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TMI Blog2015 (3) TMI 1154X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee before us. With the consent of both the parties, both the delay in filing the appeal by the revenue and cross objection by the assessee are condoned, and the same are admitted and disposed off after perusing the material available on record on merits. 4. The first issue to be decided in this appeal is as to whether a sum of Rs. 1,09,15,000/- would be brought to tax as deemed dividend u/s. 2(22)(e) of the I.T Act in the facts and circumstances of the case. 5. The brief facts of this issue are that the assessee is deriving its income from shares , dealing in futures and options and investments. The assessee has declared business income of Rs. 69,462/- and claimed speculative business loss of Rs. 50,529/- and short term capital loss of Rs. 44,45,967/-. The ld. AO observed that the assessee has received a sum of Rs. 1,0915000/ on different dates from its group Company, M/s. Jet Age Finance Pvt. Ltd ( In short M/s. JAFPL). The following facts are undisputed:- a. The assessee is holding @11.81% shares of M/s. JAFPL . b. The accumulated profits of M/s. JAFPL as on 31-03-2008 was Rs. 28,72,80,404/- and as on 31-03-2009 was Rs. 31,66,33,101/-. 5.1 The assessee took this loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue. Aggrieved the revenue is in appeal before us and the assessee has also filed cross objection for its alternative claim. 6. We have heard the rival submissions and perused the material available on record including the paper book as filed by the assessee before us. At the outset, it would be pertinent to reproduce the provisions of section 2(22)(e) of the Act:- "(22) dividend includes- ( a) to (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 shareholder", being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its business in view of the fact that 'substantial part of the business' is not defined in the I.T Act, dictionary meaning and factors such as the capital employed, income criterion, past history, have to be taken into consideration for determining the nature. We find from page 70 of the paper book that M/s. JAFPL had granted loans and advances during the year under consideration to its various parties including the assessee amounting to Rs. 11,26,65,003/- which is more than 30% of capital employed by M/s. JAFPL. We find from page no. 88 of the assessee's paper book containing the ledger account of M/s. JAFPL in its books of assessee that the assessee has been frequently receiving and repaying monies from/to M/s. JAFPL. It was effectively operated on current account basis. We also find from page 38 of the paper book containing the tax audit report ( in Form No. 3CD) of M/s. JAFPL, wherein the tax auditor has stated that M/s. JAFPL has started trading in shares in assessment year 2009-10 as a new business activity. 8. We find that the expression 'substantial part of business' has been considered by the Hon'ble Bombay High Court regarding applicability of provisions of section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided for that percentage while drafting cl.(ii) of s.2(22) of the Act. The legislature had deliberately used the word "substantial" instead of using the word "major" and/or specifying any percentage of the business or profit to be coming from the lending business of the lending company for the purpose of cl. (ii) of s. 2(22) of the Act. We would give a an illustration to ascertain the meaning of the expression "substantial business" or "substantial income" of a company. In the modern days, large number of companies do not restrict to one or two businesses. They carry on numerous activities and carry on numerous businesses and have numerous business divisions. Let us take a case of a first company which has 3 divisions of works consisting of three different types of business. Turnover as well as the profit of the first division is 40 per cent; turnover and profit of second division is 30 per cent and the turnover and profit of the third line of business is 30 per cent. In the case of this company no part of the business has turnover exceeding 50 per cent and no part of the business company generates profit of more than 50 per cent of the total. In such a case can it be said that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment in shares vary from year to year. M/s. JAFPL, a NBFC, which has own capital of around Rs. 36 crores and has invested its money in bonds, stocks, debentures etc. and giving of loans and advances, which is best suited for its growth opening apparatus. He argued that money market by granting of loans and advances in the form of inter corporate deposits on short term as in long term basis may or may not be lucrative in a particular year. Therefore, the funds are to be put under better option such as in investment, mutual funds and shares with an expectation to yield better results. He further argued that there is no doubt that during the year, M/s. JAFPL has a current advance amount of Rs. 11 crores and total deployment of fund in the loans and advances was much more than that as per the statement filed and these figures indicate that substantial part of the business of the lending company is of money lending. He further argued that it does not matter whether the advances have been refunded during the year and balance of loans and advances at the end of the year had got reduced. We find lot of force in the arguments of the ld.AR. We hold that what has to be seen is the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abad High Court had held that the income and funds deployed even if it is less than 20% of the total investment would still be construed as 'substantial part of business' of the company. We also draw support from the decision of the Co-ordinate Bench of the Delhi Tribunal in the case of Mrs. Rekha Modi Vs. ITO in ITA No. 821/Del/04 dated 19-01- 2007, wherein the Delhi Tribunal held that 20% criterion shall be relevant to determine the 'substantial part of the business' in the context of section 2(22)(e) of the Act. Further, we draw support from the decision of the Co-ordinate Bench of ITAT Lucknow in the case of DCIT Vs. Kishorilal Agarwal reported in (2014) 150 ITD 741(Lucknow), wherein it has been held as follows:- "14. In the light of aforesaid judicial pronouncement, we have examined the facts of the case in hand and we are of the view that there should not be any controversy that "substantial part of business" is not equivalent to the word "major part of business", as the Legislature has not used the words "major part of business" in place of "substantial part of business". Had it been used, then it would have to be examined that assessee's business should be more than 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal's order is correct and reliance placed by it on the Division Bench judgment of this Court is not misplaced." 8.3 From the details available as per records, we find that the liquid funds available with the assessee were Rs. 31,24,44,463/- and assessee had granted loans during the year amounting to Rs. 11,26,65,003/-, which works out to 36.06% of total liquid funds available. Hence, it can be safely concluded that the lending activity is substantial part of the business of M/s. JAFPL from the factual position as stated herein above from the angle of funds deployment criterion. 8.4. The ld. AR for the assessee also made an alternative argument that what was received by the assessee from M/s. JAFPL is only in the nature of inter corporate deposits and not loans and advances. Hence, the provisions of section 2(22)(e) of the Act cannot be made applicable in the facts of the case. He also argued that M/s. JAFPL had shown interest income as interest received on inter corporate deposits in its books. He stated that terms 'loan', advance' and 'deposit' are distinct and separate, In support of this proposition, he placed his reliance on the following decisions:- 1) ITAT Mumbai in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding the issue of disallowance of u/s. 14A of the Act. 12. The brief facts of this issue are that the assessee had disallowed a sum of Rs. 15,451/- voluntarily u/s. 14A of the Act in its return of income . The ld.AO applied the provisions of Rule 8D(2)(iii) of the IT Rules 1962 in respect of investments yielding exempt income and made a disallowance of Rs. 3,13,008/- u/s. 14A. On 1st appeal, the ld.CIT(A) had directed the ld.AO to adopt Rs. 87,216/- for making disallowance u/s. 14A of the Act. 13. We have heard the rival submissions and perused the material available on record. At the outset, we find that no satisfaction was recorded by the ld.AO in terms of Rule 8D(1) of the IT Rules, 1962, which is mandatory as in the instant case, the assessee had disallowed a sum of Rs. 15,451/- voluntarily in the return of income u/s. 14A and without giving a categorical finding how the said figure is incorrect having regard to the accounts of the assessee, the ld.AO cannot resort to directly adopt the Rule 8D(2) and make disallowance thereon. We find that both the ld. AO as well as the ld. CIT(A) had not addressed this aspect, which is crucial and it goes to the root of the matter. We ..... X X X X Extracts X X X X X X X X Extracts X X X X
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