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TMI Blog2016 (2) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... ion thereon. The Ld CIT(A) also confirmed the same with the observation that the assessee has not produced relevant bills and invoices before the AO as well as before him. However, we notice that the said observation is contradictory to the observations made by the AO, wherein he observes that he has perused the bills and details submitted. However, on a perusal of the details furnished by the AO, we notice that the assessing officer has disallowed an item which is as low as Rs. 50/-. At the same time, the said list includes purchase of softwares costing Rs. 1,70,000/-, Rs. 4,35,660/-, Rs. 1,54,470/- etc. The AO / CIT(A) has not discussed about the nature of software and its possible usage period before taking the decision against the assessee. Further, the list also includes expenditure like carpenter work, purchase of battery, purchse of switches, change of compressor etc. The question whether these expenses are required to be capitalised or can be allowed as revenue expenditure could be answered only if the purpose of the expenditure is ascertained. In our view, the impugned issue requires to be examined in accordance with the decision rendered by Hon'ble Supreme Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, where as the observations made by the Ld CIT(A) has been claimed to be incorrect. Under these set of facts, we are of the view that this issue also requires fresh consideration at the end of the AO. Accordingly, we set aside the order of Ld CIT(A) and direct the AO to examine this issue afresh. 6. The next issue contested by the assessee relates to the disallowance made u/s 14A of the Act. The assessee has received dividend income of Rs. 20.77 lakhs and it has made disallowance u/s 14A of the Act to the tune of Rs. 35.57 lakhs. However, the AO computed the disallowance as per Rule 8D of the IT Rules at Rs. 1.22 crores. The Ld CIT(A) also confirmed the same. The main contention of the Ld A.R is that the assessing officer did not record his dissatisfaction over the methodology adopted by the assessee to compute the disallowance u/s 14A and hence he could not have invoked the provisions of Rule 8D. In support of this proposition, the assessee placed reliance on the decision rendered by Hon'ble Delhi High Court in the case of CIT Vs. Taikisha Engineering India Ltd (370 ITR 338). We agree with the said contentions of the assessee. The AO should first examine the workings made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; Section 2(18): "company in which the public are substantially interested"-a company is said to be a company in which the public are substantially interested- (a) ........ (aa)....... (ab)...... (ac) .... (ad)..... (b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely :- (A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder ; (B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to particip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital as may be prescribed, and by is articles, (a) restricts the right to transfer its shares, if any ; (b) limits the number of its members to fifty not including - (i) persons who are in the employment of the company ; and (ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased ; and (c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company ; (d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives; Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definition, be treated as a single member; (iv) "public company" means a company which - (a) is not a private company ; (b) has a minimum paid-up capital of five lakh rupees or such higher paid-up capital, as may be prescribed ; (c) is a private company which is a subsidiary of a company which is not a private company. 5.9 As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have already held above that ADIPL is a company in which public are Substantially interested, considering that during the course of F.Y. 2007-08 more than 50% shares of ADIPL were held by the appellant. Since ADlPL is a company in which public are substantially interested, it is evident that the provisions of section 2(22)(e} are not attracted. Hence the amount of Rs. 11.80 crores cannot be assessed in the hands of the appellant as deemed dividend 5.12 Coming to the case law cited by the appellant i.e. ACIT Vs: Ajax Investment Ltd,85 ITD 154 (Ahd)(SB), it is seen that the Hon'ble Special Bench of ITAT has held as under "13. The two assessee companies are public limited companies, therefore, they satisfied the first condition of 2(18)(b) namely, they are not private limited companies under the Companies Act. To be companies in which public is substantially interested they have to further satisfy conditions specified in Item ‗A' or in Item ‗B' of section 2(18)(b). Shares of these two assessee companies are not listed in a recognised Stock Exchange, therefore, they do not satisfy condition specified in Item ‗A'. However, the shares of these assessee companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e held by Samudaya and Adavat to make it eligible to grant the derivative status to the assessee in which it holds 50 per cent shares. We do not find any such condition that in order to be eligible to be a company "to which this clause applies" it has to have that status of its own and not by virtue of its being a subsidiary of another Company; nor that, otherwise it has to be a 100 per cent subsidiary of the holding Company to which this clause (c) applies. It would be reading something which is not there in the statute section 2(18)(b) of the Act. This, in our opinion, is not permissible on any principle of interpretation. 17. We also do not find any force in the submission of the Revenue that if the contention of the assessee is accepted then second part of clause (c) of the definition requiring 100 per cent holding by their parent company would become redundant as it could become a company to which this clause applies by mere holding of 50 per cent shares by virtue of the opening words of Part "B" of clause (c) itself. In our opinion, though, it may be that a company by acquiring shares carrying not less than 50 per cent of voting power, becomes subsidiary of the first mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason either in her assessment order or in the remand report to substantiate as to why the sum of Rs. 11.80 crores are not "inter-corporate deposits" and instead these are "loans and advances". "loans and advances" are not the same as deposits. Hon'ble Mumbai ITAT , in the case of Bombay Oil Industries reported in 28 SOT 383 (Mum) has held as under: "From the above it is clear there is distinction between deposits vis-a-vis loans/advances. Section 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 section 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 inter-corporate deposits vis-a-vis loans/advances, according to us the authorities below were not right in treating the same as deemed div ..... 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