TMI Blog2012 (12) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahesh Agarwal for the Appellant. K.K. Mishra for the Respondent. ORDER A.L. Gehlot, Accountant Member - This is an appeal filed by the assessee against the order dated 04.10.2011 passed by the ld. CIT(A)-II, Agra for the Assessment Year 2008-09. 2. The assessee has raised the following grounds of appeal:- "1. That the Ld. CIT(A) has erred in law and on facts in confirming the addition of Rs. 37,28,059/- made by the assessing officer u/s 2(22)(e) of the Act in relation to the loan taken from M/s Krishna Bead Industries Pvt. Ltd. 2. That while confirming the addition aforesaid Ld. CIT(A) has erred in law and on facts to hold that money lending was not substantial part of business of the lending company and as such the impugned loan was not covered by the exclusion as provided in Clause (ii) of Sec. 2(22)(e). 3. That the Ld. CIT(A) has erred in law while so upholding simply on the basis of presentation of accounts in the Balance Sheet and Profit Loss account of the company without appreciating the true nature and character of such accounts. 4. That under the facts and in law ld. CIT(A) ought to have deleted the addition made by the AO u/s 2(22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public are not substantially interested. (ii) The equity shareholder, who is beneficial owner of shares holding not less than ten percent of voting power, or (iii) Any concern in which share holder (holding not less 10% voting power) is a member or partner and in which he has a substantial interest, or (iv) Any person, on behalf, or for the individual benefit of such shareholder. Such shareholder here means a shareholder who is beneficial owner of shares holding not less than 10% voting power. The loan and advance given to such person shall be deemed to be dividend only to the extent to which it is shown that the company possesses accumulated profits on the date of loan etc. There are certain exceptions also provided in the subsection one of which is that any advance or loan to a shareholder or specified concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company will not attract the provisions of sec.2(22)(e) - This exception shall apply only when two cumulative conditions are fulfilled - first, the loan should have been made by the company in the ordinary course of business and secondly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indirect incomes - 62280 Other items of income as per the annexures are - Balances written off 1219725 Interest on FDR 472591 Balances written off 1219725 Vat refund 343340 Thus the above analysis shows that not a single rupee income has been shown from money lending activity. The interest earned on FDRs and interest accrued on investment can by no stretch of imagination can be said to have been earned from money lending business. What is now being claimed as interest earned of Rs. 62280/- from the appellant on the advances given to him is in fact shown as 'indirect income' in the annexures. If the money lending was a dominant business activity of the company then how the income earned from such activity can be 'indirect income' is beyond ones comprehension. The explanation being offered is contrary to facts on record and utterly misleading. The explanation is a blatant subterfuge. There was hardly any money lending business carried out by the company i.e. M/s Krishna Beads Ind. (P) Ltd. is also borne out from the fact that total loans and advances as per the balance she ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that since the money lending is substantial business of the assessee, therefore, provisions of section 2(22)(e) of the Act is not applicable. Ld. Authorised Representative in support of his contention relied upon the judgement of Hon'ble Mumbai High Court in the case of CIT v. Parle Plastics Ltd. [2011] 332 ITR 63. 6. The ld. Departmental Representative, on the other hand, relied upon he order of CIT(A). 7. We have heard the ld. Representatives of the parties and records perused. The issue to be examined in the case under consideration is that whether loans and advances received by the assessee from the Company in the ordinary course of its business where the lending of money is a substantial part of business of the assessee Company. To examine the issue, we would like to see section 2(22)(e) of the Act which reads as under :- "2(22) dividend includes (a), (b), (c) and (d)** ** ** (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [made after the 31st day of May, 1987, by way of advance or loan to a sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, [but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place]. [Explanation 3. For the purposes of this clause, (a) "concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern ;]" 8. If we consider the object of introduction of sub-clause (e), we notice that a company in which public are not substantially interested may not declare dividends or adequate dividends and may merely give loans to shareholders and such loans, not being d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical person like Auditor, the figures reported in financial audited statements can be considered for the purpose of income tax Act unless some contrary material facts have been brought on record, or any material brought on record showing that the books of account maintained by the assessee was not in accordance with the accounting standard and principle of accountancy. This view is supported by section 145 of the Act itself. The judgement cited by the ld. Authorised Representative in the case of Sutlej Cotton Mills Ltd. (supra) and Laxmi Sugar Oil Mills Ltd. (supra) does not help to the assessee as the CIT(A) did not accept the figures reported in financial statement blindly. But certainly he has taken the help of determining the nature of transaction. The Courts held in those cases that Balance Sheet and financial statement prepared on the basis of books of account are not conclusive for determining the nature of transaction. The Court did not hold that one cannot take the help of those figures for determining the nature of business or transaction in determining the issue under the Income Tax Act. The issue whether the business of the company was a business of money lending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse of an occupation or profession are which occupies time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealing either only continued or contemplated to be continued with a profit motive and not for support or pleasure. Whether or not a person carries on business in a particular commodity must depend upon volume, frequency continuity and regularity of transaction of purchase and sale in a class of goods and transaction must ordinary be included into that profit motive. To carry on business ordinarily the characteristic of volume, frequency, continuity and regularity indicate and intension to continue the activity of carrying on transaction must exist. This decision which was recorded in the context of Sales Tax law was relied upon and referred to in the context of Income Tax law in a decision of the Hon'ble Supreme Court in the case of Sole Trustee Loka Shikshana Trust v. CIT [1975] 101 ITR 234. 11. In the light of above discussion, we find that the assessee has failed to establish that the substantial part of business of the company is money lending and the loans and advances received to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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