AO Fails to Verify Loan Recorded as Journal Entry in Shareholder’s Account: ITAT deletes ₹25.93 Lakh Deemed Dividend Addition

The Income Tax Appellate Tribunal (ITAT) deleted a ₹25.93 lakh deemed dividend addition made by the Assessing Officer (AO) against a shareholder. The AO had failed to verify the loan recorded as a journal entry in the shareholder’s account. The shareholder argued that the loan was a genuine transaction recorded in the books of accounts, and the AO did not conduct a proper inquiry. The ITAT found that the AO’s addition was based on assumptions and lacked substantial evidence. The tribunal emphasized the importance of verifying the authenticity of transactions before making additions under Section 2(22)(e) of the Income Tax Act. This ruling underscores the necessity for tax authorities to conduct thorough investigations and avoid arbitrary additions, providing relief to taxpayers by ensuring fair assessment practices.