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TMI Blog2016 (10) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of the scrutiny assessment proceedings and on examination of the Balance sheet of the assessee-company, the A.O. found that the assessee-company has unsecured loans aggregating to Rs. 4,53,09,090/- as on 31.03.2008. On further examination, the A.O. found that during the year the assessee-company has received loans and advances amounting to Rs. 4,03,70,000/-. Assessee was asked to furnish the details of the unsecured loans. The assessee filed the requisite details. On examination of the details, the A.O. found that the assessee-company has received an unsecured loans of Rs. 1,55,20,000/- from Arcata Trade Link Pvt. Ltd. (ATLPL). 5. On verification of the shareholding pattern of the assessee-company qua ATLPL, the A.O. found that the assessee company holds 26.81%% shares in ATLPL. The A.O. further found that ATLPL has accumulated profits of Rs. 3,22,97,892/-. 6. Drawing support from the provisions of section 2(22)(e) of the Act, the A.O. asked the assessee to show cause why the sum of Rs. 1,55,20,000/- should not be treated as deemed dividend. 7. In response, the assessee filed a detailed reply vide submission dated 09/12/2010 and strongly contended that the amount of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .O. who made the disallowance of Rs. 5,25,578/-. 13. On further examination, the A.O. found that the assessee has earned dividend income of Rs. 3,16,907/- and Long Term Capital Gain at Rs. 7,83,525/- which have been claimed as exempt. Invoking the provisions of section 14A read with Rule 8D of the Act, the assessee was asked to explain why disallowance in relation to expenses incurred for earning exempt income should not be made as per the provisions of section 14A read with Rule 8D. 14. Assessee filed a detailed reply explaining that the share investments have been made through Portfolio Management Company, Kotak Mahindra for which the assessee has paid Rs. 2,94,345/- as Portfolio Management Fees and the same has also been disallowed. Further Demat charges of Rs. 16,238/- and Security Transaction Tax of Rs. 8003/- have also been disallowed. Therefore, no further disallowance is necessary. The claim of the assessee was dismissed and the A.O. computed the disallowance at Rs. 2,39,857/-. 15. Aggrieved by these additions/disallowances, the assessee carried the matter before the ld. CIT(A) but without any success. 16. The relevant findings of the ld. CIT(A) while confirming the add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of share application money just to get out of deemed dividend provisions. False evidences were created for this purpose. Considering this, appellant's claim of share application money is rejected. Coming to the appellant's claim of infer corporate deposits, it is not reflected from records that loans taken from associate concern is ICD in the normal course of business. Neither appellant nor associate concern is in the business of ICD. Assessing officer discussed the nature of ICD in detail and i endorse his view that appellant's loan transactions cannot get out of the purview of deemed dividends under section 2(22)(e) of IT act. In the case of appellant, the loan transactions are not in the nature of ICD since there is no tenure or interest payment in the appellant's transactions. The decisions relied upon by the appellant are not applicable in the clear facts of the case. In my considered view, it is a fit case of application of section 2(22)(e). If such transactions will not be considered deemed dividend then there may not be any transactions which may find place in the category of deemed dividend. The provision in the statute and therefore the same has to be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and appellant's submission. Assessing officer made disallowance of expense relating to exempt income. Such disallowance was considered necessary since appellant did not disallow any part of interest and other expenses treating the same as relating to investment resulting in exempt income. Now rule 8D is held Io be applicable with effect from assessment year 2008-09 by Bombay High Court the disallowance of expenses relating to exempt income are Io be made by the method prescribed in the said rule. It is not in dispute that appellant earned exempt income in the form of dividend on investment of more than Rs. 213 Lacs. Appellant paid interest of Rs. 36.58 Lacs on borrowed funds used for business purposes as well as making investments. Appellant incurred substantial employees' remuneration and other administrative expenses, part of which may relate to investment resulting in exempt income. Similarly payment of interest will also partly relate to investment resulting in exempt income' therefore disallowance under section 14 A on account-.of interest and other expenses are necessary. Coming to the method of computation of disallowance under section 14A, assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the copy of the ledger account, the same was shown as unsecured loan. It is only when the A.O. issued show cause notice; the assessee took an altogether new plea that the impugned amount is nothing but share application money received from ATLPL. 21. Let us first consider this claim of the assessee. A perusal of the balance sheet of the assessee shows at Schedule-1, the share capital of the assessee which is at page 13 of the paper book and reads as under:- SHARE CAPITAL As at 31-03-2008 As at 31-03-2007 Authorised 100000 Equity Shares of Rs. 10/- 1000000.00 1000000.00 Each (P.Y. 100000) 1900000 8% Cummu. Red. Preference 19000000.00 19000000.00 Shares of Rs. 10/- each fully paid up 20000000.00 2000000.00 (P.Y. 1900000) Issued,Subscribed & Paid up: 100000 Equity Shares of Rs. 10/- 1000000.00 1000000.00 Each fully paid up (P.Y. 100000) 1900000 8% Cummu. Red. Preferance 19000000.00 19000000.00 Shares of Rs. 10/- each fully paid up 2000000.00 2000000.00 (P.Y.1900000) Total:- 20000000.00 20000000.00 22. As can be seen from the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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