Abir Investments Pvt.Ltd., Ahmedabad V. The ACIT.,Circle-1, Ahmedabad

ITA 2912/AHD/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0476 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-10-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-10-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 25-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Deemed dividend; Commercial expediency
• Section: 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 2912/AHD/2011 (ASSESSMENT YEAR: 2008-09) ABIR INVESTMENTS PVT. LTD. 74, MADHUBAN, NR. MADALPUR UNDERBRIDGE, ELLISBRIDGE, AHMEDABAD V/S THE ACIT, CIRCLE-1, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABCA3129Q APPELLANT BY : SHRI PRASOON KABRA, SR. D. R. RESPONDENT BY : NONE ( )/ ORDER DATE OF HEARING : 04 -10-201 6 DATE OF PRONOUNCEMENT : 06 -10-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF LD. CIT(A)-VI, AHMEDABAD DATED 27.09.2011 PERTAINING TO A.Y. 2008- 09. ITA NO 2912/ AHD/2011 . A.Y. 2008-09 2 2. THE ASSESSEE HAS RAISED THREE SUBSTANTIVE GROUNDS O F APPEAL. GROUND NO. 1 RELATES TO THE ADDITION ON ACCOUNT OF LOANS TREATED AS DEEMED DIVIDENDS U/S. 2(22)(E) OF THE ACT AMOUNTING TO RS. 1,55,20,0 00/-, GROUND NO. 2 RELATES TO THE DISALLOWANCE ON ACCOUNT OF INSURANCE PREMIUM OF RS. 5,25,578/- AND GROUND NO. 3 RELATES TO THE ADDITION MADE U/S. 14A OF THE ACT AMOUNTING TO RS. 2,39,857/-. 3. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON WAS FILED ON 29/09/2008 DECLARING TOTAL INCOME OF RS. 31,94,099/ -. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY ST ATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS AND ON EXAMINATION OF THE BALANCE SHEET OF THE ASSESSEE-CO MPANY, THE A.O. FOUND THAT THE ASSESSEE-COMPANY HAS UNSECURED LOANS AGGRE GATING TO RS. 4,53,09,090/- AS ON 31.03.2008. ON FURTHER EXAMINAT ION, THE A.O. FOUND THAT DURING THE YEAR THE ASSESSEE-COMPANY HAS RECEI VED LOANS AND ADVANCES AMOUNTING TO RS. 4,03,70,000/-. ASSESSEE W AS ASKED TO FURNISH THE DETAILS OF THE UNSECURED LOANS. THE ASSESSEE FI LED THE REQUISITE DETAILS. ON EXAMINATION OF THE DETAILS, THE A.O. FOUND THAT THE ASSESSEE-COMPANY HAS RECEIVED AN UNSECURED LOANS OF RS. 1,55,20,000/ - FROM ARCATA TRADE LINK PVT. LTD. (ATLPL). 5. ON VERIFICATION OF THE SHAREHOLDING PATTERN OF THE ASSESSEE-COMPANY QUA ATLPL, THE A.O. FOUND THAT THE ASSESSEE COMPANY HOL DS 26.81%% SHARES IN ITA NO 2912/ AHD/2011 . A.Y. 2008-09 3 ATLPL. THE A.O. FURTHER FOUND THAT ATLPL HAS ACCUMU LATED PROFITS OF RS. 3,22,97,892/-. 6. DRAWING SUPPORT FROM THE PROVISIONS OF SECTION 2(22 )(E) OF THE ACT, THE A.O. ASKED THE ASSESSEE TO SHOW CAUSE WHY THE SUM OF RS. 1,55,20,000/- SHOULD NOT BE TREATED AS DEEMED DIVIDEND. 