunal.

ITAT Held

The Pune Tribunal held that there was various litigation proceeding pending against the company including an Arbitration application pending before the Bombay High Court. To protect the interest of the company, the assessee invoking fiduciary responsibility transferred Rs. 3.30 Crores from MEPL to his personal account and made a fixed deposit.

Assessee never availed any facility against the said term deposit and it was also never kept as a security against any kind of loan, mortgage, etc. nor any lien in respect of its tenure. On maturity, assessee transferred the total realized amount to the account of MEPL.

Therefore, the conduct of the assessee in refunding the entire amount with interest to MEPL on its maturity with realized total value supports assessee’s arguments that the amount was withdrawn and kept in fixed deposit only to protect the interest of MEPL.

Accordingly, AO terming the fixed deposit amount as loan out of accrued profits of MEPL attracting the provisions under section 2(22)(e) was not justified.

List of Cases Reviewed

• • CIT v. Bazpur Co-operative Sugar Factory Ltd. [1989] 44 Taxman 281/177 ITR 469 (SC) (para 5).