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TMI Blog2013 (9) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.8 cr. and had reserves and surplus at Rs.56 cr. It was the submission that the investments were only Rs.2,96,17,000/- - As per the decision of Godrej & Boycee Mfg. Co. Ltd., referred to [2010 (8) TMI 77 - BOMBAY HIGH COURT], there must be a proximate relationship between the expenditure and the income which does not form part of the total income – Issue restored to the file of A.O. for deciding as per the line of decision of the Hon’ble Bombay High Court in the case of Godrej & Boycee Mfg. Co. Ltd. - ITA No.1721,/Kol/2012 & ITA No.114/Kol/2013 - - - Dated:- 12-3-2013 - P K Bansal and George Mathan, JJ. For the Appellant : Shri S K Tulsiyan, Adv. For the Respondent : Shri Ajoy Kr Singh, CIT-DR ORDER:- Per: George Mathan:ITA No. 1721/K/2012 is an appal filed by the assessee and ITA No. 114/Kol/2013 is an appeal filed by the revenue against the order of Ld. CIT(A), Central-VI, Kolkata in Appeal No. 173/CIT(A)-VI/R-6/11-12/Kol dated 25.10.2012 for the AY 2009-10. 2. Shri S. K. Tulsiyan, Advocate, Advocate represented on behalf of assessee and Shri Ajoy Kr. Singh, CIT (DR) represented on behalf of revenue. 3. In the assessee s appeal the assessee has raised fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly paid by it, it was only a notional loss. 4. That, the appellant craves leave to alter, amend, rescind and substitute any of the abovementioned grounds and add any further grounds before or at the time of hearing of the appeal. And in revenue s appeal, the revenue has raised following grounds: 1. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in holding that loan granted by M/s IFB Automotive Pvt Ltd. be not treated as deemed dividend within the meaning of Sec 2(22)(e) of the IT Act,1961. 2. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in holding that bad debt claimed by the assessee is allowed even when conditions laid down as per Sec 36(1)(vi) is not fulfilled. 3. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in deleting the addition made u/s 43B even when the amount was not paid within due date. 4. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in deleting the addition made on account of excessive and unjustified business expenditure. 5. Whether on the facts and circumstances of the case, Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.11.20 cr. It was the submission that even the Ld. CIT(A) had treated the Inter corporate deposits as a loan and had consequently treated the amount of Rs.11.20 cr. as deemed dividend u/s. 2(22)(e) of the Act. The Ld. AR drew our attention to the order of Ld. CIT(A), wherein the Ld. CIT(A) had asked for certain clarifications and which were answered by the assessee, the same was found in pages 11 to 14 of the order of the Ld. CIT(A) in para 6 of his order. It was the submission that the Inter corporate deposits were not in the nature of loan and the assessee had never asked M/s. IFB for any loan. The Ld. AR drew our attention to para 24 of the order of Ld. CIT(A) at page 22 of his order, wherein the Ld. CIT(A) has on the ground that the word Inter-corporate deposit was very limited to Companies and was synonymous with the term loan as also on the ground that Inter corporate deposit is not a legal word in the I. T. Act nor used any where in the Act to make it different from loans or advances held the same to be a loan for the purpose of invoking the provisions of section 2(22)(e) of the Act. It was the further submission by the Ld. AR that the decisions relied on by the Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Coordinate Bench of this Tribunal in the case of Bombay Oil Industries Ltd. (supra) as also the decision of the Special Bench in the case of Gujarat Gas Financial Services Ltd. (supra) as also the decision of the Hon ble jurisdictional High Court of Calcutta in the case of Pradip Kr. Malhotra (supra), the addition as sustained by the Ld. CIT(A) by applying the provisions of section 2(22)(e) of the Act was liable to be deleted in so far as the assessee had not taken any loans from M/s. IFB, but M/s. IFB had placed the Intercorporate deposits with the assessee. In reply, the Ld. CIT(DR) drew our attention to the order of the Ld. CIT(A) in para 6 referred to supra, wherein the Ld. CIT(A) had asked for certain clarifications from the assessee. He further drew our attention to para 8 of the order of CIT(A) to submit that the documents as produced before the Ld. CIT(A) representing the Director s Minutes Book resolutions passed by the Board of Directors could be a fabricated document in so far as the documents were not serially numbered. It was the submission that the term Intercorporate Deposit had been rightly treated by the Ld. CIT(A) and the AO to be a loan or advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, in view of the decision of Hon ble Coordinate Bench of this Tribunal in the case of Bombay Oil Industries Ltd. , referred to supra, wherein the coordinate bench of this Tribunal has held as follows: 10. We have heard the rival submissions and perused the material on record. The authorities below have not controverted the claim of the assessee company that the amount received from above three companies is ICDs. The AO held against the assessee only on account that it had failed to explain, the investment is neither loan or advance. It is a settled position that deposits cannot be equated with loans or advances. The jurisdictional High Court in the Durga Prasad Mandelia s case (supra) has noticed the distinction between deposits and loans in the context of s. 370 of the Companies Act. The Court held as under: There can be no controversy that in a transaction of a deposit of money or a loan, a relationship of a debtor and creditor must come into existence. The terms deposit and loan may not be mutually exclusive, but nonetheless in each case what must be considered is the intention of the parties and the circumstances. In the present case, barring the assertio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 69. The submission of the assessee is that these ICDs being neither loans or advances, interest earned on these is not exigible to interest tax in view of the decision of Ahmedabad Tribunal in the case of Utkarsh Fincap (P) Ltd. vs. ITO (2006) 101 TTJ (Ahd) 210. Reliance is also placed on the decision of Housing Urban Development Corporation Ltd. vs. Jt. CIT (2006) 102 TTJ (Del) (SB) 936 : (2006) 5 SOT 918 (Del)(SB), Stanrose Holding Ltd. (ITA No. 25/Mum/1966) and Persepolis Investment Co. (P) Ltd. (ITA No. 51/Mum/1997). The Learned Departmental Representative on the other hand supported the decision of the CIT(A) and submitted that when assessee itself had offered it to tax where the question of allowing it as not taxable. He also submitted that it is taxable as held in Bajaj Auto Holdings Ltd. vs. Dy. CIT (2005) 96 TTJ (Mumbai) 856 : (2005) 95 ITD 356 (Mumbai). 70. We have heard the parties and considered the riva submissions. It might be true that assessee had offered it to tax initially but he claimed it as not taxable and therefore the matter has to be examined on merits and to determine as to whether it is taxable under the Act. We find it is not taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty made would also not stand. They are, accordingly deleted. 71. It has considered the decision of Bajaj Auto Holdings Ltd.s case (supra) referred to by the CIT(A) and distinguished by stating that Mumbai Bench has proceeded on a footing that deposit would be an advance. and would be includible in the term with interest on deposit and advance. The Bombay Bench is more persuaded by the reason that the interest on deposit was not excluded from the definition of interest and the term interest on loans and advances was wide enough to include the same. It had not considered that whether it was not a loan nor an advance and as to whether the amended definition of interest under the Act was exhaustive or inclusive. In holding that the ICD is not an advance the Ahmedabad Tribunal also noticed that the meaning of the term advance as understood in the commercial words and as stated under the title what is advance in the following words : It was held in KM. Mohammed Abdul Kadir Rowther vs. S. Muthia Chettiar (1960) 2 Mad. LJ 13 at 15 that advance means literally a payment beforehand; in certain cases it may be a loan but it cannot be said that a sum paid by way of ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvances. s. 2(22)(e) enacts a deeming fiction whereby the scope and ambit of the word dividend has been enlarged to bring within its sweep certain payments made by a company as per the situations enumerated in the section. Such a deeming fiction would not be given a wider meaning than what 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 s. 2(22)(e) of the Act is that payment must be by way of loan or advances. Since there is a clear distinction between the ICDs vis-a-vis loans/advances, according to us the authorities below were not right in treating the same as deemed dividend under s. 2(22)(e) of the Act. Since we hold that ICDs do not come within the purview of deemed dividend under s. 2(22)(e) of the Act, the alternative contention of the assessee namely by virtue of s. 2(22)(e)(ii) of the Act, the unsecured loans received by the assessee is not dividend is not adjudicated. We are of the view that the Intercorporate deposits cannot be treated as a loan falling within the purview of section 2(22)(e) of the Act. 6. Admittedly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... line with the decision of the Hon ble Bombay High Court in the case of Godrej Boycee Mfg. Co. Ltd., referred to supra,. 8. We have considered the rival submissions. A perusal of the order of the Ld. CIT(A) shows that the Ld. CIT(A) in para 36 of his order states that the assessee has not been able to establish with sufficient material the manner of calculating the amount disallowable for earning the exempt income. However, a perusal of the decision of the Hon ble Bombay High Court in the case of Godrej Boycee Mfg. Co. Ltd., referred to supra, shows that this is not what the said decision directs. Under these circumstances, this issue is restored to the file of the AO for readjudication in line with the decision of the Hon ble Bombay High Court in the case of Godrej Boycee Mfg. Co. Ltd., referred to supra. 9. In regard to ground no.3 of assessee s appeal, which was against the action of the Ld. CIT(A) in disallowing the loss of Rs.10,84,000/- arising to the assessee on account of the fluctuation of foreign exchange rate, it was submitted by the Ld. AR that the issue was squarely covered by the decision of the Hon ble Supreme Court in the case of CIT Vs. Woodward Governor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vi) of the Act is not fulfilled, it was submitted by the Ld. DR that the assessee had not satisfied the condition that the debt had earlier been taken in computing the assessable income. The Ld. CIT(DR) vehemently supported the order of the AO. The Ld. AR submitted that the amount was a trading loss and was directly connected to the assessee s business. It was the submission that this amount had been shown as income in the year of sale. The trading loss in a business was deductible in computing the profits of the business. It was the submission that the copies of the ledger account of M/s. Satya Sai Sea Food and M/s. Amriteesh Enterprises were not also sent to the AO by CIT(A) and it was only after verifying the same, the addition as made by AO have been deleted. 15.We have considered the rival submissions. A perusal of the order of the Ld. CIT(A) in para 58 of his order clearly shows that the ledger account of M/s. Satya Sai See Food and M/s. Amriteesh Enterprises was sent by the Ld. CIT(A) to the AO. No defect in the same had been pointed out. Further, a perusal of the ground as raised by the revenue clearly shows that the revenue is against the action of the ld. CIT(A) in dele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. A perusal of para 66 of the order of CIT(A) clearly shows that the Ld. CIT(A) has taken into consideration that the gross profit and net profit ratio for the current assessment year was better than that of the immediately earlier assessment year. Further, we are of the view that as no defects in the books of account have been pointed out no ad hoc disallowance can be made on presumptions and surmises that there is leakage of revenue. Under these circumstances, we are of the view that the finding of the Ld. CIT(A) on this issue does not call for any interference and consequently, the said ground stands dismissed. 19. In regard to ground no. 5 of revenue s appeal, which is against the action of Ld. CIT(A) in deleting the addition made on account of notional loss due to foreign exchange fluctuations, it was fairly agreed by both the sides that the issue was identical to the issue in ground no. 3 of assessee s appeal. As ground no. 3 of assessee s appeal has been restored to the file of AO for readjudication after taking into consideration the decision of the Hon ble Supreme Court in the case of Woodward Governor India (P) Ltd., referred to supra, the said ground in revenue s app ..... 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