Reg deemed dividend

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This query is : Resolved

JMD (Querist)

22 August 2011 Frnz, assessee is an individual and a director in a company. the assessment of the company has been over. Now the dept. raised the assessment of the assessee saying that if the directors' current account balance, during the year, any time reach to debit then the said amount will be considered as a deemed dividend and becomes taxable. No matter that closing is credit.
Whether it is the right concept. What is the solution of this.
T & R,
JMD

CA Hardik Bunha

CA Hardik Bunha (Expert)

22 August 2011 Yes, my friend income tax departmnet surely do this, If in previous year any balance debit then section 2(22)e will be applicable and considered as deemed dividend. section 2(22)e is inclusive section. this section covers big area of taransaction.
FROM ESCAPE
WHEN U FORM A COMPANY MAKE SEPARATE A/C AS LOANS AND ADVANCES IN THE BOOK OF DIRECTOR AND ONE WHICH IS IN INVESTMENT A/C.

INVESTMENT A/C WILL BE CONSIDERED AS CAPITAL IN THE BOOK OF COMPANY.

LOANS AND ADVANCES(DIRECTOR) WILL BE CONSIDERED AS UNSECURED LOAN IN THE BOOK OF COMPANY,

Preety Parik

Preety Parik (Expert)

22 August 2011 Interest should be collected on sum advanced to the director at prevailing market rates. This can justify that advance is for a consideration and does not amount to appropriation of funds of the company.

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