DCIT, CIR-4(2), Kolkata, Kolkata V. M/s. Adorn Investments Limited, Kolkata

ITA 872/KOL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6255 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 27-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: A DUDHWEWALA
• Keywords: Deemed dividend
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SHRI S.S. GODARA, JM & SHRI M.BAL AGANESH, AM ] I.T.A NO. 872/KOL/201 7 ASSESSMENT YEAR : 2011-1 2 DCIT, CIRCLE-4(2), KOLKATA -VS- M/S ADORN IN VESTMENTS LTD. [PAN: AACCA 1169 R ] (APPELLANT) (RESPOND ENT) FOR THE APPELLANT : SHRI A BHATTACHARJE E, ADDL. CIT FOR THE RESPONDENT : SHRI A. DUDHWEWALA, FCA DATE OF HEARING : 12.06.2018 DATE OF PRONOUNCEMENT : 04.07.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-17, KOLKATA [IN SHORT THE LD CI T(A)] IN APPEAL NO. 115/CIT(A)- 17/KOL/15-16 DATED 09.08.2016 AGAINST THE ORDER PA SSED BY THE ITO, WARD-4(3), KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 10.03.2014 FOR THE ASSESSM ENT YEAR 2008-09. 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 1,51,00,000/- U/S 2(22)(E) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2 ITA NO.872/KOL/2016 M/S ADORN INVESTMENTS LTD. A.YR. 2011-12 2 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS A NON-BANKING FINANCE COMPANY (NBFC) ENGAGED IN THE BUSINESS OF GRANTING LOANS. THE RETURN OF INCOME FOR THE ASST YEAR 2011-12 WAS FILED BY THE ASSESSEE ELECTRONICAL LY ON 24.9.2011 DECLARING TOTAL INCOME OF RS NIL. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED BEFORE THE LD AO FROM TIME TO TIME AND PRODUCED THE DETAILS AND D OCUMENTS CALLED FOR BY THE LD AO APART FROM PRODUCING THE RELEVANT BOOKS OF ACCOUNTS AND BANK STATEMENTS. THE BOOKS OF ACCOUNTS WERE ALSO TEST CHECKED BY THE LD AO . THE LD AO OBSERVED THAT ASSESSEE COMPANY HAD TAKEN LOAN AMOUNTING TO RS 1,51,00,000/ - FROM M/S OFF SHORE INDIA LTD (PAN AAACO 6223E) DURING THE YEAR UNDER CONSIDERATI ON. ON THE BASIS OF SUBMISSIONS MADE BY THE ASSESSEE AND THE DETAILS CO LLECTED FROM M/S OFF SHORE INDIA LTD, THE LD AO OBSERVED THAT M/S ADORN INVESTMENTS LTD (ASSESSEE HEREIN) WAS A MAJOR SHAREHOLDER OF M/S OFF SHORE INDIA LTD HOLDING 30.9 5% OF THE TOTAL SHARES AND HOLDING VOTING POWER AS WELL AS THE BENEFICIAL INTEREST IN THE LENDING COMPANY DURING THE RELEVANT YEAR. THE LD AO OBSERVED THAT M/S OFF SHO RE INDIA LTD (LENDING COMPANY) HAD ACCUMULATED PROFITS IN EXCESS OF RS 1,51,00,000/- A S ON THE DATE OF TRANSACTIONS. ACCORDINGLY HE CONCLUDED THAT THE SAID TRANSACTIONS WOULD BE HIT BY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE ASS ESSEE SHAREHOLDER AND ACCORDINGLY THE ASSESSEE WAS SHOW CAUSED TO THIS EFFECT. 4. THE ASSESSEE REPLIED THAT IT HAD RECEIVED INTERE ST BEARING LOAN OF RS 1,51,00,000/- 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) AN D GRANTING 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 31.3.2011 OBSERVED THAT DURING THE FINANCIAL YEA R 2010-11 , THE TOTAL FUNDS AVAILABLE WAS RS 115,10,26,519/- AND OUT OF THAT , A SUM OF R S 94,15,01,076/- IN SHARES WAS 3 ITA NO.872/KOL/2016 M/S ADORN INVESTMENTS LTD. A.YR. 2011-12 3 INVESTED IN SHARES AND ONLY RS 52,29,01,227/- WAS U TILIZED FOR GIVING LOANS AND ADVANCES. 4.1. BASED ON THESE FACTS , HE CONCLUDED THAT THE P RINCIPAL OR MAIN SOURCE OF BUSINESS OF M/S OFF SHORE INDIA LTD BASED ON FUNDS DEPLOYED IS ONLY INVESTMENT IN SHARES AS ACCORDING TO LD AO, THE SUBSTANTIAL PART OF THE BUS INESS WAS UTILIZED FOR MAKING INVESTMENT IN SHARES AND NOT GRANTING OF LOANS AND ADVANCES. HENCE THE ASSESSEES CASE DOES NOT FALL UNDER THE EXCEPTION PROVIDED IN SECTI ON 2(22)(E) OF THE ACT. ACCORDINGLY, HE MADE AN ADDITION OF RS 1,51,00,000/- TOWARDS DEE MED DIVIDEND IN THE ASSESSMENT. 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. THE ASSESSEE PLEADED THAT AS AGAINST THE AMOUNT RECEIVED FROM M/S OFF SHORE INDIA LTD DURING THE YEAR IN THE SUM OF RS 1,51,00, 000/-, A SUM OF RS 1,36,00,000/- WAS REPAID OUT OF THE SAID LOAN DURING THE PREVIOUS YEA R ITSELF. THUS THE INCREMENTAL LOAN TAKEN DURING THE PREVIOUS YEAR WAS RS 15,00,000/- O NLY. FURTHER, M/S OFF SHORE INDIA LTD CHARGED INTEREST OF RS 77,23,101/- FOR THE FINA NCIAL YEAR 2010-11 ON THE LOANS GRANTED TO THE ASSESSEE BY THEM WHICH WAS DEBITED I N THE ASSESSEES PROFIT AND LOSS ACCOUNT AS INTEREST FOR THE YEAR ENDED 31.3.2011 AN D NECESSARY TAX DEDUCTION AT SOURCE WAS ALSO DEPOSITED BY THE ASSESSEE AS PER APPLICABL E PROVISIONS OF LAW. AS PER THE AUDITED ACCOUNTS OF LENDING COMPANY AS ON 31.3.2011 , THE NET OWNED FUNDS WERE RS 75.61 CRORES. THE LOANS AND ADVANCES GRANTED WERE RS 52.29 CRORES WHICH WORKS OUT TO 69.16% OF NET OWNED FUNDS. THE LENDING COMPANY HA D FOLLOWED PRUDENTIAL NORMS FOR INCOME RECOGNITION PRESCRIBED BY RBI IN RELATION TO THE BUSINESS OF GRANTING LOANS AND ADVANCES. MOREOVER, THE LENDING COMPANY HAD CHARG ED INTEREST FROM THE ASSESSEE ON THE LOAN AMOUNTS GRANTED TO IT. IT WAS PLEADED THAT IN THE IMPUGNED ORDER, THE LD AO HAD MISREAD AND MISUNDERSTOOD THE TRUE PURPORT OF THE L ANGUAGE USED IN CLAUSE (II) OF SECTION 2(22) OF THE ACT. THE WORDS USED IN SAID CLAUSE (I I) ARE WHERE THE LENDING OF MONEY IS 4 ITA NO.872/KOL/2016 M/S ADORN INVESTMENTS LTD. A.YR. 2011-12 4 SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. IT WAS ARGUED THAT THE LD AO BY DESIGN OR CHOICE HAS CHOSEN TO SUBSTITUTE THE WORD SUBSTA NTIAL WITH THE WORD PRINCIPAL, WHICH NO PERSON PROPERLY INSTRUCTED IN LAW CAN DO W HILE 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 N O. 360 TO 363/KOL/2015 DATED 20.1.2016 , WHEREIN THE TRIBUNAL WHILE EXAMINING CL AUSE(II) OF SECTION 2(22) OF THE ACT CATEGORICALLY HELD THAT THE LEGISLATURE IN ITS CONS CIOUSNESS HAD USED THE WORDS SUBSTANTIAL PART OF THE BUSINESS IN SECTION 2(22) OF THE ACT IN CONTRADISTINCTION TO THE WORDS MAIN BUSINESS 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 FORMING SUBSTANTIAL PART OF THE BUSINESS FOR THE PURPOSES OF CLAUSE (II) OF SECTIO N 2(22) OF THE ACT. IT WAS FURTHER PLEADED THAT M/S OFF SHORE INDIA LTD WAS A REGISTE RED NBFC WHICH FACT PROVES THAT LENDING OF MONEY CONSTITUTED ORDINARY BUSINESS OF T HE SAID COMPANY. IT WAS PLEADED THAT MORE THAN 45.42% OF THE LONG TERM FUNDS OF TH E LENDER WERE DEPLOYED IN GRANTING OF LOANS AND ADVANCES AND AS SUCH IT IS PROVED BEYO ND DOUBT THAT GRANTING OF LOANS / LENDING OF MONEY CONSTITUTED SUBSTANTIAL PART OF LE NDERS BUSINESS AND THEREBY THE LENDING TO ASSESSEE COMPANY WOULD BE OUTSIDE THE AM BIT OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE CO MPANY. IT ALSO PLACED FURTHER RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS PARLE PLASTICS LTD REPORTED IN 196 TAXMAN 62 (BOM). IN THE SAID CASE, IT WAS THE CONTENTION OF THE REVENUE, THAT TO CONSTITUTE AS A SUBSTANTIAL PART O F 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 CONS TITUTED SUBSTANTIAL 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 5 ITA NO.872/KOL/2016 M/S ADORN INVESTMENTS LTD. A.YR. 2011-12 5 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 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 ITA NO.872/KOL/2016 M/S ADORN INVESTMENTS LTD. A.YR. 2011-12 6 6. THE LD CITA DELETED THE ADDITION MADE IN THE SUM OF RS 1.51.00.000/- TOWARDS DEEMED DIVIDEND BY MAKING THE FOLLOWING OBSERVATION S :- DECISION: I HAVE CAREFULLY CONSIDERED THE SUBMISSI ONS OF THE ASSESSEE AND HAVE GONE THROUGH THE FINDINGS OF THE AO. I FIND THERE IS NOT MUCH DISPUTE WITH REGARD TO THE FACTS. THE ONLY QUESTION WHICH NEEDS TO BE ADJUDICATED IS WHETHER ON FACTS ON RECORD IT CAN BE SAID THAT GRANTING OF LOANS CONSTITUTED SUBSTANTIA L PART OF BUSINESS OF OFFSHORE INDIA LTD. IT IS OBSERVED THAT AS ON 31.03.2011 OSIL HAD GRANTED LOANS & ADVANCES AMOUNTING TO RS. 52.29 CRORES TO VARIOUS PARTIES. O N THAT DATE THE NET OWNED FUNDS (NOF) OF OSIL BY WAY OF SHARE CAPITAL AND RESERVES WERE RS. 75.61 CRORES. IN PERCENTAGE TERMS THE LOANS AND ADVANCES GRANTED BY OSIL CONSTITUTED 69.16% OF ITS NOF. THE AO HAS TAKEN INTO ACCOUNT LOAN FUNDS OF RS . 39.49 CRORES AND HAS COME TO CONCLUSION THAT THE LONG TERM FUNDS AVAILABLE WITH OSIL WERE RS. 115.10 CRORES. THE AO FURTHER FOUND THAT AS ON 31.03.2011 OSIL HELD TW O MAJOR CLASS OF ASSETS VIZ. INVESTMENTS IN SHARES HAVING COST OF RS. 94.15 CROR ES AND LOANS & ADVANCES OF RS. 52.29 CORRES. IN PERCENTAGE TERMS THE AO FOUND THAT INVESTMENTS IN SHARES CONSTITUTED 81.79% OF OSILS LONG TERM FUNDS WHEREAS LOANS AND ADVANCES CONSTITUTED 45.42% OF OSILS LONG TERM FUNDS. THE AO THUS FOUND THAT THE DEPLOYMENT OF LONG TERM FUNDS IN ACQUIRING INVESTMENTS WAS MORE THAN THE DE PLOYMENT FUNDS IN GRANTING LOANS & ADVANCES. THE AO THEREFORE HELD THAT OSILS PRIN CIPAL BUSINESS WAS MAKING INVESTMENTS AND NOT THE BUSINESS OF BANKING OR GRAN TING OF LOANS & ADVANCES. IN AO'S OPINION BENEFIT OF CLAUSE - (II) OF EXPLANATION TO SEC. 2(22) OF THE ACT WAS AVAILABLE ONLY IF THE ASSESSEE COULD DEMONSTRATE THAT THE PRINCI PAL BUSINESS' OF OSIL WAS GRANTING OF LOANS & ADVANCES. HOWEVER SINCE ONLY 45.42% OF LONG TERM FUNDS WERE FOUND INVESTED IN GRANTING OF LOANS THE AO CONCLUDED THAT OSIL'S ' PRINCIPAL BUSINESS' WAS NOT GRANTING OF LOANS AND THEREFORE, CLAUSE (II) OF THE EXPLANATION U/S 2(22) WAS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. AFTER CONSIDERING THE ARGUMENT OF THE AO AND THE SU BMISSIONS OF THE ASSESSEE THE UNDISPUTED FACT IS THAT BY 31.03.2011 FUNDS INVESTE D BY THAT COMPANY IN GRANTING OF LOANS WERE RS.52.29 CRORES, ACCORDING TO AIR, IF F FUND DEPLOYMENT IN PERCENTAGE TERMS OF NOF IS CONSIDERED THEN OSIL EMPLOYED 69% OF ITS CAPITAL & RESERVES IN GRANTING LOANS & ADVANCES. ON THE OTHER HAND HOWEVER, IT IS AO'S CONTENTION THAT APART FROM NOF; UNSECURED LOANS SHOULD ALSO TAKEN INTO ACCOUNT . IF 'LONG TERM FUNDS' OF OSIL AS ON 31.03.2011 ARE CONSIDERED THEN OSIL'S FUND DEPLO YMENT IN GRANTING LOANS WAS RS.52.29 CRORES WHICH IN PERCENTAGE TERM WORKS OUT TO 45.42%. IN PARA-3.7 OF THE IMPUGNED ORDER THE AO ADMITS THAT ON 31.03.2011 OSI L HAD DEPLOYED 45.42% OF THE LONG TERM FUNDS IN THE BUSINESS OF GRANTING LOANS. HAVING REGARD TO THESE FACTS AND FIGURES THEREFORE IT CANNOT BE DENIED THAT MORE THA N 45% OF THE LONG TERM INVESTIBLE FUNDS WERE DEPLOYED BY OSIL IN ITS BUSINESS OF GRAN TING LOANS. IN THE PRESENT CASE BY AO'S OWN ADMISSION 45.42% OF THE LONG TERM FUNDS OF OSIL WERE EMPLOYED IN GRANTING OF LOANS. IN THE CIRCUMSTANCES , CAN IT BE SAID THAT GRANTING OF LOANS AND LENDING OF MONEY CONSTITUTED 'SUBSTANTIAL PART OF ASSESSEE'S BUSINESS'. THE BOMBAY HIGH COURT IN THE CASE OF CIT VS PARLE PLAST ICS LTD (332 ITR 63) FOUND THAT 7 ITA NO.872/KOL/2016 M/S ADORN INVESTMENTS LTD. A.YR. 2011-12 7 42% AND 39% OF THE 'TOTAL ASSETS' OF THE LOAN GRANT ING COMPANY AS ON 31.03. 1996 AND 31.03.1997 RESPECTIVELY WERE DEPLOYED BY WAY OF LOA NS AND ADVANCES. ACCORDING TO THE AO THE BUSINESS OF MONEY LENDING SHOULD HAVE CONSTI TUTED MORE THAN 50% OF ASSESSEE'S BUSINESS, BUT SINCE ONLY 42% OR 39% OF THE 'TOTAL A SSETS' WERE FOUND TO BE EMPLOYED IN GRANTING LOANS THE AO DID NOT ALLOW THE ASSESSEE BE NEFIT OF CLAUSE --(II) OF SEC. 2(22). ON APPEAL THE TRIBUNAL HELD THAT 'SUBSTANTIAL PART' OF ASSESSEE'S BUSINESS CONSTITUTED MONEY LENDING. ON APPEAL BY THE REVENUE; HIGH COURT UPHELD THE ORDER OF ITAT. THE OBSERVATIONS OF THE HON'BLE BOMBAY HIGH COURT ON TH E ISSUE ARE FOLLOWS: 'THE EXPRESSION USED UNDER SUB-CLAUSE (II) OF SECTI ON 2(22) IS 'SUBSTANTIAL PART OF THE BUSINESS '. THE EXPRESSION 'SUBSTANTIAL PART' DOES NOT 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 LEGISLAT URE 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 'M AJOR' AND/OR SPECIFYING ANY PERCENTAGE OF THE BUSINESS OR PROFIT TO BE COMING F ROM THE LENDING 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 INCONSEQUENTIAL AS COMPARED TO THE WHOLE OF THE BUSINESS IS SUBSTANTIA L BUSINESS'. IN THE COURSE OF APPELLATE PROCEEDINGS AIR OF THE A PPELLANT ALSO FILED A COPY OF THE ITAT KOLKATA'S DECISION DATED 20.01.2016 IN THE CASE OF TANUJ HOLDINGS PVT. LTD VS DCIT IN ITA NOS. 362-363/KOL/2015 IN WHICH IT HAS BEEN OBSERVED AS FOLLOWS: 5.3. WHETHER THE LENDING OF INTER CORPORATE DEPOSIT BY GGPL COULD BE CONSIDERED AS SUBSTANTIAL PART OF BUSINESS OF GGPL. WE FIND THAT GGPL DEPLOYED IN GRANTING LOANS IN EXC ESS OF 20% OF NET OWNED FUNDS. IT WOULD THUS BE EVIDENT THAT GRANTING OF INTER CORPOR ATE DEPOSITS WAS ORDINARY BUSINESS OF GGPL AND INCOME DERIVED/RAM SUCH ACTIVITY WAS CONSI STENTLY ASSESSED. HOWEVER, WE FIND IN THE SHOW CAUSE NOTICE ISSUED U/S 263 OF TH E ACT BY THE LEARNED CIT, IT HAS BEEN STATED THAT THE 'MAIN BUSINESS' OF LOAN GRANTING CO MPANY I.E. GGPL WAS REAL ESTATE DEVELOPMENT. IN THIS REGARD, WE FIND THAT THE LEGIS LATURE IN SECTION 2(22) HAD CONSCIOUSLY USED THE WORDS 'SUBSTANTIAL PART OF THE BUSINESS' IN CONTRADISTINCTION TO THE WORDS 'MAIN BUSINESS' OR 'PRINCIPAL BUSINESS '. WE ALSO FIND THAT THE WORDS 'SUBSTANTIAL PART OF THE BUSINESS' IS NOT DEFINED IN THE ACT WHI CH LED TO JUDICIAL INTERPRETATIONS BY VARIOUS JUDICIAL FORUMS AND IT HAS BEEN HELD THAT T HE EXPRESSION 'SUBSTANTIAL PART OF THE BUSINESS' IS DIFFERENT AND DISTINCT FROM THE WORDS 'PRINCIPAL BUSINESS' OR 'MAIN BUSINESS' USED IN OTHER PLACES IN THE ACT. TAKING CUE FROM PR OVISIONS OF SECTION 2(22)(E) AND SECTION 2(32) OF THE ACT, THE COURTS AND VARIOUS BE NCHES OF THE TRIBUNAL HAVE 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 '. IN THE INSTANT CASE, AS ALREADY STATED SUPRA THAT GGPL HAD DEPLOYE D MORE THAN 20% OF ITS NET OWNED FUNDS BY WAY OF GRANTING OF INTER CORPORATE DEPOSIT S TO THE ASSESSEE AND THEN IT COULD BE 8 ITA NO.872/KOL/2016 M/S ADORN INVESTMENTS LTD. A.YR. 2011-12 8 CONCLUDED THAT THE SUBSTANTIAL PART OF COMPANY'S BU SINESS CAN BE SAID TO BE GRANTING LOANS, INTER CORPORATE DEPOSITS AND ADVANCES AND TH EREFORE CLAUSE (II) OF SEC 2(22)(E) OF THE ACT BECOMES APPLICABLE IN CASE OF SUCH COMPANY. IF THE RATIO DERIVED FROM THE ABOVE DECISIONS IS APPLIED TO THE FACTS OF THE PRESENT CA SE THEN I FIND THAT 45.42% OF LONG TERM FUNDS OF OSIL WERE EMPLOYED IN THE BUSINESS OF GRAN TING LOANS. IN THE CIRCUMSTANCES THE LOAN WHICH THE APPELLANT RECEIVED FROM OSIL DID NOT COME WITHIN THE PURVIEW OF SEC. 2(22)(E) AS GRANTING OF LOANS CONSTITUTED SUB STANTIAL PART OF OSILS BUSINESS. THEREFORE, THE AO WAS NOT CORRECT IN ADDING RS. 151 LACS AS INCOME OF THE APPELLANT U/S 2(22)(E). THE SAID ADDITION IS ACCORDINGLY DELE TED. 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 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 1,51,00,000/- DRAWN BY THE 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 9 ITA NO.872/KOL/2016 M/S ADORN INVESTMENTS LTD. A.YR. 2011-12 9 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. WE ALSO F IND THAT THIS ISSUE IS ALREADY DECIDED IN FAVOUR OF THE ASSESSEE BY THIS TRIBUNAL IN ITS O WN CASE FOR THE ASST YEAR 2010-11 ON THE VERY SAME ISSUE IN ITA NO. 1149/KOL/2016 DATED 7.7.2017. ACCORDINGLY, 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 04.07.2018 SD/- SD/- [S.S. GODARA] [ M .BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 04.07.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. DCIT, CIRCLE-4(2), KOLKATA, 4 TH FLOOR, ROOM NO. 11B, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700069. 2. M/S ADORN INVESTMENTS LTD., 31, SUBHAS ROAD, KOL KATA-700001. 3..C.I.T.- 4. C.I.T.- 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