No addition can be made u/s 2(22)(e) if after merging all the accounts of the concerned company maintained by the assessee, the final balance is Nil:

AO made addition u/s 2(22)(e) in respect of loan advanced to the assessee by the Pvt. Company in which he had substantial interest. Hon’ble ITAT observed that the assessee maintained four separate accounts of the said company in his books viz. Current account, Deposit account, Share investment account and Loan account. AO, on perusal of the loan account, found that assessee had withdrawn certain sum on various dates through cheques from the said company and at the end of the year, assessee transferred money from his current account and deposit account to the loan account and hence, balance of the loan account was Nil at the year end. Thus, AO worked out the loan advanced by the company to the assessee and made the impugned addition u/s 2(22)(e) as deemed dividend. It was further observed that after merging all the four accounts maintained by the assessee, the final balance was Nil. It was thus held that, on the whole, the assessee did not owe any money to the company and hence, it cannot be said that the assessee had taken any loan or advance from the said company. Hence, question of any deemed dividend doesn’t arise at all. Accordingly, the impugned addition was deleted.

[ACIT Vs. SHRI CHUNILAL HARIBHAI GAJERA – ITA No.1497/Ahd/2012]