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TMI Blog2020 (2) TMI 616X X X X Extracts X X X X X X X X Extracts X X X X ..... 1985 (9) TMI 282 - HIGH COURT OF BOMBAY] has noticed the distinction between deposits and loans in the context of section 370 of the Companies Act. We may also rely upon the coordinate Bench decision in the matter of KIIC Investment Company [ 2019 (1) TMI 391 - ITAT MUMBAI] , wherein the Bench had allowed the claim, as the intention can be gathered from the agreement, board resolution and other circumstances. However in the present case nothing is available to infer the intention of parties to give ICD. Thus, Ground Nos. 2 to 4 raised in appeal by the Revenue are required to be allowed Unexplained investment - Exclusion of amount being cash component of investment in flat at Surat - telescopic benefit to the assessee as the assessee made voluntary disclosures based on incriminating material detected during the survey action - statement of the assessee was recorded during the course of survey and the Managing Director of the assessee company had submitted that the assessee has earned an income from contract work which were not disclosed in the financial statement of the assessee - HELD THAT:- We see there is inherent contradiction in the case of the Revenue. Firstly, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in the case of Bombay Oil Industries Ltd. Vs. DCIT, however, the facts of the present case is not identical. 5. The Ld. Commissioner of Income Tax (Appeals) erred in passing the order by accepting the assessee s version without giving any concrete finding and not passed a speaking order on the ground of exclusion of amount of ₹ 2,53,59,490/- being cash component of investment in flat at Surat. 6. The Ld. Commissioner of Income Tax (Appeals) erred in giving the telescopic benefit to the assessee as the assessee made voluntary disclosures based on incriminating material detected during the survey action. 7. The Ld. Commissioner of Income Tax (Appeals) erred in allowing the amount of ₹ 2,53,59,490/- by way of telescopic benefit as the assessee had made the disclosure without any force or coercion and confirmed by the Director many times during the assessment proceedings. 8. For these and such other grounds as may be urged at the time of hearing, the order of the Ld. Commissioner of Income Tax (Appeals) may be vacated and that of the Assessing Officer be restored. 9. The appellant craves to add, amend, alter or delete any of the grounds of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to as the Act‟) were involved and the amount was brought to the tax by the Assessing Officer. 2.2 The Ld. CIT(Appeals) had accepted the contention of the assessee by treating the amount received by the assessee as Inter-Corporate Deposit and held that it was not in the nature of loan/advances. The Ld. CIT(Appeals) relying on the decisions of Hon‟ble Madhya Predesh High Court in the case of Sharda Talkies (Firm) Vs. Smt. Madhulata Vyas AIR 1966 MP 68 and also in the matter of Pennwalt (India) Pvt. Ltd. Vs. Registrar of Companies (1987) 62 Comp Case 112 ( Bom.) had granted relief to the assessee. For the sake of completeness, the observation of the Ld. CIT(Appeals) were reproduced herein below: 5. I have carefully considered the facts of the case as well as reply of the appellant. In this case undisputed fact remains that the amount of ₹ 2,93,26,224/- received from Dhariya Infrastructure Pvt. Ltd. is in the nature of Inter Corporate Deposit as claimed before the Assessing Officer too. This claim remains uncontrovered by the AO in the assessment order while invoking the provisions of section 2(22)(e) of the Income Tax Act, 1961. This being so, the only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Pvt. Ltd. to treat the amount as Inter Corporate Deposit . Further, Ld. DR submitted that the assessee was not able to establish that M/s. Dhariya Infrastructure Development Pvt. Ltd. was having sufficient/ surplus finds of its own which can be given to the assessee for the purpose of keeping it as deposit and were not borrowed funds. 3. The Ld. AR of the assessee has submitted that the amount given was in the nature of Inter Corporate Deposit and was not loan/advances. For that purpose, the Ld. AR of the assessee has drawn our attention to the decisions relied on by the Ld. CIT(Appeals) while giving relief to the assessee. 4. We have heard the rival contentions and perused the material available on record. In the present case, the assessee company namely, M/s.Dhariya Construction Pvt. Ltd. had received loan/advances amounting to ₹ 2,93,26,224/- from M/s. Dhariya Infrastructure Development Pvt. Ltd. for which during the assessment year under consideration, interest of ₹ 3,26,224/- was paid to lender company. Further, it was mentioned that the assessee company was beneficial owner of 50% shares in the lender company in which the public was not substantially in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch deposits may be invited or accepted by a company either from the public or from its members. (2) No company shall invite, or allow any other person to invite or cause to be invited on its behalf, any deposit unless- (a) such deposit is invited or is caused to be invited in accordance with the rules made under sub- section (1), and (b) an advertisement, including therein a statement showing the financial position of the company, has been issued by the company in such form and in such manner as may be prescribed. 4.5 In our opinion, though there is distinction between Inter Corporate Deposits and loan/advances, but for that purpose, the assessee was required to substantiate that the amount received by the assessee was in the form of Inter Corporate Deposits . As mentioned herein above, the assessee was failed to bring on record any documentary evidences except oral submission that the amount received by it was in the form of Inter Corporate Deposit . No evidence towards the nature of amount received by the assessee was brought on record or laid before the Ld. CIT(Appeals) or before us. No confirmations on Inter Corporate Deposit or Balance Sheet treating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hanged to Inter Corporate Deposit ,as it continues to be loan/advances. Hence required to be taxed for the purposes of deemed dividend. We may rely upon the Jurisdictional High Court in the Durga Prasad Mandelia v. Registrar of Companies [1987] 61 Comp. Cas. 479 (Bom., has noticed the distinction between deposits and loans in the context of section 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 assertion of the respondent that the moneys advanced by the company to the Associated Cement Companies Ltd. constitute a loan and offend section 370 of the Companies Act, there is nothing else to show that these moneys have been advanced as a loan . In the context of the statutory provisions, the word loan may be used in the sense of a loan not amounting to a deposit. The word loan in section 370 must now be construed as dealin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en to the persons appearing on the aforesaid. Your attention is also drawn to the bundle No.2 impounded during the course of survey which is a green file leveled as AC Sub contractor Dank Statement file . As you can see that the file contains banks account extracts and income tax records of one Shri Mahendra Devkate. Please elaborate as to how, you are in the possession a/these records and what is your relation with these said individual ; Ans. I confirm having seen the above said document, which forms the part of bundle No.2. The three individuals mentioned above are my sub contractors and my company i.e. DCPL awards labour contracts to the above individuals. However, I am not aware of these records. The assessee was confronted about the above facts on the basis of evidences impounded from the survey premises. d) The point No. 7 is extracted as below- Q. 7 I am showing you the statement of Shri Mahendra Devkate recorded on oath U/s 131 of the IT Act, 1961 during the course of Survey proceedings. Shri Devkate has stated that there has been no written order made by your company to him as a sub contractor and that he has been receiving only oral communication tc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, I hereby declare the amounts mentioned each financial year ni the table above relevant to the subsequent assessment years as additional income of Dhariya Construction Pvt Ltd. shall be filing the revised returns of each years and incorporate the afore mentioned income and pay the due taxes along with interest thereon. The assessee was thus, confronted about the above facts on the basis of evidences impounded from the survey premises and shown to him during the statement recording. The impounded materials and the statement of Shri Deokate a subcontractor is also on record. e) The facts regarding investment in flat is elaborated in point No.8, as under: Q.8: Please refer to the bundle NO.3 which is a Mahavir folder pertaining to ENN ENN Corporation Ltd. Your attention is invited to the page NO.9 of the said bundle and page 5 of the said bundle. PI. explain the entries made at page 9 specially in respect of entry cash ₹ 2,53,59,490/-. Ans. I confirm having seen the above said document which forms the part of bund No.3. The entries mace at page No.9 is related to purchase of a flat No. 302 of B Building in Four Season at Surat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his also made it clear that but for the survey action u/s.133A of the IT Act, 1961, the said income would have gone undetected and would have caused loss to the revenue. As the assessee has furnished the inaccurate particulars of income in the original return i.e. declaration of income before the survey action, the penalty proceedings u/s.271(1)(c) of the IT Act, 1961 is initiated separately. 5.1. The Ld. CIT(Appeals) has considered the submissions of the assessee and granted relief to the assessee by telescoping effect. The Ld. CIT(Appeals) has discussed this issue vide Para 9 to the following effect: 9. I have carefully considered the facts of the case as well as reply of the appellant. In this case it is seen that amount of ₹ 2,53,59,490/-was offered as additional income vide answer to question No.8 of the statement of Shri Mukund Dhariya recorded u/s 133A of the Income Tax Act, 1961 on 10/10/2012. The Assessing Officer has reproduced the same on page 9 of the assessment order. However, for ready ref; the same is reproduced here again: Q.8: Please refer to the bundle NO.3 which is a Mahavir folder pertaining to ENN ENN Corporation Ltd. Your attention is inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the appellant decides to pursue the issue in further- appeal benefit of telescoping will be automatically treated as withdrawn and the Assessing Officer will be entitled to take action in this regard by including the amount of ₹ 2,53,59,490/- in the computation of income. Subject to above remark, ground No.4 is allowed. 5.2 The Ld. DR further submitted that statement of assessee was also recorded during the course of survey conducted by the Revenue and in the survey, the assessee had acknowledged the payment of an amount of ₹ 2,53,59,490/- in cash for the purpose of purchasing flat in the name of Director. Besides that the assessee has also declared various amounts which has been received by the assessee company from M/s. Dhariya Infrastructure Development Pvt. Ltd. 5.3 It was also submitted by the Ld. DR that the Ld. CIT(Appeals) has glossed the fact that the amount declared by the assessee for A.Y.2010-11, 2011-12 and 2012-13 amounting to ₹ 64,20,637/-, ₹ 10,391,626/-, and ₹ 16,729,248/- were not shown in the income of the assessee. (Para 8 of the CIT(A)‟s order). However, after accepting the said amount as income for the periods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,03,91,626/- and also for assessment year 2012-13 of ₹ 1,67,29,248/- as income from contract work which were not disclosed in the financial statement of the assessee. The answers given by the assessee in Question No.7 and 8 was reproduced by the Assessing Officer at Page 8 and 9 to the following effect: Q. 7 I am showing you the statement of Shri Mahendra Devkate recorded on oath U/s 131 of the IT Act, 1961 during the course of Survey proceedings. Shri Devkate has stated that there has been no written order made by your company to him as a sub contractor and that he has been receiving only oral communication tcepser ni of the labour work executed by him at our company sites. He has further stated that neither he has any proof of the completion of said work nor has he received of any work completion certificate. In view of the said statement on oath you are hereby requested to clarify as to why it should not be presumed that the sub contract are actually not being executed hut the payments are being made after proper documentation and considering the facts that these are your long trusted employees, the amounts credited into their accounts are ultimately given hack to you ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made at page 9 specially in respect of entry cash ₹ 2,53,59,490/-. Ans. I confirm having seen the above said document which forms the part of bund No.3. The entries mace at page NO.9 is related to purchase of a flat No. 302 of B Building in Four Season at Surat. The said property was originally booked by Shri Anup Namdeo Dultani and Mrs. Bharti Dultani. I have purchased the said property at an amount agreed at ₹ 3,64,59,990/- out of which an amount of ₹ 1,06,00,500/- was given through cheque. Again ₹ 5,00,000 was also paid through cheque to Anup Dultani. The balance amount of ₹ 2,53,59,490/- was paid against the cost of property by way of cash, which I am offering as additional income for the FY 2011-12 in the hands of Dhariya Construction Pvt. Ltd. 7.1 From perusal of the above, it is evidently clear that the assessee declared the income of ₹ 3,35,41,511/- as income in the payment made to Prasad Kulkarni, Pradeep Kulkarni and Mahendra Devkate. Once the assessee declared the income, the element of expenditure, if any, has also taken care of by the assessee while doing so. Similarly in reply to Question No.8, the assessee has also ackno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able for addition in subsequent year. However, this is not applicable if the assessee disputes the addition made in the earlier year and sought to take benefit of telescoping in the year under appeal. Further telescoping is not applicable where undisclosed income in the earlier year are not assessed and taxed. 7.5. If we look into the above said proposition of law laid down by the Hon‟ble High Courts, it is clear that in the present case the assessee had agreed for the addition of undisclosed income for the earlier years of ₹ 64,20,637/-, ₹ 1,03,91,626/- and ₹ 1,67,29,248/- ( for the assessment year under appeal) and has sought for telescoping for the amount of ₹ 2,53,59,490/-. In our view, telescoping is permissible to be granted to the assessee as the flat was purchased in the name of the Director. However the ownership of the asset(flat) belonged to the individual not the assessee company. In view of above, needful is required to be done by the assessee by brining the ownership of the property back to the assessee in the balance sheet to the proportion of contribution made by the assessee company in purchasing flat. In the light of above, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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