TMI Blog2012 (12) TMI 871X X X X Extracts X X X X X X X X Extracts X X X X ..... id company. If these facts and figures are considered in the light of the decision in the case of Parle Plastics Ltd. (2010 (9) TMI 726 - BOMBAY HIGH COURT), it becomes abundantly clear that lending of money was a substantial part of a business of M/s JMC Securities Pvt. Ltd. and the loan in question to the assessee was made by the said company in the ordinary course of its business. It, therefore, follows that the conditions stipulated in section 2(22)(e)(ii) were duly satisfied and the amount of loan advanced by M/s JMC Securities Pvt. Ltd. to the assessee could not be regarded as a deemed dividend. As the assessee has also filed a copy of the assessment order passed u/s 143(3) in the case of M/s JMC Securities Pvt. Ltd. for the assessment year 2006-07 wherein the nature of the business of the said company was clearly indicated as "finance" and it was further mentioned in the body of order that the said company continued into business of short term finance of idle funds. Thus the addition made by the AO u/s 2(22)(e) on account of the loan advanced by M/s JMC Securities Pvt. Ltd. to the assessee by treating the same as deemed dividend is not sustainable - in favour of assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned order of the learned CIT(Appeals) confirming the disallowance made by the AO u/s 14A by applying Rule 8D and restore the matter to the file of the AO with a direction to recompute the disallowance to be made u/s 14A on some reasonable basis. 5. Ground No. 1 of the assessee's appeal is accordingly treated as partly allowed for statistical purposes. 6. The issue raised by the assessee in ground No.2 of this appeal relates to the addition of Rs.3,38,85,459/- made by the AO and confirmed by the learned CIT(Appeals) on account of loans taken from M/s JMC Securities Pvt. Ltd. treating the same as deemed dividend u/s 2(22)(e) of the Act. 7. During the year under consideration, the assessee had received loan amount of Rs.551.45 lakhs from M/s JMC Securities Pvt. Ltd. wherein he was holding 1.53,025 equity shares out of total 3 lakhs equity shares issued. The assessee thus was beneficial owner of shares in the said company holding more than 10% shares and since the said company, namely, M/s JMC Securities Pvt. Ltd. had accumulated profits of Rs.3,38,85,459/- as on 31-3-2006, the AO required the assessee to explain why the loan amount to the extent of Rs.3,38,85,459/- should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al filed before the learned CIT(Appeals). The submissions made before the AO on this issue were reiterated on behalf of the assessee before the learned CIT(Appeals) in support of his contention that exclusion clause (ii) of section 2(22)(e) was clearly applicable. In support of this contention, reliance was placed on behalf of the assessee on the decision of Mumbai Bench of ITAT in the case of Jhamu U. Sugand v. Dy. CIT [2006] 99 ITD 1 and that of Ahmedabad Bench of ITAT in the case of ITO v. Krishnomics Ltd. [2009] 308 ITR (AT) 8. This contention of the assessee was not found acceptable by the learned CIT(Appeals). According to him, the exception provided in clause (ii) to section 2(22)(e) was applicable in the cases where lending of money was a substantial part of the business of the company and not the substantial part of the business income of the company. He noted that the main object of the JMC Securities Pvt. Ltd. was to carry on the business of shares and stock brokers and lending of money was only one of the objects which was incidental or ancillary to the main object. He held that it, therefore, could not be said that lending of money constituted substantial part of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , any advance or loan made by a company to a shareholder or concern in which the shareholder has a substantial interest would not be regarded as a deemed dividend u/s 2(22)(e) if lending of money is a substantial part of the business of the lending company and the loan or advance is made by the lending company in the ordinary course of its business. The expression used in clause (ii) of section 2(22)(e) is "substantial part of the business" and the same has been interpreted by the Hon'ble Bombay High Court in the case of Parle Plastics Ltd. (supra) cited by the learned counsel for the assessee. As held by the Hon'ble Bombay High Court, the said expression does not connote an idea of being the "major part" or the part that constitute majority of the whole. Elaborating further, it was explained by the Hon'ble Bombay High Court that any business of a company which the company does not regard as small, trivial or inconsequential as compared to the whole of the business is substantial business and various factors and circumstances would be required to be looked into while considering whether a part of the business of a company is its substantial business. It was held that sometimes a po ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
