DCIT, CIR-4(2), KOLKATA, Kolkata V. M/s Adorn Investment Ltd., Kolkata

ITA 1149/KOL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1583 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 08-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 25-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SINHA AD DL
• Assessee Lawyers: AKKAL DUDHWEWALA ACA
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SRI A.T.VARKEY, JM & SHRI M.BALAG ANESH, AM ] I.T.A NO. 1149/KOL/20 16 ASSESSMENT YEAR : 2010-1 1 D.C.I.T., CIRCLE-4(2) -VS.- M/S. ADORN INVESTMENT LTD. KOLKATA KOLKATA [PAN : AACCA 1169 R] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI A.K.SINHA, AD DL. CIT FOR THE RESPONDENT : SHRI AKKAL DUDHWEWALA, ACA DATE OF HEARING : 08.06.2017. DATE OF PRONOUNCEMENT : 07.07.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL OF THE REVENUE ARISES OUT OF THE ORDER OF THE LEARNED CIT(A)-16, KOLKATA IN APPEAL NO. 491/CIT(A)-16/KOL/2014-15/C -4(2) DATED 29.03.2016 AGAINST THE ORDER OF ASSESSMENT FRAMED FOR THE ASST YEAR 20 10-11 U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL OF T HE REVENUE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE ADDITION MADE IN THE SUM OF RS 59,50,000/- U/S 2(22)(E) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS E IS A NON-BANKING FINANCE COMPANY (NBFC) ENGAGED IN THE BUSINESS OF GRANTING LOANS. THE RETURN OF INCOME FOR THE ASST YEAR 2010-11 WAS FILED BY THE ASSESSEE ELECTRONICAL LY ON 27.9.2010 DECLARING TOTAL INCOME OF RS NIL DUE TO UNABSORBED BUSINESS LOSSES BROUGHT FORWARD FROM EARLIER YEARS. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEA RED BEFORE THE LD AO FROM TIME TO TIME AND PRODUCED THE DETAILS AND DOCUMENTS CALLED FOR BY THE LD AO APART FROM 2 ITA NO.1149/KOL/2016 M/S. ADORN INVESTMENT LTD. A.YR.2010-11 2 PRODUCING THE RELEVANT BOOKS OF ACCOUNTS AND BANK S TATEMENTS. THE BOOKS OF ACCOUNTS WERE ALSO TEST CHECKED BY THE LD AO . THE LD AO OB SERVED THAT ASSESSEE COMPANY HAD TAKEN LOAN AMOUNTING TO RS 59,50,000/- FROM M/S OFF SHORE INDIA LTD (PAN AAACO 6223E) DURING THE YEAR UNDER CONSIDERATION. ON THE BASIS OF SUBMISSIONS MADE BY THE ASSESSEE AND THE DETAILS COLLECTED FROM M/S OFF SHO RE INDIA LTD, THE LD AO OBSERVED THAT M/S ADORN INVESTMENTS LTD (ASSESSEE HEREIN) WAS A M AJOR SHAREHOLDER OF M/S OFF SHORE INDIA LTD HOLDING 16.34% OF THE TOTAL SHARES AND HO LDING VOTING POWER AS WELL AS THE BENEFICIAL INTEREST IN THE LENDING COMPANY DURING T HE RELEVANT YEAR. THE LD AO OBSERVED THAT M/S OFF SHORE INDIA LTD (LENDING COMP ANY) HAD ACCUMULATED PROFITS IN EXCESS OF RS 59,50,000/- AS ON THE DATE OF TRANSACT IONS. ACCORDINGLY HE CONCLUDED THAT THE SAID TRANSACTIONS WOULD BE HIT BY THE PROVISION S OF SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE SHAREHOLDER AND ACCORDINGLY T HE ASSESSEE WAS SHOW CAUSED TO THIS EFFECT. 4. THE ASSESSEE REPLIED THAT IT HAD RECEIVED INTERE ST BEARING LOAN OF RS 59,50,000/- FROM OFF SHORE INDIA LTD AND IT WAS PLEADED THAT M/S OFF SHORE INDIA LTD IS A NBFC DULY REGISTERED WITH RESERVE BANK OF INDIA (RBI) AND GRA NTING OF LOANS AND ADVANCES IS SUBSTANTIAL PART OF THE BUSINESS OF OFF SHORE INDIA LTD AND ACCORDINGLY THE SAID TRANSACTION WOULD BE OUTSIDE THE AMBIT OF PROVISION S OF SECTION 2(22)(E) OF THE ACT. THE LD AO ON ANALYSIS OF THE BALANCE SHEET OF OFF S HORE INDIA LTD (LENDING COMPANY) AS AT 31.3.2010 AND 31.3.2009 , OBSERVED THE FOLLOWING :- A) DURING THE FINANCIAL YEAR 2009-10 , THE TOTAL FU NDS AVAILABLE WAS RS 131,50,88,238/- AND OUT OF THAT , A SUM OF RS 84,32,03,302/- WAS IN VESTED IN SHARES AND ONLY RS 48,83,38,316/- WAS UTILIZED FOR GIVING LOANS AND AD VANCES. MOREOVER THE INCOME FROM INTEREST ON LOANS WAS RS 1,66,21,291/- WHEREAS THE INCOME FROM PROFIT ON SALE OF INVESTMENTS WAS RS 2,87,74,981/- . B) SIMILARLY HE OBSERVED FROM THE BALANCE SHEET AS AT 31.3.2009 OF OFFSHORE INDIA LTD THAT THE INCOME FROM INTEREST ON LOANS WAS RS 60,21 ,372/- WHEREAS THE INCOME FROM PROFIT ON SALE OF INVESTMENTS WAS RS 4,42,83,442/- . 3 ITA NO.1149/KOL/2016 M/S. ADORN INVESTMENT LTD. A.YR.2010-11 3 4.1. BASED ON THESE FACTS , HE CONCLUDED THAT THE P RINCIPAL OR MAIN SOURCE OF INCOME OF M/S OFF SHORE INDIA LTD IS ONLY DERIVING INCOME FRO M PROFIT ON SALE OF INVESTMENTS AND FROM FUNDS DEPLOYED AS AT 31.3.2010 IN INVESTMENT I N SHARES , HE CONCLUDED THAT THE SUBSTANTIAL PART OF THE BUSINESS IS ONLY MAKING INV ESTMENT IN SHARES AND NOT GRANTING OF LOANS AND ADVANCES. HENCE THE ASSESSEES CASE DOES NOT FALL UNDER THE EXCEPTION PROVIDED IN SECTION 2(22)(E) OF THE ACT. ACCORDING LY, HE MADE AN ADDITION OF RS 59,50,000/- TOWARDS DEEMED DIVIDEND IN THE ASSESSME NT. 5. BEFORE THE LD CITA, THE ASSESSEE PLEADED THAT TH E LD AO ERRED IN HOLDING THAT THE SUBSTANTIAL PART OF BUSINESS OF THE LENDING COMPANY WAS NOT GRANTING OF LOANS AND ADVANCES. AS PER THE AUDITED ACCOUNTS OF LENDING COMPANY AS ON 31.3.2010, THE NET OWNED FUNDS WERE RS 77.18 CRORES. THE LOANS AND A DVANCES GRANTED WERE RS 48.83 CRORES WHICH WORKS OUT TO 63.27% OF NET OWNED FUNDS . THE LENDING COMPANY HAD FOLLOWED PRUDENTIAL NORMS FOR INCOME RECOGNITION PR ESCRIBED BY RBI IN RELATION TO THE BUSINESS OF GRANTING LOANS AND ADVANCES. MOREOVER , THE LENDING COMPANY HAD CHARGED INTEREST FROM THE ASSESSEE ON THE LOAN OF RS 59,50, 000/- GRANTED TO IT. IT WAS PLEADED THAT IN THE IMPUGNED ORDER, THE LD AO HAD MISREAD AND M ISUNDERSTOOD THE TRUE PURPORT OF THE LANGUAGE USED IN CLAUSE (II) OF SECTION 2(22) O F THE ACT. THE WORDS USED IN SAID CLAUSE (II) ARE WHERE THE LENDING OF MONEY IS SUBS TANTIAL PART OF THE BUSINESS OF THE COMPANY. IT WAS ARGUED THAT THE LD AO BY DESIGN O R CHOICE HAS CHOSEN TO SUBSTITUTE THE WORD SUBSTANTIAL WITH THE WORD PRINCIPAL, WHICH NO PERSON PROPERLY INSTRUCTED IN LAW CAN DO WHILE INTERPRETING A DEEMING PROVISION OF A TAXING STATUTE. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF THIS TRIBUNAL IN TANUJ HOLDINGS PVT LTD VS DCIT IN ITA NO. 360 TO 363/KOL/2015 DATED 20.1.2016 , WHERE IN THE TRIBUNAL WHILE EXAMINING CLAUSE(II) OF SECTION 2(22) OF THE ACT CATEGORICALL Y HELD THAT THE LEGISLATURE IN ITS CONSCIOUSNESS HAD USED THE WORDS SUBSTANTIAL PART OF THE BUSINESS IN SECTION 2(22) OF THE ACT IN CONTRADISTINCTION TO THE WORDS MAIN BUS INESS OR PRINCIPAL BUSINESS. IT WAS ARGUED THAT THE TRIBUNAL IN THIS CASE HAD HELD THAT THRESHOLD OF 20% COULD BE SAFELY APPLIED TO ASCERTAIN WHETHER A PARTICULAR BUSINESS ACTIVITY COULD BE CONSIDERED TO BE 4 ITA NO.1149/KOL/2016 M/S. ADORN INVESTMENT LTD. A.YR.2010-11 4 FORMING SUBSTANTIAL PART OF THE BUSINESS FOR THE PURPOSES OF CLAUSE (II) OF SECTION 2(22) OF THE ACT. IT WAS FURTHER PLEADED THAT M/S OFF SH ORE INDIA LTD WAS A REGISTERED NBFC WHICH FACT PROVES THAT LENDING OF MONEY CONSTITUTED ORDINARY BUSINESS OF THE SAID COMPANY. IT WAS PLEADED THAT MORE THAN 63% OF TH E NET OWNED FUNDS OF THE LENDER AND MORE THAN 37% OF TOTAL AVAILABLE FUNDS WERE DEPLOYE D IN GRANTING OF LOANS AND ADVANCES AND AS SUCH IT IS PROVED BEYOND DOUBT THAT GRANTING OF LOANS / LENDING OF MONEY CONSTITUTED SUBSTANTIAL PART OF LENDERS BUSINESS A ND THEREBY THE LENDING TO ASSESSEE COMPANY WOULD BE OUTSIDE THE AMBIT OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE COMPANY. IT ALSO PLACED FURTH ER RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS PAR LE PLASTICS LTD REPORTED IN 196 TAXMAN 62 (BOM). IN THE SAID CASE, IT WAS THE CON TENTION OF THE REVENUE, THAT TO CONSTITUTE AS A SUBSTANTIAL PART OF THE BUSINESS OF THE LENDING COMPANY, THE BUSINESS OF MONEY LENDING MUST CONSTITUTE MORE THAN 50% OF THE BUSINESS. THE HONBLE BOMBAY HIGH COURT DISCUSSED AS TO WHAT CONSTITUTED SUBSTA NTIAL PART OF THE BUSINESS AND HELD THAT: THE EXPRESSION USED UNDER SUB-CLAUSE (II ) OF SECTI ON 2(22) IS SUBSTANTIAL PART OF THE BUSINESS. THE EXPRESSION SUBSTANTIAL PART DOES N OT CONNOTE AN IDEA OF BEING THE MAJOR PART OR THE PART THAT CONSTITUTES MAJORITY OF THE WHOLE. IF THE LEGISLATURE REALLY INTENDED THAT MORE THAN 50 PER CENT OF THE BUSINESS OF THE LENDING COMPANY MUST COME FROM THE BUSINESS OF LENDING, NOTHING PREVENTED THE LEGISLATURE FROM USING THE EXPRESSION MAJORITY OF BUSINESS. IF THE LEGISLATU RE AT ALL INTENDED THAT A PARTICULAR MINIMUM PERCENTAGE OF THE BUSINESS OF A LENDING COM PANY SHOULD COME FROM THE BUSINESS OF LENDING, THE LEGISLATURE COULD HAVE SPE CIFICALLY PROVIDED FOR THAT PERCENTAGE WHILE DRAFTING SUB-CLAUSE (II) OF SECTION 2(22). TH E LEGISLATURE HAD DELIBERATELY USED THE WORD SUBSTANTIAL INSTEAD OF USING THE WORD MAJOR AND/OR SPECIFYING ANY PERCENTAGE OF THE BUSINESS OR PROFIT TO BE COMING FROM THE LEN DING BUSINESS OF THE LENDING COMPANY FOR THE PURPOSE OF SUB-CLAUSE (II) OF SECTION 2(22) . ANY BUSINESS OF A COMPANY WHICH THE COMPANY DOES NOT REGARD AS SMALL, TRIVIAL, OR INCON SEQUENTIAL AS COMPARED TO THE WHOLE OF THE BUSINESS IS SUBSTANTIAL BUSINESS. VARIOUS FA CTORS AND CIRCUMSTANCES WOULD BE REQUIRED TO BE LOOKED INTO WHILE CONSIDERING WHETHE R A PART OF THE BUSINESS OF A COMPANY IS ITS SUBSTANTIAL BUSINESS. SOMETIMES, A P ORTION WHICH CONTRIBUTES SUBSTANTIAL PART OF THE TURNOVER, THOUGH IT CONTRIBUTES A RELAT IVELY SMALL PORTION OF THE PROFIT, WOULD BE SUBSTANTIAL PART OF THE BUSINESS. SIMILARLY, A P ORTION WHICH RELATIVELY IS SMALL AS COMPARED TO THE TOTAL TURNOVER, BUT GENERATES A LAR GE, SAY, MORE THAN 50 PER CENT OF THE TOTAL PROFIT OF THE COMPANY, WOULD ALSO BE SUBSTANT IAL PART OF ITS BUSINESS. PERCENTAGE OF TURNOVER IN RELATION TO THE WHOLE AS ALSO THE PERCE NTAGE OF THE PROFIT IN RELATION TO THE 5 ITA NO.1149/KOL/2016 M/S. ADORN INVESTMENT LTD. A.YR.2010-11 5 WHOLE AND SOMETIMES EVEN PERCENTAGE OF A MANPOWER U SED FOR A PARTICULAR PART OF BUSINESS IN RELATION TO THE TOTAL MANPOWER OR WORKI NG FORCE OF THE COMPANY WOULD BE REQUIRED TO BE TAKEN INTO CONSIDERATION. EMPLOYEES OF A COMPANY ARE NOW CALLED ITS HUMAN RESOURCES AND, THEREFORE, THE PERCENTAGE OF HUMAN RESOURCES USED BY THE COMPANY FOR CARRYING ON A PARTICULAR DIVISION OF BU SINESS MAY ALSO BE REQUIRED TO BE TAKEN INTO CONSIDERATION WHILE CONSIDERING WHETHER A PARTICULAR BUSINESS FORMS SUBSTANTIAL PART OF ITS BUSINESS. UNDISPUTEDLY, THE CAPITAL EMPLOYED BY A COMPANY FOR CARRYING ON A PARTICULAR DIVISION OF ITS BUSINESS A S COMPARED TO THE TOTAL CAPITAL EMPLOYED BY IT WOULD ALSO BE RELEVANT WHILE CONSIDE RING WHETHER THE PART OF THE BUSINESS OF THE COMPANY CONSTITUTES SUBSTANTIAL PA RT OF THE BUSINESS OF THE COMPANY. [PARA 11] APPLYING THESE TESTS TO THE INSTANT CASE, THE TRIBU NAL HAD NOT COMMITTED ANY ERROR IN COMING TO THE CONCLUSION THAT LENDING OF MONEY WAS A SUBSTANTIAL PART OF THE BUSINESS OF AMPL. THE TRIBUNAL HAD NOTED THAT 42 PER CENT OF TH E TOTAL ASSETS OF AMPL AS ON 31-3- 1996 AND 39 PER CENT OF THE TOTAL ASSETS OF AMPL AS ON 31-3-1997 WERE DEPLOYED BY IT BY WAY OF TOTAL LOANS AND ADVANCES. BY NO MEANS, TH E DEPLOYMENT OF ABOUT 40 PER CENT OF THE TOTAL ASSETS INTO THE BUSINESS OF LENDING CO ULD BE REGARDED AS AN INSIGNIFICANT PART OF THE BUSINESS OF AMPL. THE TRIBUNAL HAD ALSO HELD THAT THE INCOME THAT AMPL HAD RECEIVED BY WAY OF INTEREST WAS RS. 1,08,18,036, WH ILE ITS TOTAL PROFIT WAS RS. 67,56,335. EXCLUDING THE INCOME EARNED BY AMPL BY WAY OF INTER EST, THE OTHER BUSINESS HAD RESULTED IN NET LOSS. THE TRIBUNAL HAD TAKEN INTO C ONSIDERATION THE RELEVANT FACTORS AND HAD APPLIED THE CORRECT TESTS TO COME TO THE CONCLU SION THAT LENDING OF MONEY WAS SUBSTANTIAL PART OF THE BUSINESS OF AMPL. SINCE LEN DING OF MONEY WAS A SUBSTANTIAL PART OF THE BUSINESS OF AMPL, THE MONEY GIVEN BY IT BY W AY OF ADVANCE OR LOAN TO THE ASSESSEE COULD NOT BE REGARDED AS A DIVIDEND, AS IT HAD TO BE EXCLUDED FROM THE DEFINITION OF DIVIDEND BY VIRTUE OF SUB-CLAUSE (I I ) OF SECTION 2(22). [PARA 12] 6. THE LD CITA DELETED THE ADDITION MADE IN THE SUM OF RS 59,50,000/- TOWARDS DEEMED DIVIDEND BY MAKING THE FOLLOWING OBSERVATIONS :- 5 I HAVE CAREFULLY CONSIDERED THE IMPUGNED ORD ER AND SUBMISSIONS MADE ON BEHALF OF THE APPELLANT. I HAVE ALSO CAREFULLY GONE THROUGH THE DECISION OF HON'BLE BOMBAY HIGH COURT AS WELL AS THE DECISIONS OF THE C O-ORDINATE BENCHES OF THE KOLKATA TRIBUNAL ON WHICH THE RELIANCE WAS PLACED. THE MOOT QUESTION IN THE PRESENT CASE TO BE DECIDED IS WHETHER ON THE FACTS OF THE CASE SEC 2(22)(E) OF THE ACT WAS APPLICABLE. IT IS NOT IN DISPUTE THAT DURIN G THE RELEVANT YEAR ASSESSEE RECEIVED LOAN OF RS. 59,50,000/- FROM M/S OFF SHORE INDIA LTD (OSIL) WHICH WAS A COMPANY IN WHICH PUBLIC WERE NOT SUBSTANTIALLY INTE RESTED AND THE ASSESSEE HELD MORE THAN 10% SHARES THEREIN. PRIMA FACIE THEREFORE CONDITIONS PRESCRIBED IN SEC 2(22)(E) WERE ATTRACTED. IT IS HOWEVER THE APPELLAN T'S CASE THAT IN TERMS OF CLAUSE (II) OF SEC 2(22), SEC 2(22)(E) WAS NOT APPLICABLE BECAUSE GRANTING OF LOANS WAS SUBSTANTIAL PART OF OSIL'S BUSINESS. IN ORDER TO RE SOLVE THE CONTROVERSY INVOLVED IN 6 ITA NO.1149/KOL/2016 M/S. ADORN INVESTMENT LTD. A.YR.2010-11 6 THE PRESENT APPEAL IT IS THEREFORE MATERIAL TO REFE R TO CLAUSE (II) OF SEC 2(22) WHICH READS AS FOLLOWS: 'BUT 'DIVIDEND' DOES NOT INCLUDE (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR T HE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE L ENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY.' 6 IN VIEW OF LANGUAGE EMPLOYED IN CLAUSE (II) OF SECTION 2(22) IT IS THEREFORE NECESSARY TO ASCERTAIN WHETHER LENDING OF MONEY FOR MED SUBSTANTIAL PART OF THE BUSINESS OF OSIL. FROM THE AUDITED ACCOUNTS OF OSIL FOR THE YEAR ENDED 31/03/2010, I NOTE THAT AS ON 31/03/2010 OSIL HAD G RANTED LOANS AND ADVANCES OF RS.48.83 CRORES WHEREAS ITS NET OWNED FUNDS (NOF) I N THE FORM OF SHARE CAPITAL AND RESERVES WERE RS.77.18 CRORES. IN PERCENTAGE TE RMS MORE THAN 63% OF THE NOF WERE DEPLOYED IN GRANTING OF LOANS. I ALSO FIND THAT OSIL WAS REGISTERED WITH RESERVE BANK OF INDIA AS NON BANKING FINANCIAL COMP ANY (NBFC) WHICH ALSO INDICATED THAT GRANTING OF LOANS AND FINANCING WAS REGULAR BUSINESS OF THE SAID COMPANY. I FURTHER FIND THAT OSIL HAD CHARGED INTER EST ON THE LOAN GRANTED TO THE APPELLANT. CLAUSE' (II) OF SEC 2(22) OF THE ACT CLA RIFIES THAT THE TERM 'DIVIDEND' WILL NOT INCLUDE LOANS GRANTED BY THE COMPANY IN THE ORD INARY COURSE OF BUSINESS WHERE GRANTING OF LOANS IS SUBSTANTIAL PART OF THE BUSINE SS OF SUCH COMPANY. THE LEGISLATURE HAS CONSCIOUSLY USED THE EXPRESSION 'SU BSTANTIAL' IN CONTRADISTINCTION TO THE WORDS 'MAIN' OR 'PRINCIPAL'. THE USE OF THE WORD 'SUBSTANTIAL' DOES NOT MEAN THAT ASSESSEE SHOULD PROVE THAT GRANTING OF LO ANS AND ADVANCES IS THE 'PRINCIPAL' OR 'MAIN' OR 'PREDOMINANT' BUSINESS. TH E USE OF THE WORD 'SUBSTANTIAL' MEANS GRANTING OF LOANS SHOULD NOT BE PERIPHERAL OR INSIGNIFICANT BUSINESS. RATHER IT SHOULD FORM SIGNIFICANT OR MATE RIAL PART OF THE BUSINESS OF THE MONEY LENDING COMPANY. IN THE CASE OF CIT VS. PARLE PLASTIC LTD (SUPRA), THE ASSESSEE HAD RECEIVED LOAN FROM AMPL; A COMPANY IN WHICH PUBLIC WERE NOT SUBSTANTIALLY INTERESTED AND THE ASSESSEE HAD HELD MORE THAN 10% OF THE SHARES THEREIN. THE ASSESSEE CLAIMED EXEMPTION FROM APPLIC ATION OF SEC 2(22)(E) OF THE ACT ON THE GROUND THAT GRANTING OF LOANS WAS SUBSTANTIA L PART OF AMPL'S BUSINESS. THE REVENUE REJECTED THE ASSESSEE'S PLEA ON THE GROUND THAT GRANTING OF LOANS DID NOT FORM MAJOR OR PRINCIPAL BUSINESS ACTIVITY OF AMPL . IN THIS CONTEXT THE HIGH COURT INTERPRETED CLAUSE (II) OF SEC 2(22) OF THE ACT SO AS TO ASCERTAIN WHETHER GRANTING OF LOANS FORMED SUBSTANTIAL PART OF AMPL'S BUSINESS. T HE HIGH COURT HELD THAT ANY BUSINESS OF A COMPANY WHICH CANNOT BE REGARDED AS S MALL, TRIVIAL OR INCONSEQUENTIAL AS COMPARED TO THE WHOLE OF THE BUS INESS CONSTITUTED SUBSTANTIAL BUSINESS. THE HIGH COURT FOUND THAT 42% AND 39% OF THE TOTAL ASSETS OF THE COMPANY WERE INVESTED IN TWO YEARS; IN MONEY LENDIN G ACTIVITIES BY WAY OF LOANS AND ADVANCES. IN THE OPINION OF THE HIGH COURT DEPL OYMENT OF APPROXIMATELY 40% OF THE TOTAL ASSETS IN MONEY LENDING BUSINESS COULD NOT BE REGARDED AS INSIGNIFICANT PART BUT THE SAME HAD TO BE REGARDED AS SUBSTANTIAL PART OF ASSESSEE'S BUSINESS. THE HIGH COURT THEREFORE HELD THAT SUBSTANTIAL PART OF AMPL'S BUSINESS WAS GRANTING OF 7 ITA NO.1149/KOL/2016 M/S. ADORN INVESTMENT LTD. A.YR.2010-11 7 LOANS AND ADVANCES AND THEREFORE SECTION 2(22)(E) W AS NOT APPLICABLE. SIMILAR VIEW HAS BEEN ADOPTED BY IT 1\ T KOLKATA I3ENCHES I N THE DECISIONS RELIED UPON BY THE APPELLANT. IN PARTICULAR IN THE CASE OF TANUJ H OLDINGS PVT LTD VS DY. CIT (SUPRA), THE TRIBUNAL WHILE EXAMINING CLAUSE (II) O F SECTION 2(22) CATEGORICALLY HELD THAT THE LEGISLATURE IN ITS CONSCIOUSNESS HAD USED THE WORDS 'SUBSTANTIAL PART OF THE BUSINESS' IN SECTION 2(22), IN CONTRADISTINC TION TO THE WORDS 'MAIN BUSINESS' OR 'PRINCIPAL BUSINESS'. THE ITAT OBSERVED THAT THE WORDS 'SUBSTANTIAL PART OF THE BUSINESS' IS NOT SPECIFICALLY DEFINED IN THE ACT WH ICH HAS LED TO JUDICIAL INTERPRETATIONS BY VARIOUS JUDICIAL FORUMS. THE TRI BUNAL HELD THAT THE EXPRESSION 'SUBSTANTIAL PART OF THE BUSINESS' IS DIFFERENT AND DISTINCT FROM THE WORDS 'PRINCIPAL BUSINESS' OR 'MAIN BUSINESS' USED IN OTHER PLACES I N THE ACT. TAKING CUE FROM PROVISIONS OF SECTION 2(22)(E) AND SECTION 2(32) OF THE ACT, THE ITAT HELD THAT THRESHOLD OF 20% CAN BE SAFELY APPLIED TO ASCERTAIN WHETHER A PARTICULAR BUSINESS ACTIVITY CAN BE CONSIDERED TO BE FORMING 'SUBSTANTI AL PART OF THE BUSINESS' FOR THE PURPOSES OF CLAUSE (II) OF SECTION 2(22) OF THE ACT . APPLYING THE RATIO LAID DOWN IN THESE DEC ISIONS I FIND THAT OSIL WAS A REGISTERED BFC AND THEREFORE GRANTING OF LOANS WAS AN ORDINARY BUSINESS OF THE SAID BFC ON THE LOAN GRANTED TO THE APPELLANT, OSIL HAS CHARGED INTEREST. THE BALANCE SHEET OF OSIL SHOWS THAT MORE THAN 63% OF I TS NET OWNED FUNDS WERE UTILIZED IN GRANTING OF LOANS AND THEREFORE IT IS E VIDENT THAT GRANTING OF LOANS WAS SUBSTANTIAL PART OF OSIL'S BUSINESS. ON THESE FACTS THEREFORE I HAVE NO HESITATION IN HOLDING THAT CLAUSE (II) OF SEC 2(22) WAS APPLICABL E IN THE APPELLANT'S CASE AND THEREFORE LOAN OF RS.59.50 LA CS RECEIVED BY THE AS SESSEE FROM OSIL DID NOT FALL WITHIN THE DEEMING PROVISIONS OF SEC 2(22)(E) OF TH E ACT. I THEREFORE DIRECT THE AO TO DELETE THE ADDITION OF RS. 59.50 LACS. 7 IN THE RESULT THE APPEAL IS ALLOWED. 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.59,50,000/- WHICH WA S TREATED AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE INCOM E TAX ACT. 2. THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, OR M ODIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS STATED HEREINABOVE REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITERATED FOR THE SAKE OF BREVITY. IT IS NOT IN DISPUTE THAT THE ASSESSEE COMPANY IS A SHAREHOLDER HAVING MORE THAN 10% VOTING RIGHTS IN THE LENDING C OMPANY. IT IS NOT IN DISPUTE THAT THE LENDING COMPANY HAS ACCUMULATED PROFITS IN EXCESS O F RS 59,50,000/- DRAWN BY THE 8 ITA NO.1149/KOL/2016 M/S. ADORN INVESTMENT LTD. A.YR.2010-11 8 ASSESSEE COMPANY. THE ONLY SHORT POINT THAT ARISE S FOR OUR CONSIDERATION IS AS TO WHETHER THE LENDING COMPANY, BEING A NBFC DULY REGI STERED WITH RBI, HAS ITS SUBSTANTIAL PART OF BUSINESS AS LENDING ACTIVITY, S O AS TO BE OUTSIDE THE AMBIT OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT. IT IS WELL SETTLED THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE DEEMING PROVISIONS AND THEY NEED TO BE STRICTLY CONSTRUED. IN INTERPRETING A STATUTORY FICTION, EFFECT NEEDS TO B E GIVEN TO THE LANGUAGE USED IN ITS PLAIN AND SIMPLE FORM. SAVE AND EXCEPT THE WORDS AND EXP RESSIONS USED IN THE STATUTE , NOTHING MORE IS TO BE INFERRED. CLAUSE (II) OF SEC TION 2(22) PROVIDES THAT THE TERM DIVIDEND SHALL NOT INCLUDE ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER BY A COMPANY IN THE ORDINARY COURSE OF BUSINESS WHERE THE LENDING O F MONEY IS SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. WE FIND THAT THIS ISSUE H AS BEEN DEALT AT LENGTH ON FACTS AND FIGURES BY THE LD CITA AND WE ARE NOT INCLINED TO I NTERFERE WITH THE SAID FINDINGS , MORE SO, WHEN THE LD DR WAS NOT ABLE TO CONTROVERT THE F INDINGS OF THE LD CITA. WE ALSO FIND THAT THE LD CITA HAD GRANTED RELIEF TO THE ASSESSEE BY PLACING RELIANCE ON THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL IN TANUJ HOLDINGS P VT LTD SUPRA (AUTHORED BY THE UNDERSIGNED) AND BY RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PARLE PLASTICS LTD SUPRA . HENCE WE DO NOT FIND ANY JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF THE LD CITA. ACCORDING LY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 07.07.2017. SD/- SD/- [A.T.VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 07.07.2017 [RG PS] 9 ITA NO.1149/KOL/2016 M/S. ADORN INVESTMENT LTD. A.YR.2010-11 9 COPY OF THE ORDER FORWARDED TO: 1. M/S. ADORN INVESTMENT LIMITED, 31, NETAJI SUBHAS ROAD, KOLKATA-700001. 2. D.C.I.T., CIRCLE-4(2), KOLKATA. 3..C.I.T.(A)-16, KOLKATA 4. C.I.T.-2, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S