7. IN RESPONSE, THE ASSESSEE FILED A DETAILED REPLY VI DE SUBMISSION DATED 09/12/2010 AND STRONGLY CONTENDED THAT THE AMOUNT O F RS. 1,55,20,000/- RECEIVED FROM ATLPL HAS BEEN WRONGLY CLASSIFIED UND ER THE HEAD LOAN FROM COMPANIES. IT WAS EXPLAINED THAT IN FACT THIS IS A SHARE APPLICATION MONEY RECEIVED FROM ATLPL. ASSESSEE FILED COPY OF L EDGER ACCOUNT DULY CONFIRMED BY ATLPL ALONG WITH THE COPY OF BOARD RES OLUTION OF ATLPL. 8. THIS CONTENTION OF THE ASSESSEE WAS DISMISSED BY TH E A.O. FOR THE FOLLOWING REASONS:- (I) RS. 1,55,20,000/- RECEIVED FROM ATLPL HAS BEEN SHOWN AS UNSECURED LOAN IN THE BALANCE SHEET OF THE ASSESSEE-COMPANY AND FU RTHER THE SAME IS ALSO SHOWN AS LOAN IN THE SCHEDULE-II OF 3CD REPORT. (II) THE CONTRA ACCOUNT OF ATLPL FILED BY THE ASSES SEE ITSELF SHOW THE AMOUNT OF RS. 1,55,20,000/- AS LOAN AMOUNT. THIS IS AS PER THE COPY OF THE LEDGER ACCOUNT OF ATLPL SUBMITTED VIDE LETTER DATED 21.10. 2010. (III) THE ASSESSEE HAS ONLY PRODUCED A COPY OF THE BOARD RESOLUTION OF ATLPL WHEN DEMONSTRATING THAT THE SHARES HAVE BEEN ACTUAL LY ALLOTTED BY THE ASSESSEE-COMPANY. NO DOCUMENTARY EVIDENCES HAVE BEE N BROUGHT ON ITA NO 2912/ AHD/2011 . A.Y. 2008-09 4 RECORD TO SUGGEST THAT ANY INTIMATION HAS BEEN SENT TO THE REGISTRAR OF THE COMPANY. (IV) THE STORY OF SHARE APPLICATION MONEY HAS BEEN MADE ONLY AFTER THE ISSUE OF SHOW CAUSE NOTICE ASKING THE ASSESSEE TO SHOW CA USE WHY THE IMPUGNED AMOUNT SHOULD NOT BE TREATED AS DEEMED DIVIDEND. 9. THE A.O. FURTHER DISMISSED THE CLAIM OF THE ASSESSE E THAT THE IMPUGNED TRANSACTION IS IN THE NATURE OF INTER-CORPORATE DEP OSITS AND, THEREFORE, OUTSIDE THE PURVIEW OF SECTION 2(22)(E) OF THE ACT. 10. THE A.O. CONCLUDED BY OBSERVING THAT THE LOAN RECEI VED BY THE ASSESSEE- COMPANY FROM ATLPL AMOUNTING TO RS. 1,55,20,000/- S ATISFIES ALL THE CONDITIONS MENTIONED U/S. 2(22)(E) OF THE ACT AND Q UALIFIES AS DEEMED DIVIDEND. THE A.O. ACCORDINGLY MADE THE ADDITION OF RS. 1,55,20,000/-. 11. ON FURTHER PROBE, THE A.O. FOUND THAT THE ASSESSEE HAS DEBITED RS. 5,25,578/- AS INSURANCE PREMIUM PAID ON THE LIFE OF THE DIRECTOR. ON VERIFICATION, THE A.O. FOUND THAT THE INSURANCE POL ICIES ARE IN THE PERSONAL NAMES OF THE DIRECTOR. THE A.O. WAS OF THE FIRM BEL IEF THAT SUCH EXPENDITURES ARE OF PERSONAL IN NATURE AND CANNOT B E ALLOWED U/S. 37 OF THE ACT. 12. THE A.O. STRONGLY OBJECTED TO THIS OBSERVATION OF THE A.O. CLAIMING THAT THE INSURANCE PREMIUM PAID ON THE LIFE OF THE DIRECTORS ARE IN THE FORM PERQUISITES AND, THEREFORE, ALLOWABLE. THIS CONTENT ION OF THE ASSESSEE DID ITA NO 2912/ AHD/2011 . A.Y. 2008-09 5 NOT FIND ANY FAVOUR WITH THE A.O. WHO MADE THE DISA LLOWANCE OF RS. 5,25,578/-. 13. ON FURTHER EXAMINATION, THE A.O. FOUND THAT THE ASS ESSEE HAS EARNED DIVIDEND INCOME OF RS. 3,16,907/- AND LONG TERM CAP ITAL GAIN AT RS. 7,83,525/- WHICH HAVE BEEN CLAIMED AS EXEMPT. INVOK ING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE ACT, THE ASSES SEE WAS ASKED TO EXPLAIN WHY DISALLOWANCE IN RELATION TO EXPENSES INCURRED F OR EARNING EXEMPT INCOME SHOULD NOT BE MADE AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. 14. ASSESSEE FILED A DETAILED REPLY EXPLAINING THAT THE SHARE INVESTMENTS HAVE BEEN MADE THROUGH PORTFOLIO MANAGEMENT COMPANY, KOT AK MAHINDRA FOR WHICH THE ASSESSEE HAS PAID RS. 2,94,345/- AS PORTF OLIO MANAGEMENT FEES AND THE SAME HAS ALSO BEEN DISALLOWED. FURTHER DEMA T CHARGES OF RS. 16,238/- AND SECURITY TRANSACTION TAX OF RS. 8003/- HAVE ALSO BEEN DISALLOWED. THEREFORE, NO FURTHER DISALLOWANCE IS N ECESSARY. THE CLAIM OF THE ASSESSEE WAS DISMISSED AND THE A.O. COMPUTED TH E DISALLOWANCE AT RS. 2,39,857/-. 15. AGGRIEVED BY THESE ADDITIONS/DISALLOWANCES, THE ASS ESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCES S. 16. THE RELEVANT FINDINGS OF THE LD. CIT(A) WHILE CONFI RMING THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND READS AS UNDER:- ITA NO 2912/ AHD/2011 . A.Y. 2008-09 6 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESS MENT ORDER AND APPELLANT'S SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANT IS A SUBSTANTIAL SHAREHOLDER OF THE LENDER COMPANY AND IS COVERED BY THE PROVISIONS OF SECTION 2(22)(E) OF IT ACT. THE MONEY RECEIVED BY THE APPELLANT WAS REFLECTED AS LO ANS AND ADVANCES IN THE BOOKS AS WELL AS BALANCE SHEETS OF APPELLANT AS WELL AS L ENDER COMPANY. WHEN ASSESSING OFFICER RAISED THE ISSUE AS TO WHY THE LO ANS RECEIVED FROM ARCATA TRADE LINK PRIVATE LTD SHOULD NOT BE TREATED AS DEEMED DI VIDEND, APPELLANT TOOK AN ARGUMENT THAT IT WAS SHARE APPLICATION MONEY RECEIV ED FROM THE SAID COMPANY. TO SUPPORT ITS CLAIM, APPELLANT EVEN PREPARED SHARE AP PLICATION FORM AND BOARD RESOLUTION TO THIS EFFECT. HOWEVER WHILE DOING SO, APPELLANT DID NOT REALIZE THAT THE LOAN TRANSACTIONS WITH ARCATA TRADE LINK PRIVATE LT D ARE SO MANY DURING THE YEAR THAT THESE COULD NOT BE PUT IN THE CATEGORY OF SHAR E APPLICATION MONEY. ASSESSING OFFICER DEALT WITH THIS ISSUE IN GREAT DETAIL. THE ARGUMENTS ARE NOT REPEALED HERE BUT I FULLY AGREE WITH THE ASSESSING OFFICER'S VIEW . APPELLANTS ARGUMENT THAT ENTRIES IN THE BOOKS OF A CCOUNTS WILL NOT DETERMINE THE NATURE OF TRANSACTIONS IS RELEVANT WHERE FACTS PROV E THE NATURE OF TRANSACTIONS OTHERWISE. IN THE CASE OF APPELLANT, THERE ARE NO F ACTS CONTRARY TO ACCOUNTING ENTRIES AND THEREFORE IT CAN BE HELD THAT ACCOUNTIN G ENTRIES REFLECT TRUE STALE OF TRANSACTIONS. IN THE CASE OF APPELLANT THE LOAN TRA NSACTIONS WERE MORE THAN 20 DURING THE YEAR AND THERE WERE CERTAIN REPAYMENTS A LSO. TREATING THESE MANY LOAN TRANSACTIONS AS SHARE APPLICATION MONEY IS NOTHING BUT CREATING FALSE EVIDENCES TO GET OUT OF THE CLUTCHES OF DEEMED DIVIDEND. THERE I S NO CONTEMPORARY EVIDENCE WITH THE APPELLANT BEFORE ASSESSING OFFICER TOOK UP THE ISSUE OF DEEMED DIVIDEND THAT THESE LOAN TRANSACTIONS WERE SHARE APPLICATION MONEY RECEIVED. THE EVIDENCES WERE CREATED BY THE APPELLANT AND RELATED LENDER CONCERN EVEN WHEN THE FACTS ARE CONTRARY. NONE OF THE DECISION RELIED UPON BY THE APPELLANT SUPPORTS THE APPELLANTS CLAIM THAT THE LOANS TAKEN ARE IN F ACT SHARE APPLICATION MONEY. THE HEIGHT OF APPELLANTS ARGUMENT IS IN ITS ALTERN ATIVE CLAIM OF ICD. IF IT IS INTER CORPORATE DEPOSITS, THEN HOW CAN IT BE SHARE APPLIC ATION MONEY? THIS CLAIM ITSELF PROVES THAT APPELLANT MADE THE CLAIM OF SHARE APPLI CATION MONEY JUST TO GET OUT OF ITA NO 2912/ AHD/2011 . A.Y. 2008-09 7 DEEMED DIVIDEND PROVISIONS. FALSE EVIDENCES WERE CR EATED FOR THIS PURPOSE. CONSIDERING THIS, APPELLANTS CLAIM OF SHARE APPLIC ATION MONEY IS REJECTED. COMING TO THE APPELLANT'S CLAIM OF INFER CORPORATE DEPOSITS, IT IS NOT REFLECTED FROM RECORDS THAT LOANS TAKEN FROM ASSOCIATE CONCER N IS ICD IN THE NORMAL COURSE OF BUSINESS. NEITHER APPELLANT NOR ASSOCIATE CONCER N IS IN THE BUSINESS OF ICD. ASSESSING OFFICER DISCUSSED THE NATURE OF ICD IN DE TAIL AND I ENDORSE HIS VIEW THAT APPELLANT'S LOAN TRANSACTIONS CANNOT GET OUT OF THE PURVIEW OF DEEMED DIVIDENDS UNDER SECTION 2(22)(E) OF IT ACT. IN THE CASE OF AP PELLANT, THE LOAN TRANSACTIONS ARE NOT IN THE NATURE OF ICD SINCE THERE IS NO TENURE O R INTEREST PAYMENT IN THE APPELLANT'S TRANSACTIONS. THE DECISIONS RELIED UPON BY THE APPELLANT ARE NOT APPLICABLE IN THE CLEAR FACTS OF THE CASE. IN MY CO NSIDERED VIEW, IT IS A FIT CASE OF APPLICATION OF SECTION 2(22)(E). IF SUCH TRANSACTIO NS WILL NOT BE CONSIDERED DEEMED DIVIDEND THEN THERE MAY NOT BE ANY TRANSACTIONS WHI CH MAY FIND PLACE IN THE CATEGORY OF DEEMED DIVIDEND. THE PROVISION IN THE S TATUTE AND THEREFORE THE SAME HAS TO BE APPLIED. ACCORDINGLY, I CONFIRM THE ADDIT ION MADE BY THE ASSESSING OFFICER. 17. THE RELEVANT FINDINGS OF THE LD. CIT(A) WHILE CONFI RMING THE ADDITION ON ACCOUNT OF INSURANCE PREMIUM PAID READS AS UNDER:- 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSMENT O RDER AND APPELLANTS SUBMISSION. APPELLANT CLAIMED INSURANCE PREMIUM PAI D ON THE LIFE OF ITS DIRECTORS AS ALLOWABLE DEDUCTION. THE INSURANCE PREMIUM PAID WAS NOT UNDER KEYMAN INSURANCE PREMIUM SCHEME AND THEREFORE RELEVANT PRO VISIONS AND CIRCULARS ISSUED IN RESPECT OF KEYMAN INSURANCE SCHEME ARE NOT APPLI CABLE. ACCORDINGLY THE APPELLANTS SUBMISSIONS WITH REGARD TO KEYMAN INSUR ANCE PREMIUM ARE NOT DISCUSSED. UNDOOUBTEDLY, THE PAYMENT IS INSURANCE P REMIUM ON THE LIC POLICY TAKEN BY THE DIRECTORS. THE PREMIUM WAS NOT PAID FO R THE BENEFIT OF THE COMPANY BUT THE SAME WAS FOR DIRECTORS. IT WAS BASICALLY DI RECTORS PERSONAL RESPONSIBILITY TO PAY FOR INSURANCE POLICIES TAKEN BY THEM. THIS I S DIFFERENT THAN THE KEYMAN INSURANCE POLICY IN WHICH PREMIUM IS PAID BY THE CO MPANY AND ON THE DEATH OF ITA NO 2912/ AHD/2011 . A.Y. 2008-09 8 KEYMAN, THE INSURANCE MONEY IS RECEIVED BY THE COMP ANY AND IS TAXABLE IN THE HANDS OF THE COMPANY. SINCE INSURANCE PREMIUM PAID IN THE CASE OF APPELLANT IS NOT FOR THE BENEFIT OF THE COMPANY, THE EXPENSE IS NOT ALLOWABLE AS BUSINESS EXPENSE. THE ALTERNATIVE ARGUMENT OF THE APPELLANT IS THAT I T IS PERQUISITE AS PER TERMS OF EMPLOYMENT AND ALLOWABLE AS SALARY TO DIRECTORS. HO WEVER DURING THE COURSE OF APPEAL HEARING IT IS CONFIRMED THAT INSURANCE PREMI UM IS NOT PAID BY THE APPELLANT AS PER TERMS OF EMPLOYMENT AND IT IS NOT PERQUISITE IN THE HANDS OF DIRECTORS. IN THE PERSONAL INCOME TAX RETURNS OF TH E DIRECTORS, INSURANCE PREMIUM PAID BY THE APPELLANT COMPANY WAS NOT OFFERED FOR T AX. IN THE LIGHT OF THESE FACTS AVAILABLE ON RECORD AND CONFRONTED TO APPELLANTS C OUNSEL DURING APPEAL HEARING, IT IS CLEAR THAT THE PAYMENT OF INSURANCE PREMIUM W AS THE PERSONAL RESPONSIBILITY OF THE DIRECTORS AND SUCH PAYMENT HAD NOTHING TO DO WITH THE BUSINESS PURPOSE OF THE APPELLANT COMPANY. IN VIEW OF THIS, THE CLAIM O F INSURANCE PREMIUM MADE BY THE APPELLANT IS WITHOUT ANY BASIS AND FOR NO BUSIN ESS PURPOSE AND ACCORDINGLY THE DISALLOWANCE MADE BY THE A.O. IS CONFIRMED. 18. THE RELEVANT FINDINGS OF THE LD. CIT(A) FOR UPHOLDI NG THE DISALLOWANCE MADE U/S. 14A READS AS UNDER:- 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESS MENT ORDER AND APPELLANT'S SUBMISSION. ASSESSING OFFICER MADE DISALLOWANCE OF EXPENSE RELATING TO EXEMPT INCOME. SUCH DISALLOWANCE WAS CONSIDERED NECESSARY SINCE APPELLANT DID NOT DISALLOW ANY PART OF INTEREST AND OTHER EXPENSES TR EATING THE SAME AS RELATING TO INVESTMENT RESULTING IN EXEMPT INCOME. NOW RULE 8D IS HELD IO BE APPLICABLE WITH EFFECT FROM ASSESSMENT YEAR 2008-09 BY BOMBAY HIGH COURT THE DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME ARE IO BE MADE B Y THE METHOD PRESCRIBED IN THE SAID RULE. IT IS NOT IN DISPUTE THAT APPELLANT EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND ON INVESTMENT OF MORE THAN RS. 213 LACS . APPELLANT PAID INTEREST OF RS. 36.58 LACS ON BORROWED FUNDS USED FOR BUSINESS PURPOSES AS WELL AS MAKING INVESTMENTS. APPELLANT INCURRED SUBSTANTIAL EMPLOYE ES' REMUNERATION AND OTHER ITA NO 2912/ AHD/2011 . A.Y. 2008-09 9 ADMINISTRATIVE EXPENSES, PART OF WHICH MAY RELATE T O INVESTMENT RESULTING IN EXEMPT INCOME. SIMILARLY PAYMENT OF INTEREST WILL A LSO PARTLY RELATE TO INVESTMENT RESULTING IN EXEMPT INCOME' THEREFORE DISALLOWANCE UNDER SECTION 14 A ON ACCOUNT-.OF INTEREST AND OTHER EXPENSES ARE NECESSA RY. COMING TO THE METHOD OF COMPUTATION OF DISALLOWANCE UNDER SECTION 14A, ASSESSING OFFICER DISALLOWED EXPENSES RELATABLE TO EXEMPT INCOME AS PER RULE 8D WHICH IS MANDATORY FROM ASSESSMENT YEAR 2008-09. FO R INTEREST, PROPORTIONED EXPENSE IS DISALLOWABLE WHEREAS FOR OTHER EXPENSES .5% OF INVESTMENT VALUE IS DISALLOWABLE. CONSIDERING THE FACT THAT APPELLANT C LAIMED HUGE ADMINISTRATIVE AND OTHER EXPENSES, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES MADE BY THE ASSESSING OFFICER @ .5% OF INVESTMENT RESULTING IN EXEMPT INCOME IS REASONABLE THE FORMULA GIVEN IN RULE 8D IS MANDATORY FOR MAKIN G DISALLOWANCE. IN VIEW OF THIS THE ADDITION @ .5% OF INVESTMENT RESULTING IN EXEMPT INCOME MADE BY THE ASSESSING OFFICER IS CONFIRMED. AS REGARDS INTEREST, APPELLANT HAD BORROWED FUNDS O N WHICH INTEREST WAS PAID. WHILE MAKING INVESTMENTS, BOTH BORROWED FUNDS AS WE LL AS OWN FUNDS WERE USED HENCE ONE CANNOT SAY THAT BORROWED FUNDS WERE USED ONLY FOR BUSINESS PURPOSE AND OWNED CAPITAL WAS ONLY USED FOR INVESTMENT. ADM ITTEDLY NO SEPARATE ACCOUNTS ERE MAINTAINED FOR BUSINESS AND INVESTMENT ACTIVITI ES THEREFORE APPELLANT'S CLAIM IS NOT JUSTIFIED THAT BORROWED FUNDS WERE NOT USED IN MAKING INVESTMENT. THEREFORE IN THE ABSENCE OF CLEAR CUT DETAILS OF UT ILIZATION OF FUNDS, THE FORMULA GIVEN IN RULE 8D WHICH IS MANDATORY FROM THIS YEAR ONWARD IS MOST APPROPRIATE METHOD. SINCE ASSESSING OFFICER WORKED OUT INTEREST DISALLOWANCE ON THE SAME BASIS, THE INTEREST DISALLOWANCE IS CONFIRMED. THESE GROUNDS ARE ACCORDINGLY DISMIS SED. 19. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE A PPEAL WAS FIRST POSTED FOR HEARING ON 30.01.2012. THEREAFTER, THE ASSESSEE HAS BEEN TAKING ADJOURNMENTS CONSTANTLY. ON THIS DATE OF HEARING, N ONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY APPLICATION HAS BEEN MOVED FOR SEEKING ITA NO 2912/ AHD/2011 . A.Y. 2008-09 10 ADJOURNMENT. SINCE, THIS IS AN OLD MATTER AND THE A SSESSEE HAS BEEN FREQUENTLY TAKING ADJOURNMENTS WITHOUT ANY JUSTIFIA BLE CAUSE, WE DECIDED TO PROCEED EX PARTE. 20. HAVING HEARD THE LD. D.R., WE HAVE CAREFULLY PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THE FIRST GRIEVANCE OF THE ASSES SEE RELATES TO THE ADDITION OF RS. 1,55,20,000/- TREATED AS DEEMED DIVIDEND U/S . 2(22)(E) OF THE ACT. THE UNDISPUTED FACT IS THAT THE ASSESSEE IS HOLDING 26.81% SHARES IN ATLPL. IT IS ALSO AN UNDISPUTED FACT THAT THE IMPUGNED AMO UNT HAS BEEN SHOWN UNDER THE HEAD LOANS AND ADVANCES FROM COMPANIES. IT IS ALSO AN UNDISPUTED FACT THAT WHEN THE ASSESSEE MADE ITS FIR ST SUBMISSION ALONG WITH THE COPY OF THE LEDGER ACCOUNT, THE SAME WAS S HOWN AS UNSECURED LOAN. IT IS ONLY WHEN THE A.O. ISSUED SHOW CAUSE NO TICE; THE ASSESSEE TOOK AN ALTOGETHER NEW PLEA THAT THE IMPUGNED AMOUNT IS NOTHING BUT SHARE APPLICATION MONEY RECEIVED FROM ATLPL. 21. LET US FIRST CONSIDER THIS CLAIM OF THE ASSESSEE. A PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE SHOWS AT SCHEDULE-1, THE SHAR E CAPITAL OF THE ASSESSEE WHICH IS AT PAGE 13 OF THE PAPER BOOK AND READS AS UNDER:- SHARE CAPITAL AS AT 31-03-2008 AS AT 31-03-2 007 AUTHORISED 100000 EQUITY SHARES OF RS. 10/- 1000000.00 1000000.00 EACH (P.Y. 100000) 1900000 8% CUMMU. RED. PREFERENCE 19000000.00 190 00000.00 SHARES OF RS. 10/- EACH FULLY PAID UP 20000000.00 2000000.00 (P.Y. 1900000) ITA NO 2912/ AHD/2011 . A.Y. 2008-09 11 ISSUED,SUBSCRIBED & PAID UP: 100000 EQUITY SHARES OF RS. 10/- 1000000.0 0 1000000.00 EACH FULLY PAID UP (P.Y. 100000) 1900000 8% CUMMU. RED. PREFERANCE 19000000.00 19000000.00 SHARES OF RS.10/- EACH FULLY PAID UP 2000000.00 20 00000.00 (P.Y.1900000) TOTAL:- 20000000.00 20000000.00 22. AS CAN BE SEEN FROM THE ABOVE, THE AUTHORIZED SHA RE CAPITAL OF RS. 2 CRORES IS FULLY PAID UP. WHEN THE AUTHORIZED CAPITAL HAS B EEN FULLY SUBSCRIBED AND PAID UP, WE FAIL TO UNDERSTAND HOW CAN THE ASSESSEE ACCEPT SHARE APPLICATION MONEY OF RS. 1,55,20,000/- WHEN IT CANN OT ALLOT SHARES OF EVEN ONE RUPEE TO ANYONE. THERE IS NO DOCUMENTARY EVIDEN CE ON RECORD TO SUGGEST THAT THE ASSESSEE HAS APPLIED FOR THE INCRE ASE IN ITS AUTHORIZED SHARE CAPITAL. WHEN THE SUBSCRIBED AND PAID UP SHA RE CAPITAL HAS FULLY EXHAUSTED, THE AUTHORIZED SHARE CAPITAL OF THE ASSE SSEE COMPANY CLAIMING TO HAVE RECEIVED SHARE APPLICATION MONEY OF RS. 1.5 5 CRORES IS NOTHING BUT EYEWASH AND AFTERTHOUGHT JUST TO MANIPULATE THE FAC TS. THE THEORY OF SHARE APPLICATION MONEY CAN BE DEMOLISHED SIMPLY BY THESE FACTS ON RECORD. 23. THE SECOND CLAIM OF THE ASSESSEE IS THAT IT IS AN I NTER-CORPORATE DEPOSITS. THE ASSESSEE BLOWS HOT AND COLD IN THE SAME BREATH. ON THE ONE HAND IT IS CLAIMING THE IMPUGNED AMOUNT AS SHARE APPLICATION M ONEY AND WHEN THIS STORY IS DEMOLISHED, IT IS TAKING AN ALTERNATIVE PL EA ON INTER-CORPORATE DEPOSITS (ICD). THERE IS NOTHING ON RECORD TO SUGGE ST THAT THE TWO COMPANIES ARE AUTHORIZED FOR INTER-CORPORATE DEPOSI TS. SINCE THERE IS NO DEMONSTRATIVE EVIDENCE ON RECORD BY WHICH IT CAN BE PROVED THAT THE ITA NO 2912/ AHD/2011 . A.Y. 2008-09 12 IMPUGNED AMOUNT IS INTER-CORPORATE DEPOSITS, THE CL AIM OF THE ASSESSEE CANNOT BE ACCEPTED. 24. CONSIDERING THE AFORE-STATED FACTS IN TOTALITY, WE DO NOT FIND ANY MERITS IN THIS GROUND OF APPEAL AND THE SAME IS DISMISSED. 25. COMING TO THE SECOND GRIEVANCE OF THE ASSESSEE WHIC H RELATES TO THE DISALLOWANCE OF INSURANCE PREMIUM, THERE IS NO DENY ING THAT THE INSURANCE PREMIUM HAS BEEN PAID ON THE LIFE OF THE DIRECTORS OF THE COMPANY. THE CLAIM OF THE ASSESSEE THAT SUCH INSURANCE PREMIUM I S NOTHING BUT PERQUISITE IS NOT ACCEPTABLE. SINCE THERE IS NOTHING ON RECORD WHICH COULD SUGGEST THAT SUCH PERQUISITE IS PART OF THE SERVICE AGREEMENT WI TH THE DIRECTORS. MOREOVER, THERE IS NO COMMERCIAL EXPEDIENCY TO TAKE INSURANCE ON THE LIFE OF DIRECTORS UNLESS THE PREMIUM IS PAID TOWARDS KEY MAN INSURANCE POLICY. THE ASSESSEE HAS ALSO FAILED TO PRODUCE ANY DOCUMEN TARY EVIDENCE TO PROVE THAT THE SAID AMOUNT HAS BEEN TREATED AS A PERQUISI TE IN THE HANDS OF THE DIRECTORS. CONSIDERING ALL THESE FACTS IN TOTALITY, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THE SECOND GRIEVANC E OF THE ASSESSEE IS ALSO DISMISSED. 26. THE THIRD GRIEVANCE RELATES TO THE DISALLOWANCE MAD E U/S. 14A READ WITH RULE 8D OF THE ACT. THERE IS NO DENYING THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS EARNED EXEMPT INCOME IN THE FORM OF DIVIDENDS AND LONG TERM CAPITAL GAINS. IT IS ALSO A N ADMITTED FACT THAT THE ASSESSEE HAS ENGAGED A PORTFOLIO MANAGER FOR DOING TRANSACTION ON ITS ITA NO 2912/ AHD/2011 . A.Y. 2008-09 13 BEHALF. THE PORTFOLIO MANAGEMENT FEES, DEMAT CHARGE S AND SECURITY TRANSACTION TAX HAVE ALREADY BEEN DISALLOWED BY THE ASSESSEE. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS PAID SUBSTANTIA L INTEREST ON ITS BORROWINGS. THE ASSESSEE MUST HAVE ALSO INCURRED SO ME ADMINISTRATIVE EXPENSES. PROVISIONS OF SECTION 14A READ WITH RULE 8D SQUARELY APPLY ON THE FACTS OF THE CASE. THE DISALLOWANCE COMPUTED BY THE A.O. ARE AS PER THE PROVISIONS OF THE ACT; THEREFORE, CALLS FOR NO INTE RFERENCE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 3 IS ACCORDINGLY DISM ISSED. 27. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 06 - 10- 20 16. SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD