V.K. TEXCHEM PVT. LTD., MUMBAI V. D.C.I.T.4(3), MUMBAI

ITA 2596/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78961 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 26-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 17-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Additional evidence; Deemed dividend
• Section: 234B; 14A; 148

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI .., .!.'#$, !% , ! & BEFORE SHRI I.P.BANSAL, JM AND SHRI N.K.BILLAIYA, A M ITA NO.2596/MUM/2012 : ASST.YEAR 2006-07 ITA NO.2606/MUM/2012 : ASST.YEAR 2007-08 M/S. V.K.TEXCHEM PVT. LTD., 2 ND FLOOR, 439, KALBADEVI ROAD, MUMBAI 400 002. PAN:AAACV 2012M THE DY. CIT 4(3), AAYKAR BHAVAN, M.K.MARG, MUMBAI 400 020. ( '( / // / APPELLANT) / VS. ( *+'(/ RESPONDENT) '( , - ! , - ! , - ! , - ! /APPELLANT BY : SHRI VIMAL PUNMIYA *+'( , - ! , - ! , - ! , - ! /RESPONDENT BY : SHRI RAVI PRAKASH , ./% / / / / DATE OF HEARING : 15.05.2014 012 , ./% / DATE OF PRONOUNCEMENT : 21.05.2014 !3 !3 !3 !3 / / / / O R D E R PER I.P.BANSAL (JM) : BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AND T HEY ARE DIRECTED AGAINST TWO SEPARATE ORDERS PASSED BY LD. CIT(A) DATED 5/1/ 2012 FOR ASSESSMENT YEAR 2006-07 AND 2007-08. GROUNDS OF APPEAL IN BOTH THE APPEALS READ AS UNDER: GROUNDS OF APPEAL FOR A.Y.2006-07: GROUND NO.1 THE COMMISSIONER OF INCOME TAX (APPEAL)-8, MUMBAI E RRED IN CONFIRMING THE ADDITION OF RS.49,70,146 UNDER SECTION 2(22)(E) WIT HOUT APPRECIATING THE ADDITIONAL EVIDENCE DULY ADMITTED UNDER RULE 46A OF THE ACT. THE APPELLANTS THEREFORE PRAY THAT THE ADDITIONAL EVIDENCE BE ADMI TTED AND THE ADDITION UNDER SECTION 2(22)(E) BE DELETED. EVEN OTHERWISE, THE APPELLANTS SUBMIT THAT THE AMOU NTS BORROWED BY THEM ARE NOT COVERED BY SECTION 2(22)(E) OF THE ACT AND PRAY THAT THE DCIT BE DIRECTED TO DELETE THE ADDITION OF RS.49,70,146/- GROUND NO.2: THE COMMISSIONER OF INCOME TAX (APPEAL)-8, MUMBAI E RRED IN CONFIRMING THE LEVY OF INTEREST UNDER SECTION 234B(3) OF THE ACT. THE A PPELLANTS DENY THEIR LIABILITY UNDER SECTION 234B OF THE ACT AND PRAY THAT THE DCI T BE DIRECTED TO DELETE THE INTEREST LEVIED UNDER SECTION 234B OF THE ACT. GROUNDS OF APPEAL FOR A.Y.2006-07: ITA NO.2596/MUM/2012 : ASST.YEAR 2006-07 ITA NO.2606/MUM/2012 : ASST.YEAR 2007-08 2 GROUND NO.1 THE COMMISSIONER OF INCOME TAX (APPEAL)-8. MUMBAI E RRED IN CONFIRMING THE ADDITION OF RS.9,87,603 UNDER SECTION 2(22)(E) WITH OUT APPRECIATING THE ADDITIONAL EVIDENCE DULY ADMITTED UNDER RULE 46A OF THE ACT. T HE APPELLANTS THEREFORE PRAY THAT THE ADDITIONAL EVIDENCE BE ADMITTED AND THE AD DITION UNDER SECTION 2(22XE) BE DELETED. EVEN OTHERWISE, THE APPELLANTS SUBMIT THAT THE AMOU NTS BORROWED BY THEM ARE NOT COVERED BY SECTION 2(22)(E) OF THE ACT AND PRAY THAT THE DCIT BE DIRECTED TO DELETE THE ADDITION OF RS.9,87,603. GROUND NO.2 THE COMMISSIONER OF INCOME TAX (APPEAL)-8, MUMBAI E RRED IN CONFIRMING THE DISALLOWANCE OF RS.2,31,776 UNDER SECTION 14A R,W.R .8D. THE APPELLANTS SUBMIT THAT THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE F OR THE ASSESSMENT YEAR UNDER CONSIDERATION AND PRAY THAT THE ITO BE DIRECTED TO DELETE THE ADDITION MADE UNDER SECTION NL4A R.W.R.8D 2. IN RESPECT OF A.Y 2006-07 ASSESSEE HAS ALSO RAIS ED ADDITIONAL GROUND VIDE LETTER DATED 11/6/2013. THE ADDITIONAL GROUNDS REA D AS UNDER: GROUND NO.3: THE LD. COMMISSIONER OF INCOME TAX (APPEAL) ERRED I N CONFIRMING THE REOPENING OF THE CASE U/S. 148 OF THE I.T. ACT, 1961, WHICH WAS REOPENED BY THE LD. ASSESSING OFFICER FOR A.Y. 2006-07. 3. AT THE OUTSET, IT WAS SUBMITTED BY LD. AR THAT O NE ISSUE RAISED IN THE PRESENT APPEAL IS COMMON I.E. REGARDING APPLICABILI TY OR OTHERWISE OF PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961(THE ACT). FOR ASSESSMENT YEAR 2007-08 LD. CIT(A) HAS DECIDED THIS ISSUE BY WAY OF A SPEAKING ORDER AND FOR A.Y. 2006-07 HE HAS FOLLOWED HIS ORDER FOR A.Y 2007 -08. HE FURTHER SUBMITTED THAT ON THE BASIS OF ADDITION MADE UNDER SECTION 2 (22)(E) IN A.Y 2007-08 THE ASSESSMENT FOR ASSESSMENT YEAR 2006-07 WAS RE-OPENE D. THEREFORE, HE SUBMITTED THAT IT WILL BE RELEVANT TO REFER TO THE FACTS FOR A.Y 2007-08 FOR THE PURPOSE OF ADJUDICATING COMMON ISSUE REGARDING APP LICABILITY OR OTHERWISE OF DISALLOWANCE MADE UNDER SECTION 2(22)(E) OF THE ACT . 3.1 HE FURTHER SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y 2007-08, FROM THE DETAILS FURNISHED, THE AO FOUND THAT ASSESSEE HAD RECEIVED UNSECURED LOANS OF RS.12,74,303/- DURING THE YEAR UNDER CONSIDERATION FROM M/S. SHREE SHYAM DISTRIBUTORS PV T. LTD. (HEREINAFTER SHORTLY ITA NO.2596/MUM/2012 : ASST.YEAR 2006-07 ITA NO.2606/MUM/2012 : ASST.YEAR 2007-08 3 REFERRED AS M/S. SSDM). ACCORDING TO THE BALANCE SH EET THE SHARE HOLDING PATTERN OF M/S.SSDM, THE ASSESSEE WAS HOLDING 12,8 50 SHARES I.E. 25.70% OF THE ISSUE, PAID UP AND SUBSCRIBED SHARES. IT WAS A LSO OBSERVED THAT SAID CONCERN WAS HAVING ACCUMULATED PROFITS OF RS.59,25, 917/- AS ON 31/3/2007. THEREFORE, THE AO ISSUED SHOW CAUSE NOTICE TO THE A SSESSEE AS TO WHY THE SAID SUM OF RS.12,74,303/- SHOULD NOT BE ADDED TO THE IN COME OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT . IT WAS PLEADED THAT THE SAID AMOUNT DID NOT REPRESENT LOANS IN THE HANDS OF THE ASSESSEE AS AN AMOUNT OF RS.19,30,610/- WAS FIRST PAID AND LATER ON AN AMOUN T OF RS.9,87,603/- WAS RECEIVED. IT WAS ALSO SUBMITTED THAT IT WAS IN THE NATURE OF INTER CORPORATE DEPOSITS (ICDS), WHICH IS TOTALLY DIFFERENT FROM AD VANCE OR LOAN AND RELIANCE WAS PLACED ON THE DECISION OF MUMBAI ITAT IN THE CASE OF BOMBAY OIL INDUSTRIES LTD. VS. DCIT, 28 SOT 383 (MUM) IN WHICH IT WAS HE LD THAT ICDS ARE NOT IN THE NATURE OF AN ADVANCE OR LOAN AS ENVISAGED IN SECTIO N 2(22)(E) OF THE ACT AND THE SAME COULD NOT BE ADDED TO THE INCOME UNDER SECTION 2(22)(E) OF THE ACT. 3.2 IT WAS ALSO SUBMITTED THAT EVERY PAYMENT BY A COMPANY TO ITS SHAREHOLDER CANNOT BE TAKEN IN THE NATURE OF LOAN O R ADVANCE AND IF THE COMPANY IS ALREADY A DEBTOR TO THE SHAREHOLDER THEN IT WOULD BE A CASE OF MERE REPAYMENT BY THE COMPANY TOWARDS ITS ALREADY EXISTI NG DEBITS AND IT WOULD BE NATURE OF LOAN BY THE COMPANY ONLY IF THE PAYMENT E XCEEDS THE AMOUNT OF ITS EXISTING DEBIT AND THAT TOO ONLY TO THE EXTENT OF T HE EXCESS. 3.3 IT WAS FURTHER SUBMITTED THAT ACCORDING TO CL AUSE (31) OF THE MEMORANDUM OF ASSOCIATION, M/S. SSDM WAS AUTHORIZED TO CARRY ON BUSINESS OF LEASING AND HIRE PURCHASE COMPANY AND TO ACQUIRE , TO PROVIDE ON LEASE OR ON HIRE PURCHASE BASIS ALL TYPES OF INDUSTRIAL OFFICES AND OTHERS, PLANT, EQUIPMENT, MACHINERY, ARTICLES, VEHICLES, BUILDING AND REAL E STATE AND TO CARRY OUT ACTIVITIES WHICH IS GENERALLY BEING CARRIED OUT BY LEASING, HIRE PURCHASE COMPANY AND THAT INVESTMENT AND FINANCE COMPANY. I T WAS SUBMITTED THAT SUBSTANTIAL PART OF BUSINESS OF M/S. SSDM IS OF LEN DING MONEY AND AS APART OF BUSINESS M/S. SSDM HAS PLACED ICDS WITH THE ASSESSE E IN THE ORDINARY COURSE OF ITS BUSINESS. IT WAS ALSO SUBMITTED THAT COMPAN Y HAS LONG BACK PASSED A ITA NO.2596/MUM/2012 : ASST.YEAR 2006-07 ITA NO.2606/MUM/2012 : ASST.YEAR 2007-08 4 RESOLUTION TO CARRY ON THE BUSINESS OF FINANCIAL AC TIVITY AS PER CLAUSE (31) OF THE OBJECTIVE OF MEMORANDUM OF ASSOCIATION AND COPY OF RESOLUTION WAS ALSO FURNISHED TO THE AO ALONGWITH REPLY. 3.4 THE ABOVE SUBMISSIONS OF THE ASSESEE ARE REPRO DUCED BY THE AO IN PARA 4.1 OF THE ASSESSMENT ORDER. THUS, IT WAS SUBMITTE D THAT DISALLOWANCE COULD NOT BE MADE UNDER SECTION 2(22)(E) OF THE ACT. 3.5 CONSIDERING THE AFOREMENTIONED SUBMISSIONS OF T HE ASSESSEE AND PERUSING FROM THE LEDGER ACCOUNT FURNISHED, THE AO HAS OBSERVED THAT M/S.SSDM WAS HAVING OPENING BALANCE OF LOANS AS ON 1/4/2006 AT A SUM OF RS.46,34,007/-. DURING THE YEAR THE ASSESSEE REPAI D THE LOAN TO THE EXTENT OF RS.19,30,610/- AND ASSESSEE HAD ALSO RECEIVED TOTAL AMOUNT OF RS.12,74,303/- WHICH INCLUDE INTEREST OF RS.3,69,649/-. IN VIEW OF THESE FACTS, RELYING UPON PROVISIONS OF SECTION 2(22)(E) OF THE ACT THE AO HA S COME TO A CONCLUSION THAT THE CONDITIONS LAID DOWN IN SECTION 2(22)(E) ARE FU LFILLED, THEREFORE, PROVISIONS OF SECTION 2(22)(E) WERE APPLICABLE. THE A.O HAS SUMM ARIZED THE SUBMISSION OF THE ASSESSEE IN FOLLOWING FOUR POINTS: 1) THAT THE ASSESSEE HAD PAID FIRST RS.19,30,610/- AND LATER RECEIVED A SUM OF RS.9,87,607/- (1274303 286700 INTEREST) 2) THAT THE AMOUNT RECEIVED FROM M/S. SHREE SHYAM D ISTRIBUTORS AND MARKETING PVT. LTD. IS INTER CORPORATE DEPOSIT (ICD ) AND THEREFORE ITS TOTALLY DIFFERENT FROM LOAN/ADVANCE. 3) THAT THERE IS DIFFERENCE BETWEEN LOAN AND DEPOS IT, AND 4) THAT M/S. SHREE SHYAM DISTRIBUTORS AND MARKETING PVT. LTD. IS INDULGED IN THE BUSINESS OF LENDING MONEY AND THERE FORE LOAN/ADVANCE HAS BEEN GIVEN TO THE ASSESSEE IN THE ORDINARY COUR SE OF BUSINESS. 3.6 SO FAR AS IT RELATES TO ISSUE AT SL.NO.1, THE A O DID NOT ACCEPT THE SUBMISSIONS AND HAS OBSERVED THAT IF ANY AMOUNT IS RECEIVED BY THE ASSESSEE DURING THE YEAR AGAIN, THEN THE SAME IS LIABLE TO B E ADDED . ITA NO.2596/MUM/2012 : ASST.YEAR 2006-07 ITA NO.2606/MUM/2012 : ASST.YEAR 2007-08 5 3.6.1 SO FAR AS IT RELATES TO ISSUE NO.2 THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS ICDS, THE AO HAS OBSERVED AS UNDER: II) AS REGARDS THE SECOND POINT RAISED BY THE ASSC SSEE, THE INTER CORPORATE DEPOSIT IS ALSO A LOAN/ADVANCE FROM A CORPORATE BOD Y TO ANOTHER CORPORATE BODY. THE TERM LOAN IS USED FOR LOAN/ADVANCE BETWEEN AN YBODY TO ANYBODY, WHEREAS THE LOAN BETWEEN CORPORATE BODIES CAN BE TERMED AS INTER CORPORATE DEPOSITS. THIS DOESNT CHANGE THE NATURE AND CHARACTER OF THE MOVE MENT OF MONEY. THE ASSESSEE ITSELF HAS TERMED THE AMOUNT RECEIVED FROM M/S SHREE SHYAM DISTRIBUTORS & MARKETING PVT. LTD AS UNSECURED LOA NS IN ITS AUDITED BALANCE SHEET. IN THE TAX AUDIT REPORT OF THE ASSESSEE, IT IS CLEARLY MENTIONED THAT THE COMPANY HAS RECEIVED LOAN, SECURED OR UNSECURED FR OM COMPANIES, FIRM OR OTHER PARTIES LISTED IN THE REGISTER MAINTAINED UNDER SEC TION 301 OF THE COMPANIES ACT,1956 AND FROM THE COMPANIES UNDER THE SAME MANA GEMENT AS DEFINED UNDER SECTION 370(1B) OF THE COMPANIES ACT, 1956. EVEN THE TAX AUDIT REPORT OF M/S SHREE SHYAM DISTRI BUTORS & MARKETING PVT. LTD. SUBMITTED BY THE ASSESSEE CARRIES THE AUDITORS REMA RKS WHICH IS REPRODUCED AS UNDER: THE COMPANY HAS GRANTED LOANS AND ADVANCES, SECURE D OR UNSECURED TO COMPANIES, FIRM OR OTHER PARTIES LISTED IN THE REGI STER MAINTAINED UNDER SECTION 301 OF THE COMPANIES ACT, 1956 AND TO THE COMPANIES UNDER THE SAME MANAGEMENT AS DEFINED UNDER SECTION 370(1B) OF THE COMPANIES ACT, 1956 THE ASSESSEE HAS RELIED ON THE JUDGMENT OF THE HON BLE ITAT MUMBAI IN THE CASE OF M/S BOMBAY OIL INDUSTRIES LTD V/S DCIT. THE FACT S AND CIRCUMSTANCES OF THE INSTANT CASE IS ALTOGETHER DIFFERENT FROM THE CASE LAW CITED BY THE ASSESSEE. WITHOUT PREJUDICE TO THE ABOVE, THE REVENUE HAS NOT ACCEPTED THE DECISION OF THE HONBLE ITAT MUMBAI IN THE CASE OF M/S BOMBAY OIL I NDUSTRIES LTD V/S DCIT AND APPEAL HAS BEEN FILED BEFORE THE HONBLE HIGH COURT , MUMBAI. 3.6.2 SO FAR AS IT RELATES TO ISSUE RAISED AT SL.NO .3, THE AO HAS OBSERVED THAT THERE IS NO DIFFERENCE BETWEEN LOANS AND DEPOSITS, THEREFORE, THE SAID CONTENTION IS NOT AVAILABLE TO THE ASSESSEE. 3.6.3 SO FAR AS IT RELATES TO ISSUE RAISED AT SL. NO.4, THE AO OBSERVED THAT IT CANNOT BE ACCEPTED THAT M/S. SSDM HAS ADVANCED THIS AMOUNT TO THE ASSESSEE IN THE ORDINARY COURSE OF ITS BUSINESS. IT IS IN T HIS MANNER AO HAS DISALLOWED A SUM OF RS.12,74,303/- AND THE SAID AMOUNT IS ADDED TO THE INCOME OF THE ASSESSEE UNDER SECTION 2(22)(E) OF THE ACT. ITA NO.2596/MUM/2012 : ASST.YEAR 2006-07 ITA NO.2606/MUM/2012 : ASST.YEAR 2007-08 6 3.7 THE ADDITION WAS CHALLENGED IN AN APPEAL FILED BEFORE LD. CIT(A). TO SUPPORT THE CONTENTION CERTAIN ADDITIONAL EVIDENCES WERE ALSO FILED AS THESE ARE MENTIONED IN PARA 2.1 OF THE IMPUGNED ORDER. THES E ARE IN THE NATURE OF COPY OF RESOLUTION AUTHORIZING M/S. SSDM TO PLACE ICDS, MEMORANDUM OF ARTICLE OF M/S. SSDM, AUDITED ACCOUNTS FOR THE YEAR ENDING 31 /3/2007. THESE ADDITIONAL EVIDENCES WERE FILED TO FURTHER SUPPORT THE CONTENTION THAT THE AMOUNT WAS IN RESPECT OF ICDS. RELIANCE WAS PLAC ED ON THE AFOREMENTIONED DECISION OF MUMBAI TRIBUNAL IN THE CASE OF BOMBAY O IL INDUSTRIES (SUPRA). THE ADDITIONAL EVIDENCES WERE FORWARDED TO AO WHO HA D SUBMITTED REMAND REPORT DATED 24/02/2011. HOWEVER, LD. CIT(A) HAS REJECTED THE CLAIM OF THE ASSESSEE REGARDING FILING OF ADDITIONAL EVIDENCES AND OBSER VED THAT HE IS UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE AMO UNT BORROWED WERE ICDS. LD. CIT(A) HAS ACCEPTED THE SUBMISSION OF THE ASSES SEE THAT THE ADDITION, IF ANY, WAS LIABLE TO BE MADE FOR ONLY A SUM OF RS.9,87,603 /- AS BALANCE AMOUNT OF RS.3,69,649/- WAS REPRESENTING AS INTEREST ACCRUED. FOR THE SAKE OF COMPLETENESS THE RELEVANT PART OF THE ORDER OF LD. CIT(A) IS REPRODUCED: 2.1 THE FACTS OF THE CASE ARE THAT THE APPELLANT H AVE BORROWED AN AMOUNT OF RS.9,87,603/- DURING THE YEAR FROM M/S.SHREE SHYAM DISTRIBUTORS PVT. LTD. AND INTEREST OF RS.3,69,649/- WAS CREDITED TO THEIR ACC OUNT. THE ASSESSING OFFICER TREATED THE TOTAL AMOUNT OF RS.13,57,252/- AS DEEME D DIVIDEND AS ALL THE CONDITIONS OF SECTION 2(22)(E) ARE SATISFIED. THE APPELLANTS ARE IN APPEAL AGAINST THE SAID ADDITION OF RS.13,57,252/- UNDER SECTION 2 (22)(E) OF THE ACT. DURING THE COURSE OF HEARING THE APPELLANTS HAD FILED CERTAIN ADDITIONAL EVIDENCE LIKE OF RESOLUTION AUTHORIZING SHREE SHYAM DISTRIBUTORS PV T. LTD. TO PLACE ICDS, MEMORANDUM & ARTICLES OF SHREE SHYAM DISTRIBUTORS P VT. LTD., AUDITED ACCOUNTS FOR THE YEAR ENDED 31 ST MARCH, 2007 AND TOOK UP THE PLEA THAT THE AMOUNTS BORROWED WERE IN RESPECT OF ICDS AND THEREFORE IN VIEW OF THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF BOMBAY OIL INDUSTRIES (28 S OT 383). THE SAID ADDITIONAL EVIDENCES WERE REFERRED TO THE ASSESSING OFFICER FO R VERIFICATION. THE ASSESSING OFFICER SUBMITTED HIS REMAND REPORT DATED 24.02.201 1. 2.2 THE APPELLANTS FILED THEIR DETAILED SUBMISSION VIDE THEIR LETTER DATED JANUARY 2, 2012. THE APPELLANTS HAVE ALSO STATED THAT THE I TO HAS ERRED IN COMPUTING THE AMOUNT OF DIVIDEND UNDER SECTION 2(22)(E) AT RS. 13 ,57,252 AS AGAINST RS. 9,87,603. THE ADDITIONAL EVIDENCES FILED BY THE APP ELLANTS IN RESPECT OF THEIR CLAIM THAT THE AMOUNTS BORROWED WERE IN THE NATURE OF ICD S HAVE BEEN REJECTED AS THE SAME WERE NOT FILED BEFORE THE ASSESSING OFFICER IN SPITE THE FACT THAT SUFFICIENT OPPORTUNITIES WAS PROVIDED TO THE APPELLANTS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ACCORDINGLY. I AM UNABLE TO ACCEPT THE CONTENTION OF THE APPELLANTS THAT AMOUNTS BORROWED WERE IN THE NATURE OF ICDS. 2.3 HOWEVER, THE APPELLANTS SUBMISSION THAT THE CO MPUTATION OF DEEMED DIVIDEND HAS BEEN OVER STATED BY RS.3,69,649 IS CON SIDERED AND FOUND TO BE CORRECT. I AGREE WITH THE FACT THAT THE AMOUNT OF I NTEREST HAS ALSO BEEN INCLUDED IN ITA NO.2596/MUM/2012 : ASST.YEAR 2006-07 ITA NO.2606/MUM/2012 : ASST.YEAR 2007-08 7 DETERMINING THE ADDITION UNDER SECTION 2(22)(E). ON PERUSAL OF THE LEDGER ACCOUNT FILED BY THE APPELLANTS, IT I SEEN THAT THE APPELLA NTS HAVE RECEIVED RS.9,87,603 FROM THE LENDER AND THEREFORE THE ADDITION UNDER SE CTION 2(22)(E) SHOULD BE RESTRICTED TO THE EXTENT OF PAYMENT RECEIVED DURING THE YEAR. 2.4 THE SUMMARY OF THE LOAN ACCOUNT IS AS UNDER: PARTICULARS AMOUNT OPENING BALANCE 46,34,007 AMOUNTS RECEIVED 9,87,603 TOTAL LOAN BALANCE 56.21,610 INTEREST ACCRUED 3,69,649 AMOUNT REPAID (20,13,559) CLOSING BALANCE 39,77,700 2.5 ACCORDINGLY, I HOLD THAT AN AMOUNT OF RS.9,87,6 03/- BE ADDED TO THE TOTAL INCOME UNDER SECTION 2(22)(E) OF THE ACT. THIS GRO UND OF APPEAL IS PARTLY ALLOWED. 3.8 THE ASSESSEE IS AGGRIEVED BY THE SUSTAINED ADDI TION OF RS.9,87,603/- AND HAS FILED AFOREMENTIONED GROUNDS OF APPEAL. 4. AFTER NARRATING THE FACTS IT WAS SUBMITTED BY LD . AR THAT CLAUSE (31) OF MEMORANDUM OF ASSOCIATION AND ARTICLE OF ASSOCIATIO N HAS CLEARLY DESCRIBED M/S. SSDM AS INVESTMENT AND FINANCE COMPANY. THERE FORE, HE PLEADED THAT IT CANNOT BE SAID THAT M/S. SSDM WAS NOT CARRY ON BUS INESS OF FINANCE. HE SUBMITTED THAT ACCORDING TO DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF PARLE PLASTIC LTD. (2010)-TOIL-792-HC-MUMBAI-IT IN WHICH IT WAS HELD THAT THE POWER TO LEND MONEY MAY BE AN OTHER OBJECT H E FURTHER SUBMITTED THAT FOR CARRYING ON SUCH BUSINESS IT IS NOT NECESSARY T O OBTAIN LICENCE FROM APPROPRIATE GOVERNMENT AUTHORITIES. REFERENCE WAS MADE TO DECISION OF ITAT IN THE CASE OF B.N.KHANDELWAL VS. ITO, 16 SOT 343 I N WHICH IT WAS HELD THAT MERELY FOR THE REASON THAT ASSESSEE WAS NOT HAVING ANY MONEY LENDING LICENCE, IT COULD NOT BE CONCLUDED THAT ASSESSEE WAS NOT ENG AGED IN MONEY LENDING BUSINESS. HE SUBMITTED THAT LICENCE IS ONLY REQUIR ED FROM RBI IN THE CASE OF BANKS AND FINANCIAL INSTITUTIONS BUT IN THE PRESENT CASE THE COMPANY HAD PLACED ICDS FOR WHICH THERE IS NO STIPULATION IN T AKING ANY LICENCE. LENDING MONEY WAS SUBSTANTIAL PART OF BUSINESS OF M/S. SSD M. HE SUBMITTED THAT THE DEPOSITS WERE IN THE NATURE OF ICDS AND ACCORDING T O AFOREMENTIONED DECISION OF MUMBAI TRIBUNAL IN THE CASE OF BOMBAY OIL INDUST RIES (SUPRA) THE SAME CANNOT BE HELD TO BE DISALLOWABLE UNDER SECTION 2(2 2)(E) OF THE ACT. THUS, IT WAS ITA NO.2596/MUM/2012 : ASST.YEAR 2006-07 ITA NO.2606/MUM/2012 : ASST.YEAR 2007-08 8 SUBMITTED BY LD. AR THAT ADDITION HAS WRONGLY BEEN SUSTAINED BY LD. CIT(A) AND THE SAME SHOULD BE DELETED. 5. ON THE OTHER HAND, LD. DR SUBMITTED THAT ALL TH E CONDITIONS LAID DOWN IN SECTION 2(22)(E) WERE EXISTING, THEREFORE, AO WAS R IGHT IN INVOKING PROVISIONS OF SECTION 2(22)(E). HE SUBMITTED THAT ASSESSEE COULD NOT PROVE THAT THE NATURE OF THE AMOUNT WAS ICDS AND THUS, IT WAS PLEADED BY LD . DR THAT ADDITION HAS RIGHTLY BEEN SUSTAINED BY LD. CIT(A) AND SUBMITTED THAT ORDER OF LD. CIT(A) SHOULD BE UPHELD AND GROUND OF APPEAL FILED BY THE ASSESSEE SHOULD BE DISMISSED. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. EVEN BEFORE A.O, IT WA S THE CASE OF THE ASSESSEE THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS IN THE NATURE OF ICDS AND THIS CONTENTION OF THE ASSESSEE HAS ALSO BEEN RECORDED B Y THE A.O IN THE ASSESSMENT ORDER AND THE OBSERVATIONS OF THE AO FROM THE ASSES SMENT ORDER HAVE ALREADY BEEN REPRODUCED. THE AO HAS REJECTED SUCH CONTENTI ON OF THE ASSESSEE ONLY ON THE GROUND THAT EVEN ICDS IS ALSO A LOAN/ADVANCE FR OM THE CORPORATE BODY TO INTER CORPORATE BODY AND IF IT IS INTER CORPORATE D EPOSIT THEN ALSO IT DOES NOT CHANGE THE NATURE AND CHARACTER OF THE MOVEMENT OF MONEY. THE DECISION RELIED UPON BY THE ASSESSEE IN THIS REGARD ON THE CASE OF M/S. BOMBAY OIL INDUSTRIES LTD VS. DCIT(SUPRA) HAS BEEN STATED BY THE AO THAT FACTS IN THAT CASE ARE DIFFERENT WITHOUT SPELLING OUT THAT HOW TH E PROPOSITION LAID DOWN IN THAT CASE WILL NOT BE APPLICABLE TO THE CASE OF THE ASSESSEE AND AS TO HOW WHAT IS THE DIFFERENCE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. LD. AO HAS ALSO OBSERVED THAT THE SAID DECISION OF TRIBUNAL IN THE CASE OF M/S. BOMBAY OIL INDUSTRIES LTD. VS. DCIT(SUPRA) HAS NOT BEEN ACCEPT ED BY THE DEPARTMENT AND AN APPEAL HAS BEEN FILED BEFORE HONBLE HIGH COUNT. THUS, THE AO IS NOT EVEN DISPUTING THE ISSUE RAISED IN THE PRESENT CASE IS C OVERED BY THE AFOREMENTIONED DECISION OF THE TRIBUNAL BUT HE HAS DENIED TO FOLL OW IT ON THE GROUND THAT THE SAID DECISION IS NOT ACCEPTED BY THE REVENUE AND AN APPEAL HAS BEEN FILED AGAINST THAT ORDER. IT IS THE CONTENTION OF THE AS SESSEE THAT THE AMOUNT RECEIVED BY THE ASSESSEE BEING IN THE NATURE OF I CDS CANNOT BE ADDED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. COPY OF THE SAID DECISION OF ITA NO.2596/MUM/2012 : ASST.YEAR 2006-07 ITA NO.2606/MUM/2012 : ASST.YEAR 2007-08 9 THE TRIBUNAL WHICH IS REPORTED IN 82 ITD 626 HAS BE EN FILED BY LD. AR IN PAPER BOOK AT PAGES 123 TO 129. THE QUESTION BEFORE THE TRIBUNAL IN THAT CASE WAS THAT WHETHER INTER CORPORATE DEPOSITS (ICDS) ARE DI FFERENT FROM LOANS OR ADVANCES AND WOULD NOT COME WITHIN THE PURVIEW OF D EEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT AND THE QUESTION WAS A NSWERED IN AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE WITH THE FOLLOWING OBSERVATI ONS: FROM THE ABOVE IT IS CLEAR THERE IS DISTINCTION BE TWEEN DEPOSITS VIS--VIS LOANS/ADVANCES. SECTION 2(22)(E) ENACTS A DEEMING FICTION WHEREBY THE SCOPE AND AMBIT OF THE WORD DIVIDEND HAS BEEN ENLARGED TO BRI NG WITHIN ITS SWEEP CERTAIN PAYMENTS MADE BY A COMPANY AS PER THE SITUATIONS EN UMERATED IN THE SECTION. SUCH A DEEMING FICTION WOULD NOT BE GIVEN A WIDER M EANING THAT IT PURPORTS TO DO. THE PROVISIONS WOULD NECESSARILY BE ACCORDED STRICT INTERPRETATION AND THE AMBIT OF THE FICTION WOULD NOT BE PRESSED BEYOND ITS TRUE LIMITS. THE REQUISITE CONDITION FOR INVOKING SECTION 2(22)(E) OF THE ACT IS THAT PA YMENT MUST BE BY WAY OF LOAN OR ADVANCES. SINCE THERE IS CLEAR DISTINCTION BETWEE N THE INTER-CORPORATE DEPOSITS VIS--VIS LOANS/ADVANCES, ACCORDING TO US THE AUTH ORITIES BELOW WERE NOT RIGHT IN TREATING THE SAME AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. SINCE WE HOLD THAT ICDS DO NOT COME WITHIN THE PURVIEW OF D EEMED DIVIDEND UNDER SECTION 22(22)(E) OF THE ACT, THE UNSECURED LOANS RECEIVED BY THE ASSESSEE IS NOT DIVIDEND IS NOT ADJUDICATED. NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE. T HEREFORE, NOT GOING INTO OTHER ISSUES WHICH HAVE ALSO BEEN RAISED BY LD. AR TO C ONTENT THAT ON OTHER GROUNDS ALSO NO ADDITION WAS LIABLE TO BE MADE UNDER SECTIO N 2(22)(E), WE HOLD THAT THE AMOUNT BEING IN THE NATURE OF ICDS WAS NOT LIABLE T O BE ADDED TO THE INCOME OF THE ASSESSEE AS ICDS DO NOT FALL WITHIN THE AMBIT O F SECTION 2(22)(E) OF THE ACT AS PER AFOREMENTIONED DECISION OF TRIBUNAL IN THE CASE OF M/S. BOMBAY OIL INDUSTRIES LTD. VS. DCIT(SUPRA). 6.1 IT HAS ALREADY BEEN POINTED OUT THAT FOR A.Y 20 06-07 LD. CIT(A) HAS SIMPLY FOLLOWED HIS DECISION GIVEN IN RESPECT OF A. Y 2007-08, THEREFORE, APPLYING THE AFOREMENTIONED DECISION TAKEN IN RESPECT OF A.Y 2007-08, WE HOLD THAT NO ADDITION IN THIS YEAR ALSO WAS LIABLE TO BE MADE UN DER SECTION 2(22)(E) OF THE ACT. 6.2 IN VIEW OF THE ABOVE DISCUSSION GROUND NO.1 OF BOTH THE APPEALS IS ALLOWED IN THE MANNER AFORESAID. ITA NO.2596/MUM/2012 : ASST.YEAR 2006-07 ITA NO.2606/MUM/2012 : ASST.YEAR 2007-08 10 7. GROUND NO.2 OF ASSESSEES APPEAL FOR A.Y 2006-07 IS REGARDING LEVY OF INTEREST UNDER SECTION 234B. IT WAS SUBMITTED THAT THE SAME IS CONSEQUENTIAL, THEREFORE, AO IS DIRECTED TO RE-COMPUTE THE INTERES T UNDER SECTION 234B AFTER GIVING EFFECT TO THIS ORDER AS PER PROVISIONS OF L AW. WE DIRECT ACCORDINGLY. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO.3 TAKEN AS ADDITIONAL GROUND CHALLENGI NG THE VALIDITY OF RE- ASSESSMENT PROCEEDINGS. IN VIEW OF OUR DECISION O N MERIT IN FAVOUR OF ASSESSEE THE GROUND HAS BECOME INFRUCTUOUS AND IS DIMISSED. 9. APROPOS GROUND NO.2, FOR ASSESSMENT YEAR 2007-08 THE FACTS ARE AS UNDER: 9.1 THE ASSESSEE HAS EARNED TAX FREE DIVIDEND INCOM E OF RS.3,26,340/-. THE AO CALCULATED THE DISALLOWANCE UNDER SECTION 14A WI TH REFERENCE TO RULE 8D AT A SUM OF RS.2,31,776/-. LD. CIT(A) HAS UPHELD THE DISALLOWANCE. IT IS THE GRIEVANCE OF THE ASSESSEE THAT THOUGH HAVING HELD T HAT ACCORDING TO DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, 328 ITR 81(BOM) RULE 8D WILL NOT BE APPLICABL E FOR ASSESSMENT YEARS EARLIER TO A.Y 2008-09, LD. CIT(A) HAS UPHELD THE DISALLOWANCE AS CALCULATED BY A.O WITH REFERENCE TO RULE -8D. 9.2 WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. AFTER CAREFUL CONSIDERATION, WE ARE OF THE OPINION THAT LD. CIT(A) HAS COMMITTED AN ERROR IN CONFIRMING THE DISALLOWANCE MADE BY THE AO WHICH WAS CALCULATED WI TH REFERENCE TO RULE 8D. SUCH ORDER OF LD. CIT(A) WILL BE CONTRARY TO THE AF OREMENTIONED DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT(SUPRA), ACCORDING TO WHICH REASONABLE DISA LLOWANCE HAS TO BE MADE WITHOUT REFERENCE TO RULE 8D IN RESPECT OF ASSESSM ENT YEARS PRIOR TO A.Y 2008- 09. IN THE PRESENT CASE ASSESSEE HAS EARNED TAX F REE DIVIDEND INCOME OF RS.3,26,340/- AND ASSESSMENT YEAR IS 2007-08. TH EREFORE, KEEPING IN VIEW THE SMALLNESS OF THE DIVIDEND INCOME, WE CONSIDER I T REASONABLE TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 5% OF THE DIVIDEND IN COME. THE AO IS DIRECTED TO ITA NO.2596/MUM/2012 : ASST.YEAR 2006-07 ITA NO.2606/MUM/2012 : ASST.YEAR 2007-08 11 CALCULATE DISALLOWANCE @ 5% OF THE EXEMPTED DIVIDE ND INCOME AND GRANT NECESSARY RELIEF TO THE ASSESSEE THIS GROUND IS PA RTLY ALLOWED. 10. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALL OWED IN THE MANNER AFORESAID. ORDER PRONOUNCED ON THIS 21ST DAY OF MAY, 2014. !3 , 012 4 5 21/5/14 1 , : SD/- SD/- (N.K.BILLAIYA) (I.P.BANSAL) !% !% !% !% / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 4 DATED : 21ST MAY, 2014. VM. !3 , *.' ;!'2. !3 , *.' ;!'2. !3 , *.' ;!'2. !3 , *.' ;!'2./ COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT 2. *+'( / THE RESPONDENT. 3. <() / THE CIT, MUMBAI. 4. < / CIT(A)-13, MUMBAI 5. '?: *. , , / DR, ITAT, MUMBAI 6. :@ / GUARD FILE. !3 !3 !3 !3 / BY ORDER, +'. *. //TRUE COPY// A AA A/ // /B C B C B C B C (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI