THE DCIT, AKOLA CIRCLE, Akola V. SHRI ASHOKKUMAR GOKULCHAND SANANDA, Khamgaon

ITA 235/NAG/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93426 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 27-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R NINAWE
• Keywords: Depreciation; Fair market value; Deemed dividend
• Section: 131

Judgement Text

1 ITA NO. 235/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 235 /NAG/2013 ASSESSMENT YEAR : 200 9 - 10. DY. COMMISSIONER OF INCOME - TAX, ASHOKKUMAR GOKULCHAND SANANDA, AKOLA CIRCLE, AKOLA. V/S. PROP. M/S RANA TRADERS. GANDHI CHOWK, KHAMGAON. PAN ADPPS751L. APPELLANT. RESPONDENT. APPELLANT BY : SHRI A.R. NINAWE. RESPONDENT BY : SHRI K.P. DEWANI. DATE OF HEARING - 15 - 05 - 2015 DATE OF PRONOUNCEMENT 30 TH JUNE, 2015. O R D E R PER SHRI MUKUL K. SHRAWAT, J.M. THIS IS AN APPEAL FILED BY THE REVENUE ARISING FROM THE ORDER OF LEARNED CIT(APPEALS) I , NAGPUR DATED 18 TH MARCH, 2013. THE GROUNDS RAISED ARE HEREBY DECIDED AS FOLLOWS: 2. GROUND NO. 1: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF EXPENSES MADE BY THE ASSESSEE, EVEN THOUGH THE VOUCHERS WERE FABRICATED AND MANIPULATIONS DONE BY THE ASSESSEE. 2 ITA NO. 235/NAG/2013 2.1 THE OBSERVATIONS OF THE ASSESSING OFFICER AS PER THE ASSESSMENT ORDER UNDER SECTION 14 3(3) DATED 16 TH OF DEC., 2013 WERE THAT THE ASSESSEE IN INDIVIDUAL CAPACITY IN THE BUSINESS OF TRADING IN LIQUOR AS A PROPRIETOR OF M/S RANA TRADERS. THE TURNOVER WAS REPORTED AT AT ` .55.62 CRORES AND THE GP WAS DECLARED AT THE RATE OF 3.29%. A RETURN OF I NCOME WAS FILED AT ` .54,90,330/ - I N RESPECT OF CERTAIN EXPENSES , SUCH AS TRUCK EXPENSES OF ` .12.59.582/ - , ADVERTISEMENT EXPENSES ` .4,07,866/ - AND CAR EXPENSES OF ` .2,24,371/ - . THE OBJECTION OF THE ASSESSING OFFICER WAS THAT THE VOUCHERS WERE SELF MADE AND DUBIOUS IN NATURE. ALTHOUGH HE HAS MENTIONED THAT THE VOUCHERS WERE IMPOUNDED UNDER SECTION 131 FOR VERIFICATION BY FORENSIC LABORATORY, BUT WE HAVE BEEN INFORMED IN THE COURT THAT NO SUCH ACTION WAS TAKEN BY THE REVENUE DEPARTMENT. THE ASSESSING OFFICER H AS MADE PART DISALLOWANCES AS UNDER : CAR EXPENSES ` . 47,635/ - TRUCK EXPENSES ` .1,48,185/ - ADVERTISEMENT EXPENSES ` . 96,000/ - TOTAL ` .2,91,820/ - 3 . WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, LEARNED CIT(APPEALS) HAS EXAM INED THE BOOKS OF ACCOUNT AND THEREAFTER DIRECTED TO DELETE THE ADDITION AS PER THE FOLLOWING FINDING : I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE COUNSEL OF THE APPELLANT AND PERUSED THE EVIDENCE ON RECORD. THE SUM TOTAL OF 3 ITA NO. 235/NAG/2013 EXPENDITURE CLAIMED BY THE APPELLANT IN PROFIT & LOSS ACCOUNT HAS BEEN TABULATED AT PARA 5.1 OF APPELLATE ORDER AND THE TOTAL CLAIM OF EXPENDITURE WITH REFERENCE TO THE TURNOVER OF THE APPELLANT APPEARS TO BE FAIR AND REASONABLE. THE ASSESSEE HAS INCURR ED EXPENDITURE THROUGH EMPLOYEES AND TECHNICAL DEFECTS IN VOUCHERS WOULD NOT JUSTIFY DISALLOWANCE PARTICULARLY WHEN OVER ALL EXPENDITURE CLAIMED CANNOT BE CONSIDERED TO BE UNREASONABLE. CONSIDERING THE NATURE OF BUSINESS, NUMBER OF EMPLOYEES AND VOLUM E OF BUSINESS, I AM OF THE VIEW THAT THE TOTAL SUCH EXPENDITURE CLAIMED BY THE APPELLANT IN THE BOOKS OF ACCOUNT APPEARS TO BE FAIR AND REASONABLE AND THE DISALLOWANCE MADE BY THE A.O. IS HELD TO BE NOT JUSTIFIED. THE ADDITION MADE BY THE A.O. IS THEREF ORE DIRECTED TO BE DELETED. ACCORDINGLY THE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE APPELLANT. 4 . WE HAVE HEARD BOTH THE SIDES. FROM THE SIDE OF THE REVENUE, LEARNED D.R. HAS SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND FROM THE SIDE OF THE RESPO NDENT - ASSESSEE LEARNED A.R. HAS SUPPO RTED ORDER OF LEARNED CIT(APPEALS). AFTER CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ORDERS OF THE AUTHORITIES BELOW AND THE COMPILATION FILED, WE HAVE NOTED THAT IN RESPECT OF A TURNOVER OF ` .55.62 CRORES T HE EXPENDITURE AS CLAIMED BY THE ASSESSEE WAS NOT EXORBITANT AS IS EVIDENT FROM THE FOLLOWING PERCENTAGE OF EXPENDITURE CALCULATED BY THE ASSESSEE : TRUCK EXPENSES ` . 12,59,582/ - 0.226% ADVERTISEMENT EXPENSES ` . 4,07,866/ - 0.073% CAR EXPENSES ` . 2,24,371/ - 0.041% 5 THE ASSESSING OFFICER HAS NOT MENTIONED THAT HOW THE VOUCHERS WERE MANIPULATED AND WHAT WAS THE EXACT NATURE OF DEFECT TO DOUBT THE GENUINENESS OF THE VOUCHERS PLACED BEFORE HIM. IT IS ALSO NOT CLEAR THAT WHY THESE VOUCHERS 4 ITA NO. 235/NAG/2013 HAVE NOT BEEN SENT FOR LABORATORY TEST, ALTHOUGH IT WAS IMPOUNDED UNDER SECTION 131 AND MENTIONED IN THE ASSESSMENT ORDER. DUE TO LACK OF INVESTIGATION OR A CLEAR FINDING AGAINST THE ASSESSEE WE FIND NO REASON FOR SUCH AN ADHOC DISALLOWANCE MADE BY THE ASSESSING OF FICER. ON THE OTHER HAND FROM THE SIDE OF THE RESPONDENT - ASSESSEE, DETAILED LEDGER ACCOUNT OF ADVERTISEMENT EXPENSES, CAR EXPENSES AND TRUCK EXPENSES ARE PLACED ON RECORD TO DEMONSTRATE THAT NOT ONLY THE VOUCHERS BUT THE CORRESPONDING BILLS HAVE BEEN PROC URED BY THE ASSESSEE WHICH WERE VERY MUCH ON THE DAY TO DAY RECORD MAINTAINED BY THE ASSESSEE IN THE REGULAR COURSE OF BUSINESS. CONSIDERING ALL THESE ASPECTS, WE FIND NO FALLACY IN THE FINDINGS OF THE LEARNED CIT(APPEALS). HENCE THE SAME ARE HEREBY CONFIR MED AND THIS GROUND OF THE REVENUE IS HEREBY DISMISSED. 6. GROUND NO.2: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN GRANTING RELIEF TO THE ASSESSEE FOR THE ADDITIONS MADE U/S 40(A)(2) RELYING ON THE DECISION IN THE CASE O F CIT V/S. INDO SAUDI SERVICES TRAVEL PVT. LTD., EVEN THOUGH THE ASSESSEE FIRM WAS IN THE 30% TAX BRACKET LEADING TO TAX AVOIDANCE. 6.1 THE OBSERVATION OF THE ASSESSING OFFICER WAS THAT THE ASSESSEE HAD PAID INTEREST ON LOAN TAKEN IN THE RANGE OF 15% TO 21%. THE ASSESSING OFFICER HAS MADE A LIST OF THOSE PERSONS WHO WERE UNDER THE CATEGORY OF RELATIVES AS PRESCRIBED UNDER SECTION 40A(2)(B) OF THE I.T. ACT. ACCORDING TO THE ASSESSING OFFICER, THE INTEREST WAS PAID MORE THAN THE MARKET RATE I.E. 12% . ACCORDING TO HIM, THE INTEREST IN EXCESS OF 12% WAS TO BE DISALLOWED WHICH WAS WORKED OUT AT ` .16,26,249 AND TAXED IN THE HANDS OF THE ASSESSEE. 5 ITA NO. 235/NAG/2013 6.2 FURTHER THE ASSESSING OFFICER HAS ALSO NOTED THAT THE ASSESSEE HAS PAID SALARY AT THE RATE OF ` .30,000/ - PE R MONTH TO HIS SON, NAMELY, MR. SAGAR A. SANANDA. CONSIDERING THE QUALIFICATION AS A COMMERCE GRADUATE, THE ASSESSING OFFICER HAS HELD THAT ` .15,000/ - WAS A REASO NABLE SALARY. THEREFORE, A DISALLOWANCE OF ` .1,80,000/ - WAS MADE BY INVOKING THE PROVISIONS O F SECTION 40A(2)(B) OF I.T. ACT. 7. LEARNED CIT(APPEALS) HAS CONSIDERED THE ARGUMENTS OF THE ASSESSEE AND IN RESPECT OF THE SALARY PAID TO THE SON WAS HELD AS JUSTIFIABLE AND DIRECTED TO DELETE THE ADDITION AS PER THE FOLLOWING OBSERVATIONS: I HAVE CONS IDERED THE SUBMISSIONS MADE BY THE COUNSEL OF THE APPELLANT AND PERUSED THE EVIDENCE ON RECORD. THE APPELLANT PAID A SALARY OF ` .30,000/ - PER MONTH TO SHRI SAGAR SANANDA FOR LOOKING AFTER DAY TO DAY MANAGEMENT OF BUSINESS OF THE APPELLANT. AS ARGUED, SH RI SAGAR SANANDA IS A COMMERCE GRADUATE AND IS HAVING EXPERIENCE AND KNOWLEDGE FOR THE PAST 10 YEARS AND THIS FAC5UAL POSITION HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER. ALSO THE ASSESSING OFFICER HAS NOT DISPUTED THE RENDERING OF SERVICE BY SHRI SAGAR SANANDA IN LOOKING AFTER THE DAY TO DAY BUSINESS ACTIVITIES OF THE APPELLANT. THE ASSESSING OFFICER HAS IN FACT ACCEPTED THE CLAIM OF SALARY IN RESPECT OF PERSON SPECIFIED U/S 40A(2) I.E. SHRI GAURAV HAVING EXPERIENCE OF 3 YEARS AT ` .20,000/ - PER MONTH. I AGREE WITH THE CONTENTION OF THE APPELLANT THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE FAIR MARKET VALUE OF SERVICES RENDERED BY SHRI SAGAR SANANDA IS LESS THAN ` .30,000/ - PER MONTH. IN THE ABSENCE OF ANY EVIDENCE ON RECORD AS TO EXCESSIVENESS OF SALARY PAID TO SHRI SAGAR SANANDA A PERSON HAVING EXPERIENCE OF 10 YEARS AND A COMMERCE GRADUAGE AT ` .30,000/ - PER MONTH CANNOT BE CONSIDERED AS UNREASONABLE. THE RATIO LAID DOWN BY 6 ITA NO. 235/NAG/2013 HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S. INDO SANOI SERVICES TRAVL PVT. LTD. REPORTED AT 310 ITR 306 (BOM.) SUPPORTS THE CASE OF APPELLANT. RESPECTFULLY FOLLOWING THE SAME, I AM OF THE OPINION THAT THE ADDITION MADE BY THE ASSESS ING OFFICER AT ` .1,80,000/ - OUT OF CLAIM OF SALARY U/S 40A(2) OF I.T. ACT 1961 IS UNJUSTIFIED AND THE SAME IS THEREFORE DIRECTED TO BE DELETED. THUS, THIS GROUND OF APPEAL IS ALLOWED. 7.1 IN RESPECT OF THE DISALLOWANCE OF INTEREST, THE RELEVANT FINDING IN FAVOUR OF THE ASSESSEE WERE AS UNDER : I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE COUNSEL OF THE APPELLANT AND PERUSED THE EVIDENCE ON RECORD. THE ASSESSING OFFICER HAS HELD THAT INTEREST PAID TO PERSONS SPECIFIED U/S 40A(2) OF I.T. ACT, 1961 IN EXCESS OF 12% IS NOT ALLOWABLE DEDUCTION IN VIEW OF PROVISIONS OF SECTION 40A(2) OF I.T. ACT 1961. THE CONCLUSION DRAWN BY THE ASSESSING OFFICER IS FOR THE REASONS THAT SOME OF THE CREDITORS IT IS FOUND BY THE ASSESSING OFFICER THAT THE INTEREST HAS BEEN PAID @ 12%. THE PROVISIONS OF SECTION 40A(2) CAN ATTRACT DISALLOWANCE ONLY WHEN PAYMENT MADE BY THE APPELLANT IS IN EXCESS OF FAIR MARKET VALUE OF THE SERVICES RENDERED. THE PAYMENT MADE TO SOME PERSONS AT LESS THAN FAIR MARKET RATE OF INTEREST I N THE MARKET IS NO GROUND FOR DISALLOWANCE U/S 40A(2) OF I.T. ACT 1961. AS BROUGHT OUT BY THE APPELLANT, THE HONBLE ITAT, NAGPUR BENCH, NAGPUR IN THE CASE OF SANJAY KUMAR JAIN ITA NO. 116/NAG/2006 VIDE ORDER DATED 11/8/2006 HAS CONSIDERED THE FAIR MARKET RATE OF INTEREST WHILE DEALING WITH DISPUTE U/S 40A(2) OF I.T. ACT 1961. THE HONBLE ITAT HAS OBSERVED IN AFORESAID ORDER THAT ITAT NAGPUR BENCH IN THE CASE OF PREMCHAND GOLECHA IN ITA NO. 15/NAG/2006 VIDE ORDER DATED 21/07/2 006 WHEREIN INTEREST @ 21% HAS BEEN HELD TO BE ALLOWABLE DEDUCTION AND CONSIDERING THE SAME HAD DELETED THE ADDITION MADE U/S 40A(2) IN THE SAID CASE. THE AFORESAID DECISION OF HONBLE ITAT IS BINDING PRECEDENT AND CONSIDERING THE SAME THE FAIR MARKET VALUE OF RATE OF INTEREST CAN REASONABLE BE CONSIDERED IN BETWEEN 18% TO 21% IT IS NOT THE CASE OF ASSESSING OFFICER THAT THE INTEREST PAID BY THE APPELLANT IN 18% TO 21% IS AN ATTEMPT TO EVADE TAX. THE RATIO LAY DOWN BY 7 ITA NO. 235/NAG/2013 HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S. INDO SANOI SERVICES TRAVEL PVT. LTD. REPORTED AT 310 ITR 306 (BOM.) SUPPORTS THE CASE OF THE APPELLANT. 8. HEARD BOTH THE SIDES. CONSIDERED THE ORDERS OF THE REVENUE AUTHORITIES IN THE LIGHT OF THE COMPILATION FILED BEFORE US. ACCOR DING TO THE LEARNED D.R., THE ASSESSEE HAS PAID HIGHER RATE OF INTEREST TO HIS RELATIVES WHICH WAS RANGING FROM 15% TO 18%, ALTHOUGH THE PREVAILING RATE WAS 12%, THEREFORE, THE EXCESSIVE INTEREST WAS RIGHTLY DISALLOWED. WE ARE NOT IN AGREEMENT WITH THE ARG UMENTS OF LEARNED D.R. SPECIALLY WHEN THERE IS NO DIRECT CLINCHING EVIDENCE TO ESTABLISH THE PREVAILING RATE OF INTEREST FOR THE YEAR UNDER CONSIDERATION. RATHER THERE ARE NUMBER OF DECISIONS, AS DISCUSSED BY LEARNED CIT(APPEALS) IN APPELLATE ORDER THAT T HE RATE OF INTEREST RANGING FROM 18% TO 21% WAS ALSO CONSIDERED TO BE NOT EXCESSIVE AND ALLOWED THE SAME. KEEPING BREVITY IN MIND WITHOUT DISCUSSING ALL THE CASE LAWS ON THE SUBJECT, WE HEREBY CONFINE OUR DECISION ON THE FACTS OF THIS CASE AND HEREBY HOLD THAT THE ASSESSING OFFICER HAS NOT DISCHARGED PRIMARY ONUS AS PRESCRIBED U/S 40A(2)(B) TO ESTABLISH THAT THE RATE OF INTEREST PAID TO THE RELATIVES WAS IN EXCESS TO THE PREVAILING MARKET CONDITIONS. THEREFORE, IT IS HEREBY DIRECTED TO DELETE THE ADDITION FOLLOWING THE DIRECTIONS OF LEARNED CIT(APPEALS). THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 9. GROUND NO. 3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEN D, EVEN THOUGH THE CURRENT YEARS PROFIT IS NOT INCLUDIBLE IN THE COMPUTATION OF ACCUMULATED PROFITS. 9.1 THE OBSERVATION OF THE ASSESSING OFFICER WAS THAT THE ASSESSEE WAS HOLDING 1,55,000 SHARES OF A COMPANY, NA MELY, M/S SUGOSA COTTONS PVT. LTD. OUT OF 8 ITA NO. 235/NAG/2013 4,60,000 OF TOTAL HOLDING OF EQUITY SHARES OF THE SAID COMPANY. THEREFORE, THE ASSESSEE WAS STATED TO BE HOLDING 33.69% OF EQUITY SHARES OF THE SAID COMPANY. FURTHER IT WAS OBSERVED THAT THE ASSESSEE HAD PAID INTEREST TO THE SAID COMPANY OF ` .9,93,042/ - . THE ASSESSING OFFICER HAS STUDIED THE ACCOUNT OF THE SAID COMPANY AND THEREUPON CAME TO THE CONCLUSION THAT DURING THE YEAR THERE WAS SOME TIME DEBIT OR SOME TIME CREDIT BALANCE. HOWEVER, THE SAID COMPANY HAD ADVANCED LOAN TO THE ASSESSEE FROM TIME TO TIME DURING THE PERIOD OF 21 - 07 - 2008 TO 23 - 03 - 2009. BECAUSE THE SAID COMPANY HAS ADVANCED LOAN TO THE ASSESSEE, THEREFORE, THE ASSESSEE HAS PAID INTEREST OF ` .9,93,042/ - . IT WAS ALSO FOUND BY THE ASSESSING OFFICER THAT THE SAID COMPANY WAS HAVING ACCUMULATED PROFIT OF ` .8,78,896/ - AS ON 31 ST MARCH,2008. IN REPLY TO THE SHOW CAUSE NOTICE THE ASSESSEE HAS PLEADED THAT THE PROVISIONS OF SECTION 2(22)(E) WERE NOT TO BE APPLIED FIRSTLY BECAUSE OF THE REASON THAT THE ASSESSEE WAS HAVING CURRENT ACCOUNT WITH THE SAID COMPANY AND THE INTEREST WAS CALCULATED ON OUT STANDING BALANCE BASIS. SECONDLY, THERE WAS NO ACCUMULATED PROFIT OF THE SAID COMPANY AS PER FOLLOWING CALCULATION : ACCUMULATED PROFIT AS PER B/SHEET AS ON01/04/2008 8,78,896 ADD: DEPRECIA TION AS PER COMPANY LAW 73,40,068 (AS PER CHART ENCLOSED ---------------- 82,18,964 LESS: DEPRECIATION AS PER INCOME TAX LAW (AS PER CHART ENCLOSED) ---------------- NET LOSS ( - ) 2,64,459 ----------------- 9 ITA NO. 235/NAG/2013 THIRDLY THE SAID COMPANY WAS IN MONEY LENDI NG BUSINESS. THEREFORE, THERE W AS REGULAR TRANSACTION BETWEEN THE ASSESSEE AND THE SAID COMPANY. THE TURNOVER OF THE SAID COMPANY AND THE NET PROFIT EARNED WAS AS UNDER : TURNOVER NET PROFIT. A) REGULAR BUSINESS TRANSACTION 8,38,43,896/ - 8,53,933/ - (GINNING, PRESSING & OIL MILL) (EXCLUDING INTEREST RECEIPT) B) MONEY LENDING BUSINESS 3,33,81,158/ - 9,93,342/ - PROFIT BEFORE TAX ` . 18,46,275/ - =========== HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCED AND CAME TO THE CONCLUSION THAT DEEMED DIVIDEND WAS CHARGEABLE IN THE HANDS OF THE ASSESSEE WHICH WAS COMPUTED AT ` .25,44,775/ - AND TAXED ACCORDINGLY. 10. BEFORE THE LEARNED CIT(APPEALS) ALL THOSE EVIDENCE S WERE AGAIN PLACED AND AFTER DETAILED DISCUSSION, RELIEF WAS GRANTED IN THE FOLLOWING MANNER: THE RATIO LAID DOWN BY HONBLE BOMBAY HIGH COURT SQUARELY SUPPORTS THE SUBMISSIONS OF APPELLANT AND SQUARELY APPLIES TO THE FACTS IN THE CFASE OF APPELLANT. RESPECTFULLY FOLLOWING THE SAME, I AM OF THE OPINION THAT THE ACTIVITY OF FINANCE IN THE CASE OF M/S SUGOSA COTTONS PVT. LTD. IS SUBSTANTIAL PART OF BUSINESS. THE ACTIVITY OF FINANCE BUSINESS CANNOT BE REGARDED AS SMALL/TRIVIAL OR INCONSEQUENTIAL AS T O THE WHOLE OF BUSINESS OF COMPANY AND THUS IT IS SUBSTANTIAL BUSINESS. IN VIEW OF ABOVE ADVANCE GIVEN TO THE APPELLANT IN THE COURSE OF BUSINESS CANNOT BE CONSIDERED AS DEEMED DIVIDEND U/S 2(22)(E) OF I.T. ACT 1961. 10 ITA NO. 235/NAG/2013 11. WITH THIS BRIEF BACKGROUND, WE HAVE HEARD BOTH THE SIDES. FACTS OF THE CASE HAVE BEEN APPRECIATED. IN RESPECT OF THE INVOCATION OF THE PROVISIONS OF SEC. 2(22)(E) THERE WERE THREE PLANK OF ARGUMENTS. THE FIRST PLANK OF ARGUMENT WAS ABOUT THE NATURE OF BUSINESS ACTIVITY OF THE SAID COMP ANY VIZ. M/S SUGOSA COTTONS PVT LTD. IN A SITUATION WHEN THE ADMITTED FACTUAL POSITION WAS THAT THE SAID COMPANY, NAMELY, M/S SUGOSA COTTONS PVT. LTD. WAS HAVING MONEY LENDING AS ONE OF THE SUBSTANTIAL PART OF THE BUSINESS AND THAT IN THE COURSE OF THE SAI D BUSINESS THERE WAS REGULAR TRANSACTIONS WITH THE ASSESSEE THEN IT WAS NOT CORRECT TO INVOKE THE PROVISIONS OF SECTION 2(22)(E) OF I.T. ACT. WHILE CONSIDERING THE RELEVANT PROVISIONS, WE HAVE NOTED THAT AN EXCEPTION IS CAR VED - OUT ACCORDING TO WHICH THE DIVIDEND DOES NOT INCLUDE ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. { REFER SECTION 2(22)(E)(II)} . IN THIS CONNECTION RELIANCE HAS BEEN PLACED ON THE DECISION OF CIT V/S. PAR LE PLASTICS LTD. 322 ITR 63 (BOM. AT GOA) WHEREIN THE EXPRESSION SUBSTANTIAL PART WAS DEFINED AND THEREUPON IT WAS HELD THAT BY NO MEANS THE DEPLOYMENT OF ABOUT 40% OF THE TOTAL ASSETS IN THE BUSINESS OF LENDING COULD BE REGARDED AS AN INSIGNIFICANT PAR T OF THE BUSINESS OF AQUA MINERALS PVT. LTD. (AMPL). IT WAS HELD THAT THE LENDING OF MONEY WAS A SUBSTANTIAL PART OF THE BUSINESS OF AMPL. THE HONBLE COURT HAS THUS HELD THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT GRANTING OF LOAN WAS A SUBSTANTIAL PA RT OF THE BUSINESS OF AMPL. THEREFORE, AS SUCH THE LOAN COULD NOT BE TREATED AS DIVIDEND UNDER SECTION 2(22)(E). KEEPING BREVITY IN MIND, REST OF THE DECISIONS AS CITED BEFORE US ARE NOT REQUIRED TO BE MENTIONED , HOWEVER THE RELEVANT PORTION OF THE SAID PR ECEDENT OF M/S PARLE PLASTICS IS REPRODUCED HEREINBELOW;_.... 11 ITA NO. 235/NAG/2013 12 ITA NO. 235/NAG/2013 13 ITA NO. 235/NAG/2013 11.1 IN SUPPORT OF THIS VERY ARGUMENT AN ANOTHER PLEA HAS ALSO BEEN RAISED THAT THE APPELLANT HAD MORTGAGED HIS PROPERTY WITH IDBI BANK AND ON THAT SECURITY THE SAID COMPANY HAD AVAILED THE LOAN FACILITY . THEREFORE IT IS PLEADED, AND RIGHTLY SO , THAT THE EXCEPTION AS PROVIDED IN THIS SECTION WAS TO BE APPLIED, WHICH SAYS THAT THE DIVIDEND DOES NOT INCLUDE ANY LOAN MADE TO SHAREHOLDER BY A COMPANY IF IT IS I N THE ORDINARY COURSE OF ITS BUSINESS. IT WAS VEHEMENTLY PLEADED THAT THE ACCOUNT WAS LIKE A CURRENT ACCOUNT, HAVING SOME TIME DEBIT AND SOME TIME A CREDIT BALANCE ON WHICH THE INTEREST WAS CALCULATED ON THE OUTSTANDING BALANCE POSITION BECAUSE THE ASSES SEE HAD PROVIDED HIS PERSONAL SECURITY TO THE BANK. IN OUR CONSIDERED OPINION THIS FACTUAL POSITION AS WELL SUPPORT THE CLAIM OF THE ASSESSEE THAT THE PROVISIONS OF SEC. 2(22)(E) HAVE BEEN WRONGLY INVOKED IN THIS CASE. 11.2 THERE IS ONE M ORE ARGUMEN T THAT THE SAID COMPANY DID NOT HAVE THE ACCUMULATED PROFIT WHICH COULD BE ALLEGED TO HAVE BEEN DISTRIBUTED IN GUISE OF LOAN. A CALCULATION HAS BEEN SUBMITTED, ALREADY REPRODUCED ABOVE, TO DEMONSTRATE THAT AFTER DEPRECIATION THERE WAS NO POSITIVE FIGURE WHICH COULD BE TREATED AS ACCUMULATED PROFIT OF THE SAID COMPANY. FROM THE SIDE OF THE REVENUE THIS FACT WAS NOT DENIED. IN ANY CASE, IT HAS ALSO NOT BEEN DEMONSTRATED THAT ON THE DATE OF GRANT OF LOAN THERE WAS ACCUMULATED PROFIT . THERE IS NO EVIDENCE O N RECORD PLACED FROM THE SIDE OF THE REVENUE THAT THE SAID COMPANY HAD IN FACT SIPHONED ACCUMULATED PROFIT TO THE ASSESSEE. IN THE ABSENCE OF SUCH FINDING IT IS NOT JUSTIFIED TO PRESUME THAT THE LOAN IN QUESTION WAS IN THE NATURE OF DEEMED 14 ITA NO. 235/NAG/2013 DIVIDEND . RE SULTANTLY WE HEREBY AFFIRM THE FACTUAL AS WELL AS LEGAL FINDING OF LEARNED CIT(APPEALS) AND DISMISS THIS GROUND OF THE REVENUE. 12. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2015. SD/ - SD/ - ( SHAMIM YAHYA) (MUKUL K. SHRAWAT) ACCOUNTANT ME MBER JUDICIAL MEMBER. NAGPUR, DATED: 30 TH JUNE, 2015. COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE