M/S. ZENON INDIA PVT. LTD., Kolkata v. ACIT, Cir-3, Kol, Kolkata

ITA 1239/KOL/2009 | 2005-2006
Pronouncement Date: 31-03-2010 | Result: Partly Allowed

Appeal Details

RSA Number 123923514 RSA 2009
Assessee PAN AAACZ0920B
Bench Kolkata
Appeal Number ITA 1239/KOL/2009
Duration Of Justice 4 month(s) 11 day(s)
Appellant M/S. ZENON INDIA PVT. LTD., Kolkata
Respondent ACIT, Cir-3, Kol, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 31-03-2010
Date Of Final Hearing 17-02-2010
Next Hearing Date 17-02-2010
Assessment Year 2005-2006
Appeal Filed On 19-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH - B A ( ) BEFORE . . SHRI B.R.MITTAL JUDICIAL MEMBER. /AND . . SHRI C.D. RAO ACCOUNTANT MEMBER . / I.T.A.NO.1239/KOL/2009 / ASSESSMENT YEAR 2005 - 06 M/S. ZENON INDIA PVT. LTD. TRUST HOUSE 32A C.R.AVENUE KOLKATA 700 012. AAACZ 0920 B - - - VERSUS - . ACIT CIRCLE 3 KOLKATA. ( / A PPELLANT ) ( / RESPONDE NT ) / FOR THE APPELLANT: / SHRI SUBASH AGARWAL AR / FOR THE RESPONDENT : / SMT. JYOTI KUMARI DR / ORDER . . SHRI B.R.MITTAL JUDICIAL MEMBER. THE ASSESSEE HAS FILED THI S APPEAL FOR THE ASSESSMENT YEAR 2005 - 06 AGAINST ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) DT.22.5.2009 DISPUTING THE CONFIRMATION OF THE ADDITIONS MADE BY THE ASSESSING OFFICER. 2. GROUND NO.1 OF THE APPEAL IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 3. IN GROUND NO.2 OF THE APPEAL THE ASSESSEE HAS DISPUTED THE ORDER OF THE LEARNED CIT(A) CONFIRMING THE ADDITION OF RS.30 105 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST AGAINST INTEREST FREE ADVANCES GIVEN TO M/S.SHIVARPAN SALES (P) LTD. 3.1. THE RELEVANT FACTS ARE THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES OF RS.40 LAKHS TO M/S. SHIVARPAN SALES (P) LTD (IN SHORT SSPL). THE PURPOSE OF GIVING LOAN WAS TO OBTAIN PROPERTY FOR RESIDENCE OF DIRECTORS. TH ERE IS NO DISPUTE TO THE FACT THAT THE SHARE 2 / I.T.A.NO.1239/KOL/2009 HOLDERS AND THE DIRECTORS OF THE ASSESSEE - COMPANY AND SSPL WERE COMMON. THE ASSESSING OFFICER STATED THAT THE IMMEDIATE SOURCE OF ADVANCES WERE INTEREST BEARING LOAN FROM SISTER CONCERN S . THE ASSESSING OFFICER A FTER CONSIDERING THE DATE OF DEPOSIT DISALLOWED INTEREST OF RS.30 105 ON THE GROUND THAT THERE WAS NO BUSINESS EXIGENCY OR PRODUCTIVITY IN GIVING LOAN BY THE ASSESSEE TO ITS SISTER CONCERN SSPL. BEING AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE FIRST A PPELLATE AUTHORITY. 3.2. THE ASSESSEE CONTENDED THAT THE AMOUNT ADVANCED TO SSP L WAS GIVEN OUT OF REFUND OF SHARE APPLICATION MONEY AND NO INTEREST BEARING FUNDS WERE USED. THE LEARNED CIT(A) CALLED FOR REMAND REPORT FROM THE ASSESSING OFFICER. THE ASSESSI NG OFFICER IN THE REMAND REPORT STATED THAT ON EXAMINATION OF THE LOAN ACCOUNT IT IS REVEALED THAT INTEREST BEARING LOANS FROM M/S.GEETA GANESH PROMOTERS WERE PARTLY UTILIZED TO MAKE INTEREST FREE ADVANCE. IT IS ALSO MENTIONED IN THE REMAND REPORT THA T REFUND OF INTEREST BEARING LOANS AND SHARE APPLICATION MONEY CONSTITUTED BUSINESS FUND OF THE ASSESSEE AND SHOULD HAVE BEEN UTILIZED FOR THE PURPOSE OF BUSINESS. 3.3. THE LEARNED CIT(A) AFTER CONSIDERING THE REMAND REPORT OF THE ASSESSING OFFICER AND T HE SUBMISSIONS OF THE ASSESSEE HAS OBSERVED THAT THE ASSESSEE HAS NOT CONTROVERTED THE CONTENTION OF THE ASSESSING OFFICER IN THE REMAND REPORT THAT INTER EST BEARING FUND FROM M./S.GEET A GANESH PROMOTERS WAS UTILIZED PARTLY TO MAKE THE ADVANCE TO SSPL. TH E LEARNED CIT(A) HAS FURTHER STATED THAT THE ASSESSEE HAS NOT BEEN ABLE TO SHOW AS TO WHETHER THE SHARE APPLICATION REFUND AND INTEREST BEARING LOAN REPAYMENT WERE OUT OF OWN FUNDS OR INTEREST BEARING FUNDS. THEREFORE THE LEARNED CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER. HENCE THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 3.4. DURING THE COURSE OF HEARING THE LEARNED AR OF THE ASSESSEE REFERRED TO PAGE 15 OF THE PAPER BOOK WHICH IS A CHART GIVING DETAILS OF LOAN ADVANCED SOURCE OF THE FUNDS AVAILABLE WITH THE ASSESSEE AND THE NATURE AND SOURCE S OF THE FUND . THE LEARNED AR OF THE ASSESSEE CONTENDED THAT OUT OF LOAN OF RS.40 LAKHS GIVEN TO SSPL A PART OF THE LOAN WAS INTEREST BEARING LOAN AND PART OF THE LOAN WAS NO N - INTEREST BEA RING LOAN. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT DISALLOWANCE SHOULD HAVE BEEN RESTRICTED TO THE LOANS 3 / I.T.A.NO.1239/KOL/2009 WHICH WERE OUT OF INTEREST BEARING FUNDS AND NOT IN RESPECT OF THE ADVANCE GIVEN OUT OF THE AMOUNT WHICH WAS NOT INTEREST BEARING FUNDS AVAILABLE WITH THE ASSESSEE. THE LEARNED DR HAS NOT DISPUTED THE CONTENTION OF THE ASSESSEE AND THE DETAILS GIVEN AT PAGE 15 OF THE PB REFERRED TO HEREIN ABOVE SAVE AND EXCEPT RELYING ON THE ORDERS OF THE AUTHORITIES BELOW. 3.5. WE HAVE CAREFULLY CONSIDERED THE ORD ERS OF THE AUTHORITIES BELOW SUBMISSIONS OF THE LEARNED REPRESENTATIVES OF THE PARTIES AND HAVE ALSO PERUSED THE DETAILS GIVEN IN THE CHART PLACED AT PAGE 15 OF THE PB. WE OBSERVE THAT IN THE SAID CHART AT PAGE 15 OF THE PB A PART OF THE INTEREST FREE LO AN HAS BEEN GIVEN BY THE ASSESSEE TO SSPL OUT OF THE INTEREST BEARING LOAN AND A PART OF THE LOAN HAS BEEN GIVEN OUT OF THE REFUND OF SHARE APPLICATION MONEY AND/OR SALE OF SHARES O F MAYANK SECURITIES LTD. AND STATED TO BE NOT INTEREST BEARING FUND AVAILA BLE TO THE ASSESSEE. CONSIDERING THE SAID DETAILS AS GIVEN IN CHART AT PAGE 15 OF THE PB WE FIND SUBSTANCE IN THE SUBMISSION OF THE LEARNED AR OF THE ASSESSEE THAT ASSESSEE WAS ALSO HAVILNG INTEREST FREE ADVANCES WITH IT AND THEREFORE NO DISALLOWANCE OF INTEREST SHOULD BE MADE IN RESPECT OF THE AMOUNT GIVEN OUT OF INTEREST FREE ADVANCE AVAILABLE WITH THE ASSESSEE. THEREFORE WE CONSIDER IT PRUDENT TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION THAT HE SHOULD MAKE THE DISAL LOWANCE OF THE INTEREST ONLY IN RESPECT OF THE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE TO SSPL OUT OF INTEREST BEARING FUND AND NOT IN RESPECT OF ADVANCE GIVEN OUT OF NO N - INTEREST BEARING FUND. SUBJECT TO ABOVE GROUND N O .2 OF THE APPEAL IS ALLOWED IN PART . 4. IN GROUND NO.3 OF THE APPEAL THE ASSESSEE HAS DISPUTED THE ORDER OF THE LEARNED CIT(A) IN CONFIRMING THE ADDITION OF RS.50 698 ON ACCOUNT OF INTEREST AGAINST INTEREST FREE ADVANCES GIVEN TO (A) SMT. KALPANA PANDEY (B) SRI KARTICK PANDY AND (C) M/S.GREENLAND ENCLAVE (P) LTD. 4.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES TO THE FOLLOWING PERSONS. 1 ) KAKLPANA PANDEY .. RS.10 LAKHS 2 ) KARTICK PANDEY .. RS.10 LAKHS 3 ) M/S.GREENLAND ENCLAVE PVT. LTD. .. RS.37 37 500 4 / I.T.A.NO.1239/KOL/2009 IN REPLY TO A QUERY BY THE ASSESSING OFFICER TO PROVIDE THE REASONS OF HAVING ADVANCED THE ABOVE LOANS TO THE ABOVE NAMED PERSONS THE ASSESSEE STATED THAT THE LOANS WERE GIVEN FOR PURCHASE OF LAND TO M/S. GREENLAND ENCLAVE P LTD. HOWEVER THE ASSESSEE COULD NOT SUBMIT ANY CORROBORATIVE EVIDENCE INSPITE OF GIVING OPPORTUNITIES. AS REGARDS SMT. KALPANA PANDEY AND KARTICK PANDY NO REASON WHATSOEVER FOR ADVANCING INTEREST FREE LOAN S COULD BE FURNISHED BY THE A SSESSEE. THEREFORE THE ASSESSING OFFICER AFTER CONSIDERING THE DATES OF DEPOSITS DISALLOWED THE INTEREST OF RS.50 698. THE ASSESSING OFFICER STATED THAT ON PERUSAL OF THE BANK ACCOUNT OF THE ASSESSEE IT IS REVEALED THAT ALL THESE ADVANCES WERE OUT OF I NTEREST BEARING LOANS/ADVANCES RECEIVED BY THE ASSESSEE. BEING AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4.2. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER. HENCE THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 4.3. AT THE TIME OF HEARING THE LEARNED AR OF THE ASSESSEE REFERRED TO PAGE 15 OF THE PB WHICH IS A COPY OF A CHART GIVING DETAILS OF THE ADVANCES GIVEN BY THE ASSESSEE TO THE ABOVE NA MED THREE PERSONS NAMELY (A) SMT. KALPANA PANDEY (B) SRI KARTICK PAND E Y AND (C) M/S.GREENLAND ENCLAVE (P) LTD. SOURCE OF FUND AND THE NATURE OF SOURCE OF FUND. THE LEARNED AR OF THE ASSESSEE CONCEDED THAT THE INTEREST FREE LOAN TO KALPANA PANDEY AND KA RTICK PANDEY OF RS.10 00 00 0 EACH WAS GIVEN OUT OF INTEREST BEARING FUNDS AVAILABLE WITH THE ASSESSEE. HOWEVER IN RESPECT OF THE INTEREST FREE ADVANCE GIVEN TO M/S.GREENLAND ENCLAVE (P) LTD. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT A PART OF LOAN WA S GIVEN OUT OF INTEREST BEARING FUNDS AND A PART OF THE LOAN WAS GIVEN OUT OF NO N - INTEREST BEARING FUND AVAILABLE WITH THE ASSESSEE. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE SHOULD BE RESTRICTED TO THE LOANS WHICH WERE OUT OF INTERES T BEARING FUNDS AND NOT IN RESPECT OF THE ADVANCE GIVEN OUT OF THE AMOUNT WHICH WAS NON - INTEREST BEARING FUNDS AVAILABLE WITH THE ASSESSEE. THE LEARNED DR HAS NOT DISPUTED THE CONTENTION OF THE ASSESSEE AND THE DETAILS GIVEN AT PAGE 15 OF THE PB REFERRED T O HEREIN ABOVE SAVE AND EXCEPT RELYING ON THE ORDERS OF THE AUTHORITIES BELOW. 5 / I.T.A.NO.1239/KOL/2009 4.4. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. AS FAR AS THE LOAN OF RS.10 00 00 0 EACH GI VEN TO KALPANA PANDEY AND KARTICK PANDEY THE LEARNED AR HAS STATED THAT INTEREST FREE ADVANCES WERE GIVEN OUT OF INTEREST BEARING FUNDS AVAILABLE WITH THE ASSESSEE. THEREFORE THE ORDER OF THE LEARNED CIT(A) IN THAT REGARD IS CONFIRMED. 4.5. HOWEVER IN REGARD TO THE LOAN GIVEN TO M/S.GREENLAND ENCLAVE P LTD. ON PERUSAL OF THE CHART PLACED AT PAGE 15 OF THE PB WE FIND SUBSTANCE IN THE SUBMISSION OF THE LEARNED AR OF THE ASSESSEE THAT ASSESSEE WAS ALSO HAVING INTEREST FREE ADVANCES WITH IT AND THEREFORE NO DISALLOWANCE OF INTEREST SHOULD BE MADE IN RESPECT OF THE AMOUNT GIVEN OUT OF INTEREST FREE ADVANCE AVAILABLE WITH THE ASSESSEE. THEREFORE WE CONSIDER IT PRUDENT TO RESTORE THIS ISSUE I.E. RELATING TO ADVANCE GIVEN TO M/S.GREENLAND ENCLAVE P LTD. TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION THAT HE SHOULD MAKE THE DISALLOWANCE OF THE INTEREST ONLY IN RESPECT OF THE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE TO M/S.GREENLAND ENCLAVE (P) LTD. OUT OF INTEREST BEARING FUND AND NOT IN RESP ECT OF ADVANCE GIVEN OUT OF NON - INTEREST BEARING FUND. HENCE GROUND NO.3 OF THE APPEAL IS ALLOWED IN PART AS INDICATED ABOVE. 5. IN GROUND NO.4 OF THE APPEAL THE ASSESSEE HAS DISPUTED THE ORDER OF THE LEARNED CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.2 37 452 OUT OF INTEREST EXPENDITURE ON ACCOUNT OF AMOUNT BORROWED TOWARDS ADVANCE MADE TO SHRI JAIDEEP KHAITAN. 5.1. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE OBSERVE THAT T HE ASSESSEE HAS GIVEN INTEREST FREE ADVANCE OF RS.40 LAKHS TO SHRI JAIDEEP KHAITAN. THE ASSESSING OFFICER CONSIDERING THE DATE OF DEPOSIT HAS MADE THE DISALLOWANCE OF RS.2 37 452 OUT OF INTEREST EXPENDITURE. THE LEARNED CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESS ING OFFICER. 5.2. DURING THE COURSE OF HEARING OF THE APPEAL THE LEARNED AR OF THE ASSESSEE HAS NOT DISPUTED THE OBSERVATIONS GIVEN BY THE AUTHORITIES BELOW THAT THE ASSESSEE HAS MADE INTEREST FREE ADV ANCE OUT OF INTEREST BEARING FUND AND IT IS NOT BUSI NESS PURPOSE S AND EXPEDIENCY . T HEREFORE THE INTEREST ATTRIBUTABLE TO THE ABOVE ADVANCE IS INADMISSIBLE AS 6 / I.T.A.NO.1239/KOL/2009 BUSINESS EXPENDITURE. IN VIEW OF THE ABOVE FACTS WE UPHOLD THE ORDER OF THE LEARNED CIT(A) AND REJECT GROUND NO.4 OF THE APPEAL TAKEN BY THE ASSESSE E. 6. IN GROUND NO.5 OF THE APPEAL THE ASSESSEE HAS DISPUTED THE ORDER OF THE LEARNED CIT(A) IN CONFIRMING THE ADDITION TO THE EXTENT OF RS.89 41 505 AS DEEMED DIVIDEND U/S.2(22)(E) OF THE INCOME - TAX ACT 1961. 7. THE RELEVANT FACTS GIVING RISE TO THIS GRO UND OF APPEAL ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE RECEIVED LOANS FROM ITS FOLLOWING ASSOCIATE CONCERNS. 1 ) M/S.PRASAD GROUP RESOURCES PVT. LTD. .. RS. 1 28 00 000 2 ) M/S.TANJU HOLDING PVT. LTD. .. .. RS.2 36 50 000 3 ) M/S.TOLLY NIRMAN PVT . LTD. .. .. RS.4 34 00 000 THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE HAS NOT GIVEN THE DETAILS OF SHARE HOLDING PATTERN AND THE NAME OF THE DIRECTORS AND THEIR SHARE HOLDING RATIO LIST OF MAJOR SHARE HOLDERS (10% AND ABOVE) WITH THEIR SHARE H OLDING RATIO AND THEREFORE THE ASSESSING OFFICER CONSIDERED THE ABOVE LOANS IN THE NATURE OF DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE I.E. RS.7 98 50 000. BEING AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 7 .1. ON BEHALF OF THE ASSESSEE IT WAS CONTENDED THAT M/S.TANUJ HOLDING PVT. LTD WAS A NBFC AND THEREFORE LOAN RECEIVED FROM IT WOULD BE OUTSIDE THE PURVIEW OF SECTION 2(22)(E) OF THE ACT . IT WAS FURTHER CONTENDED THAT LOANS WE RE GRANTED BY M/S. TOLLY NIRMAN PVT. LTD AND M/S.PRASAD GROUP RESOURCES PVT. LTD. WERE IN THE ORDINARY COURSE OF THEIR BUSINESS I.E. FINANCING AN D GRANTING LOANS AND ADVANCES. THE ASSESSEE IN SUPPORT OF ITS CONTENTION FILED CERTIFIED COPY OF REGISTRATIO N ISSUED BY THE RESERVE BANK OF INDIA DECLARING M/S.TANUJ HOLDINGS PVT. LTD. AS AN NBFC. 7 .2. THE LEARNED CIT(A) CALLED FOR REMAND REPORT FROM THE ASSESSING OFFICER. 7 .3 . THE LEARNED CIT(A) HAS STATED THAT THE ASSESSING OFFICER IN HIS REMAND REPORT AC CEPTED THAT M/S. TANUJ HOLDINGS PVT. LTD. IS A NBFC AND THE AMOUNT RECEIVED FROM IT OF RS.2 36 50 000 COULD NOT BE CONSIDERED AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. THEREFORE THE LEARNED CIT(A) HAS DELETED THE SAID ADDITION OF RS.2 36 50 000. 7 / I.T.A.NO.1239/KOL/2009 7 .4 . A S REGARD TO LOAN RECEIVED FROM M/S.TOLLY NIRMAN PVT. LTD. THE ASSESSING OFFICER IN HIS REMAND REPORT HAS STATED THAT THE BUSINESS OF M/S.TOLLY NIRMAN PVT. LTD. WAS REAL ESTATE DEVELOPING. FURTHER THE ASSESSING OFFICER HAS ACCEPTED THAT REPAYMENT OF EXIST ING DEBITS COULD NOT BE CONSIDERED U/S.2(22)(E) OF THE ACT. THE ASSESSING OFFICER HAS ALSO ADMITTED THAT THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND HAS TO BE LIMITED TO THE EXTENT OF ACCUMULATED PROFIT. THE LEARNED CIT(A) HAS OBSERVED THAT THE ACCUMULATED PROFIT OF M/S.TOLLY NIRMAN PVT. LTD. AS ON31.3.2005 WAS OF RS.8 41 566 AND ALSO CONSIDERING THE FACT THAT THE ASSESSEE RECEIVED LOANS TOWARDS THE END OF THE YEAR CONSIDERED THE INCOME OF THE ASSESSEE ON ACCOUNT OF DEEMED DIVIDEND IN RESPECT OF ADVANCES F ROM M/S.TOLLY NIRMAL PVT. LTD. AT RS.8 41 566 AS AGAINST RS.4 34 00 000 MADE BY THE ASSESSING OFFICER. 7 .5 . FURTHER IN REGARD TO LOANS/ADVANCES RECEIVED FROM M/S.PRASAD GROUP RESOURCES PVT. LTD. OF RS . 1 28 00 000 THE ASSESSEE CONTENDED BEFORE LEARNED C IT(A) THAT LOANS WERE RECEIVED IN ORDINARY COURSE OF THEIR BUSINESS AND THE DEEMED DIVIDEND HAS TO BE LIMITED TO ACCUMULATED PROFITS. THE LEARNED CIT(A) CALLED FOR REMAND REPORT FROM THE ASSESSING OFFICER. THE ASSESSING OFFICER IN HIS REMAND REPORT HAS ST ATED THAT THE BUSINESS OF M/S.PRASAD GROUP RESOURCES PVT. LTD. IS INVESTMENT AND SHARE TRADING NOT FINANCE COMPANY. THE ASSESSING OFFICER IN HIS REMAND REPORT FURTHER STATED THAT DEEMED DIVIDEND SHOULD BE RESTRICTED TO RS.89 41 505 I.E. THE ACCUMULATED PROFIT AS APPEARING IN SCHEDULE - 2 OF THE ACCOUNTS OF M/S.PRASAD GROUP RESOURCES PVT. LTD. 7 . 6 . THE ASSESSEE IN HIS CO UNTER COMMENTS STATED BEFORE LEARNED CIT(A) THAT AS PER STATEMENT OF ACCOUNTS OF M/S.PRASAD GROUP RESOURCES PVT. LTD. THE SAID COMPANY A DVANCED LOAN OF RS.2 15 87 459 OUT OF THE TOTAL PAID UP CAPITAL OF RS.4 15 31 521. IT IS MORE THAN 50% OF ITS BUSINESS INVESTMENT OF RS.1 92 65 345. IT WAS FURTHER STATED THAT THE SAID COMPANY EARNED INCOME FROM INTEREST OF RS.10 15 862 WHER EAS THERE WAS H UGE LOSS FROM OTHER BUSINESS ACTIVITIES. THEREFORE THE PRINCIPAL BUSINESS OF THE SAID COMPANY WAS OF GRANTING LOANS AND ADVANCES AND NOT OTHER BUSINESS ACTIVITIES. THEREFORE THE ADVANCE 8 / I.T.A.NO.1239/KOL/2009 RECEIVED FROM M/S.PRASAD GROUP RESOURCES PVT. LTD. SHOULD NOT BE T REATED AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. 7 . 7 . THE LEARNED CIT(A) AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE HAS HELD THAT THE CLAIM OF THE ASSESSEE REGARDING THE DEPLOYMENT OF FUND BY M/S.PRASAD GROUP RESOURCES PVT. LTD. IN DIFFER ENT ACTIVITIES WAS MISLEADING IN THAT IT HAS CONSIDERED ADVANCES TOWARDS PROPERTY PURCHASE AS ADVANCE IN THE FINANCE BUSINESS. THE LEARNED CIT(A) HAS FURTHER STATED THAT THE ASSESSEE CLAIM THAT ITS SUBSTANTIAL BUSINESS IS GIVING LOANS AND ADVANCES IS NOT B ORNE OUT BY FACTS EVEN IF THE ACTIVITY OVER THE PERIOD OF TIME IS CONCERNED. THE LEARNED CIT(A) HAS FURTHER STATED THAT M/S.PRASAD GROUP RESOURCES PVT. LTD. IS NOT REGISTERED AS AN NBFC. THE TAX AUDIT REPORT ALSO STATES THE BUSINESS AS INVESTMENT AND SHA RE TRADING. CONSIDERING THE ABOVE FACTS THE LEARNED CIT(A) HAS HELD THAT THE ADDITION OF LOAN AND ADVANCE RECEIVED BY THE ASSESSEE FROM M/S.PRASAD GROUP RESOURCES PVT. LTD. AS DEEMED DIVIDEND IS UPHELD. HOWEVER LEARNED CIT(A) LIMITED THE ADDITON TO THE EXTENT OF ACCUMULATED PROFITS WHICH STANDS AT RS.89 41 505 AS AGAINST THE ADDITION OF RS.1 28 00 000 MADE BY THE ASSESSING OFFICER. 7 .8 . BEING AGGRIEVED THE ASSESSEE HAS FILED FURTHER APPEAL BEFORE THE TRIBUNAL DISPUTING THE ADDITION CONFIRMED BY THE LE ARNED CIT(A) OF RS.89 41 505 AS DEEMED DIVIDEND OF THE LOAN AND ADVANCED RECEIVED FROM M/S.PRASAD GROUP RESOURCES PVT. LTD. ONLY. 7 .9 . DURING THE COURSE OF HEARING THE LEARNED DR IN REPLY TO A QUERY FROM THE BENCH CONFIRMED THAT THE DEPARTMENT HAS NOT FILED ANY APPEAL AGAINST THE AFORESAID ORDER OF THE LEARNED CIT(A) BEFORE THE TRIBUNAL. 7 .10 . THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE PRINCIPAL BUSINESS OF M/S.PRASAD GROUP RESOURCES PVT. LTD. IS OF GRANTING LOANS AND ADVANCES. HE SUBMITTED THAT A SUBSTANTIAL PART OF ITS FUND WAS DEPLOYED IN GIVING LOANS AND ADVANCES TO OTHERS. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT IN THE CASE OF M/S.PRASAD GROUP RESOURCES PVT. LTD. IN ITA NO.1760/KOL/2008 FOR THE ASSESSMENT YEAR 2005 - 06 VIDE ITS O RDER DT.28.10.2009 THE TRIBUNAL KOLKATA BENCH WHILE CONSIDERING AS TO WHETHER EXPLANATION 9 / I.T.A.NO.1239/KOL/2009 TO SEC.73 OF THE ACT IS APPLICABLE TO DISALLOW THE SHARE LOSS INCURRED BY M/S.PRASAD GROUP RESOURCES PVT. LTD. HAS HELD THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE - CO MPANY NAMELY M/S.PRASAD GROUP RESOURCES PVT. LTD. WAS GRANTING LOANS AND ADVANCES AND NOT SHARE TRADING AND ACCORDINGLY HELD THAT EXPLANATION TO SECTION 73 IS NOT APPLICABLE. TO SUBSTANTIATE HIS SUBMISSION THE LEARNED AR OF THE ASSESSEE HAS FILED A COPY OF THE SAID ORDER DT.28.10.2009. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT WHEN THE TRIBUNAL HAS GIVEN THE FINDING THAT THE PRINCIPAL BUSINESS OF M/S. PRASAD GROUP RESOURCES PVT. LTD. WAS GRANTING OF LOANS AND ADVANCES IN THE ASSESSMENT YEAR 2005 - 06 THE SAID ORDER HAS TO BE CONSIDERED IN THE CASE OF THE PRESENT ASSESSEE WHILE CONSIDERING THE NATURE OF BUSINESS OF M/S.PRASAD GROUP RESOURCES PVT. LTD. HOWEVER THE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED CIT(A). SHE FURTHER SUBMITTED THAT IN ORDER TO CARRY OUT THE BUSINESS OF MONEY LENDING THE REQUIREMENT OF REGISTRATION AND/OR LICENSE FOR CARRYING ON BUSINESS IN MONEY LENDING IN THE STATE OF WEST BENGAL IS NECESSARY. SHE FILED A COPY OF THE REPORT OF RBI TO SUBSTANTIATE H ER SUBMISSION. THE LEARNED DR SUBMITTED THAT SINCE THE LENDER COMPANY M/S.PRASAD GROUP RESOURCES PVT. LTD. HAS NO LICENSE TO CARRY ON THE BUSINESS OF MONEY LENDING IT CANNOT BE SAID THAT GRANT OF LOANS AND ADVANCES IS THE PRINCIPAL BUSINESS OF M/S.PRASAD GROUP RESOURCES PVT. LTD. SHE FURTHER SUBMITTED THAT EVEN IF SUBSTANTIAL PART OF GROSS TOTAL INCOME IS OUT OF INTEREST IT IS NOT RELEVANT FOR THE PURPOSE OF SECTION 2(22)(E) OF THE ACT. THE LEARNED DR ALSO PLACED RELIANCE ON THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF RE KHA MODI V. ITO [(2007) 13 SOT 512]. 7 .11 . WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE ORDER OF THE COORDINATE BENCH ITAT KOLKATA DT.2 8 .10.2009 IN THE CASE O F M/S.PRASAD GROUP RESOURCES PVT. LTD. (SUPRA) AS ALSO THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF REKHA MODI V. ITO (SUPRA) AS RELIED ON BY THE LEARNED REPRESENTATIVES OF THE RESPECTIVE PARTIES. 6.12 . NO DOUBT IT IS A FACT THAT AS PER THE BEN GAL MONEY - LENDERS ACT 1940 READ WITH RBI REPORT IT IS ONE OF THE REQUIREMENT TO OBTAIN REGISTRATION/LICENSE FROM THE CONCERNED 10 / I.T.A.NO.1239/KOL/2009 STATE FOR CARRYING ON BUSINESS OF MONEY LENDING. WE OBSERVE THAT M/S.PRASAD GROUP RESOURCES PVT. LTD. HAS NOT GOT ITSELF REGIST ERED AND/OR OBTAINED LICENSE FOR CARRYING ON BUSINESS OF MONEY LENDING AND ACCORDINGLY THE SAID CONCERN CAN BE MADE LIABLE FOR NECESSARY ACTION UNDER THE CONCERNED ACT OF THE STATE GOVERNMENT. HOWEVER FOR THE PURPOSE OF INCOME - TAX ACT WE HAVE TO CONSID ER THE NATURE OF BUSINESS ACTIVITIES AS PER THE PROVISIONS OF THE INCOME - TAX ACT . IN ORDER TO CONSIDER WHETHER THE PRINCIPAL BUSINESS OF THE SAID CONCERN IS OF GRANTING OF LOANS AND ADVANCES OR NOT WE HAVE TO CONSIDER THE RATIO OF DEPLOYMENT OF FUNDS AN D ITS INCOME IN THE RELEVANT ASSESSMENT YEAR . WE OBSERVE THAT IN THE CASE OF M/S.PRASAD GROUP RESOURCES PVT. LTD. IN IT A NO.1760/KOL/2008 THE ITAT KOLKATA BENCH VIDE ORDER DT.28 .10.2009 WHILE ADJUDICATING THE APPEAL FOR THE ASSESSMENT YEAR 2005 - 06 HAS HELD VIDE PARAGRAPH 3.2 THAT THE PRINCIPAL BUSINESS OF THAT ASSESSEE - COMPANY IS WAS GRANTING OF LOANS AND ADVANCES AND NOT SHARE TRADING. WE CONSIDER IT PRUDENT TO REPRODUCE THE SAID PARAGRAPH 3.2 OF THE SAID ORDER WHICH READS AS UNDER: 3.2. WE FIRS T EXAMINE THE ASSESSEES CONTENTION WITH REGARD TO ITS INCOME FROM GRANTING OF LOANS AND ADVANCES. ON PERUSAL OF P/L ACCOUNT IT IS SEEN THAT THE ASSESSEE DERIVED INCOME BY WAY OF INTEREST RECEIVED OF RS.10 15 862/ - WHEREAS THE LOSS FROM SHARE DEALINGS WA S RS.2 52 578/ - . AT PAGE - 54 OF THE PAPER BOOK WHICH IS A WRITTEN EXPLANATION OF THE ASSESSEE BEFORE THE C.I.T.(A) THE ASSESSEE HAS GIVEN THE QUANTUM OF DEPLOYMENT OF FUNDS BY IT TO ESTABLISH THAT GRANTING OF LOANS AND ADVANCES IS ITS PRINCIPAL BUSINESS WHICH IS AS UNDER : - F.Y. 2004 - 05 F.Y. 2003 - 04 F.Y. 2002 - 03 F.Y. 2001 - 02 INVESTMENT 1 91 05 345 1 86 80 582 33 36 420 34 11 205 IN SHARES. LOANS & 2 15 87 459 2 14 13 234 63 22 219 64 49 452 ADVANCES ON PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW WE FIND THAT THE MAIN REASON FOR TREATING THE LOSS INCURRED BY THE ASSESSEE ON TRADING IN SHARES AS SPECULATION LOSS UNDER EXPLANATION TO SEC. 73 WAS THAT THE LOAN ADVANCED CONSTITUTED ONLY 23.71% OF FUND DEPLOYED WHEREAS FOR THE SHARE TRADING IT WAS 43%. AS STATED ABOVE THE INTEREST INCOME ON LOANS & ADVANCES WAS MORE THAN THE INCOME FROM SHARE DEALING WHICH WAS NEGATIVE INCOME. IN VIEW OF THE ABOVE IT IS 11 / I.T.A.NO.1239/KOL/2009 EVIDENT THAT THE PRINCIPLE BUSINESS OF THE ASS ESSEE WAS GRANTING OF LOANS AND ADVANCES AND NOT SHARE TRADING. 7 .12. IN VIEW OF THE ABOVE AND FOLLOWING THE FINDINGS GIVEN BY THE COORDINATE BENCH IN THE CASE OF M/S.PRASAD GROUP RESOURCES PVT. LTD. IN ITA NO.1760/KOL/2008 VIDE ORDER DT.2 8 .10.2009 (SUP RA) WE HOLD THAT THE PROVISION OF SECTION 2(22)(E) OF THE ACT IS NOT APPLICABLE FOR THE LOAN TAKEN BY THE ASSESSEE FROM M/S.PRASAD GROUP RESOURCES PVT. LTD. AS THE PRINCIPAL BUSINESS OF M/S.PRASAD GROUP RESOURCES PVT. LTD. IS OF GRANTING LOANS AND ADVAN CES IN THE ASSESSMENT YEAR UNDER CONSIDERATION. ON THE OTHER HAND THE DECISION IN THE CASE OF REKHA MODI V. ITO (SUPRA) RELIED ON BY THE LEARNED DR WE OBSERVE THAT THE ASSESSEE COMPANY OUT OF ITS TOTAL FUND OF RS.2.62 CRORES USED ONLY AN AMOUNT TO THE E XTENT OF RS.42.68 LAKHS I.E. 16.29% FOR MONEY LENDING BUSINESS. IT WAS OBSERVED THAT THE MONEY LENDING BUSINESS OF THE SAID COMPANY CONSTITUTED LESS THAN 20% OF THE TOTAL BUSINESS OF THE COMPANY AND ACCORDINGLY IT WAS HELD THAT IT COULD NOT BE SAID TO BE A SUBSTANTIAL PART OF THE BUSINESS OF THE SAID COMPANY. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE ABOVE DECISION IN THE CASE OF REKHA MODI V. ITO (SUPRA) IS NOT APPLICABLE TO THE FACTS BEFORE US. 7 .13. HENCE GROUND NO.5 OF THE APPEAL TAKEN BY THE ASSESSEE IS ALLOWED. 8 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 31.03.2010 SD/ - SD/ - ( . . ) (C.D. RAO) ACCOUNTANT MEMBER ( . . ) ( B.R.MITTAL ) JUDICIAL MEMBER ( ) DATE: 31.03.2010 ( /) H.K.PADHEE / SNR.PRIVATE SECRETARY. 12 / I.T.A.NO.1239/KOL/2009 - COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT : M/S. ZENON INDIA PVT. LTD. TRUST HOUSE 32A C.R.AVENUE KOLKATA 700 012 . 2 / THE RESPONDENT - ACIT CIRCLE 3 KOLKATA. 3. / THE CIT 4. ( )/ THE CIT(A) 5. / DR KOLKATA BENCH 6. GUARD FILE . / TRUE COPY / BY ORDER / DEPUTY REGISTRAR .