TMI Blog2013 (3) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... Act was conducted on 21-02- 2008 at the business and residential premises of different members/concerns of the Yog group of Aurangabad. In response to notice u/s.153A the assessee company, which belongs to this group filed its return of income on 17-11-2009 declaring loss of ₹ 7,40,122/-. During the course of assessment proceedings the Assessing Officer noted from the various details furnished that the assessee has diverted interest bearing funds to various companies without charging any interest from them. He noted from the balance sheet that the assessee has made investment of ₹ 58,66,000/- with various group concerns and also given loans and advances to the tune of ₹ 2,39,087/- to various group concerns without charging any interest. The Assessing Officer therefore asked the assessee to explain as to why proportionate disallowance should not be made. The assessee in its reply submitted that none of the investment out of ₹ 58,66,000/- has been made during the current year. The investment in the earlier year was made out of routine business funds. It was further submitted that the investment in YCP-IPL, Shyamlal Presstressed Pvt. Ltd. and Yog Seeds Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also cited. The assessee further filed a chart showing the capital and free reserves, State capital incentive and Interest free loans etc. to substantiate that interest free amount was available from which investments were made in shares and loans and advances granted. 6. However, the learned CIT(A) was not satisfied with the explanation given by the assessee and upheld the disallowance made by the Assessing Officer. While doing so, he held that the submission of the assessee that investment in shares of sister concerns were made in anticipation of earning dividend income cannot be regarded as business activity carried out by the assessee. From the various details filed by the assessee he noted that the assessee has borrowed funds for the purpose of its business and incurred interest expenditure. 6.1 So far as the reliance of decision in the case of S.A. Builders (Supra) is concerned he noted that in the said decision the Hon ble Apex Court has held that interest on borrowed funds cannot be disallowed if the assessee has advanced interest free loans to sister concerns as a measure of commercial expediency. However, in the instant case, it was not established that the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Shrishti Securities Pvt. Ltd.(Supra) he submitted that the assessee in that case was engaged in the business of purchasing, selling, investing and dealing in shares, stocks, debentures, bonds, units of company etc. Therefore, primarily the company was engaged in the business of share trading. However, in the instant case, the business of the assessee company is different from that of share trading, therefore, the said decision has no application. As regards the decision of Hon ble Madras High Court cited supra is concerned, he submitted that the facts in that case are also distinguishable and not applicable to the facts of the present case. As regards the submission of the learned counsel for the assessee that state capital investment should be available to the assessee for making the interest free advance/investment, he submitted that under the said scheme the assessee has to keep the money for purchase of capital assets and he cannot divert the funds for interest free advances. He accordingly submitted that the disallowance made by the Assessing Officer and confirmed by the CIT(A) being justified should be upheld. 9. We have considered the rival arguments made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r concerns free of interest. The Assessing Officer while re-computing such disallowance shall give due opportunity of being heard to the assessee and decide the issue as per law. We hold direct accordingly. The ground raised by the assessee is accordingly allowed for statistical purpose. 10. The second ground by the assessee relates to the order of the CIT(A) in confirming the addition u/s.2(22)(e) on account of deemed dividend to the extent of ₹ 20,59,491/-. 11. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings noted from the balance sheet that the assessee company has received loans and advances of ₹ 17 lakhs from Yog Cement Products and Industries Pvt. Ltd. (Now known as Yog Industries Ltd.). The Assessing Officer noted that the provisions of section 2(22)(e) are applicable to the assessee and therefore addition u/s. 2(22)(e) is required on account of deemed dividend. When the Assessing Officer confronted the same to the assessee there was no response. The Assessing Officer therefore made addition of ₹ 17 lakhs as deemed dividend u/s. 2(22)(e) of the Income Tax Act. 12. Before the CIT(A) the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial profit. Further, the provisions in respect of deemed dividend was brought on statute since instead of paying dividend as per the provisions of Companies Act to the shareholders the amounts were paid to the substantial shareholders by way of loans and advances, He, however, accepted the contention of the assessee that deemed dividend considered in the years under appeal are to be reduced while considering accumulated profit available for arriving at deemed dividend. He accordingly gave partial relief to the assessee. 13.1 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 14. The learned counsel for the assessee reiterated the same submissions as made before the Assessing Officer and the CIT(A). He submitted that the issue now is narrowed down and limited to the allowability of depreciation as per Income Tax purpose for the purpose of computing the accumulated profit. Referring to the decision of Hon ble Bombay High Court in the case of CIT Vs. Jamnadas Khimji Kothari reported in 92 ITR 105 he submitted that the Hon ble High Court in the said decision has held that for ascertaining accumulated profits, adjustments such as depreciation allowabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : The company is normally the best judge of what it should deduct for depreciation. If it did not think it necessary to provide more for depreciation it cannot ask for adjustments now at this stage. There appears to be no room on the language of the provision to make the adjustment required by the assessee. Now this finding of the Income tax Tribunal is contrary to the findings and observations of this court in Navnitlal C. Jhaveri v. Commissioner of Income tax and Commissioner of Income tax v. P. K. Badiani. 9. In the above first case the assessee had admitted that in the accounts maintained by the company having regard to certain provisions of the Electricity Supply Act the depreciation was calculated and stated at much lower rate than allowed to it under the Income tax Act with the result that in the balance sheets of the company the general reserve fund was shown at a larger figure than the income resulted having regard to the rate of depreciation granted under the Income tax Act and in the previous assessment orders. The submission was that as regards the question that had arisen under section 12(1B) read with section 2(6A)(e) the true amount of the accum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the present case was that in respect of the loans of ₹ 2,55,135 advanced by the company to the assessee which could be considered as dividend under section 2(6A)(e) there was no accumulated profits with the company and the same could, therefore, not be considered dividend and income of the assessee. 17. Respectfully following the decision of the jurisdiction High court cited supra we find merit in the submission of the learned counsel for the assessee that difference in the depreciation as per the Income Tax Act and depreciation as per Companies Act should be reduced from profit available for distribution as dividend as per books of accounts. We, therefore, restore the issue to the file of the Assessing Officer with a direction to verify the difference and make suitable adjustment while calculating the deemed dividend u/s.2(22)(e). We hold and direct accordingly. This ground by the assessee is accordingly allowed for statistical purposes. 18. In Ground of appeal No.3 the assessee has challenged the order of the CIT(A) in confirming the addition of ₹ 2,57,089/- on account of excess consumption of steel. 19. After hearing both the sides, we find the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA Nos. 1002/PN/2011 to 1006/PN/2011 (A.Y. 2003-04 to 2007-08) : 23. The first issue in ITA No.1002/PN/2011, 1003/PN/2011, 1005/PN/2011 and 1006/PN/2011 relates to the order of the CIT(A) in confirming the disallowance made by the Assessing Officer u/s.36(1)(iii) of the Act which are as under : Assessment year Amount 2003-04 5,19,932 2004-05 4,09,052/- 2006-07 1,839/- 2007-08 3,66,681/- 24. After hearing both the sides, we find the above ground is identical to Grounds of appeal No.1 in ITA No.1001/PN/2011. We have already decided the issue and the matter has been restored to the file of the Assessing Officer with certain directions to re-compute the disallowance if any u/s.36(1)(iii) after considering the availability of state capital investment subsidy to him for giving interest free advances/investments. Accordingly, we restore this issue to the file of the Assessing Officer to re-compute the deduction in the light of the directions given the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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