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2016 (10) TMI 918 - ITAT AHMEDABAD

2016 (10) TMI 918 - ITAT AHMEDABAD - TMI - Deemed dividends u/s. 2(22)(e) - loans and advances - claim of the assessee is that it is an Inter-Corporate Deposits - Held that:- The authorized share capital of ₹ 2 crores is fully paid up. When the authorized capital has been fully subscribed and paid up, we fail to understand how can the assessee accept share application money of ₹ 1,55,20,000/- when it cannot allot shares of even one rupee to anyone. There is no documentary evidence on .....

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breath. On the one hand it is claiming the impugned amount as share application money and when this story is demolished, it is taking an alternative plea on Inter-Corporate Deposits (ICD). There is nothing on record to suggest that the two companies are authorized for Inter-Corporate Deposits. Since there is no demonstrative evidence on record by which it can be proved that the impugned amount is Inter-Corporate Deposits, the claim of the assessee cannot be accepted. - Decided against assessee. .....

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towards Keyman Insurance Policy. The assessee has also failed to produce any documentary evidence to prove that the said amount has been treated as a perquisite in the hands of the Directors. Considering all these facts in totality, we decline to interfere with the findings of the ld. CIT(A). The second grievance of the assessee is also dismissed. - Disallowance made u/s. 14A read with Rule 8D - Held that:- There is no denying that during the year under consideration the assessee has earned .....

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h Rule 8D squarely apply on the facts of the case. The disallowance computed by the A.O. are as per the provisions of the Act; therefore, calls for no interference with the findings of the ld. CIT(A) - ITA. No: 2912/AHD/2011 - Dated:- 6-10-2016 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER For The Appellant : Shri Prasoon Kabra, Sr. D.R. For The Respondent : None PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. This appeal by the Assessee is preferred against the order .....

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e for the year under consideration was filed on 29/09/2008 declaring total income of ₹ 31,94,099/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. 4. During the 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 ₹ 4,53,09,090/- as on 31.03.2008. On further examination, the A .....

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the assessee company holds 26.81%% shares in ATLPL. The A.O. further found that ATLPL has accumulated profits of ₹ 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 ₹ 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 ₹ 1,55,20,000/- received from ATLPL ha .....

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shown as loan in the Schedule-II of 3CD report. (ii) The contra account of ATLPL filed by the assessee itself show the amount of ₹ 1,55,20,000/- as loan amount. This is as per the copy of the ledger account of ATLPL submitted vide letter dated 21.10.2010. (iii) The assessee has only produced a copy of the Board resolution of ATLPL when demonstrating that the shares have been actually allotted by the assessee-company. No documentary evidences have been brought on record to suggest that any .....

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loan received by the assesseecompany from ATLPL amounting to ₹ 1,55,20,000/- satisfies all the conditions mentioned u/s. 2(22)(e) of the Act and qualifies as deemed dividend. The A.O. accordingly made the addition of ₹ 1,55,20,000/-. 11. On further probe, the A.O. found that the assessee has debited ₹ 5,25,578/- as Insurance Premium paid on the life of the Director. On verification, the A.O. found that the Insurance Policies are in the personal names of the Director. The A.O. .....

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d income of ₹ 3,16,907/- and Long Term Capital Gain at ₹ 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, Kota .....

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ut without any success. 16. The relevant findings of the ld. CIT(A) while confirming the addition on account of deemed dividend reads as under:- 2.3 I have considered the facts of the case; assessment order and appellant's submission. It is not in dispute that appellant is a substantial shareholder of the lender company and is covered by the provisions of section 2(22)(e) of IT act. The money received by the appellant was reflected as loans and advances in the books as well as balance sheets .....

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are so many during the year that these could not be put in the category of share application money. Assessing officer dealt with this issue in great detail. The arguments are not repealed here but I fully agree with the assessing officer's view. Appellant s argument that entries in the books of accounts will not determine the nature of transactions is relevant where facts prove the nature of transactions otherwise. In the case of appellant, there are no facts contrary to accounting entries a .....

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ions were share application money received. The evidences were created by the appellant and related lender concern even when the facts are contrary. None of the decision relied upon by the appellant supports the appellant s claim that the loans taken are in fact share application money. The height of appellant s argument is in its alternative claim of ICD. If it is inter corporate deposits, then how can it be share application money? This claim itself proves that appellant made the claim of shar .....

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dorse 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 .....

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surance premium paid on the life of its directors as allowable deduction. The insurance premium paid was not under keyman insurance premium scheme and therefore relevant provisions and circulars issued in respect of keyman insurance scheme are not applicable. Accordingly the appellant s submissions with regard to keyman insurance premium are not discussed. Undooubtedly, the payment is Insurance Premium on the LIC policy taken by the directors. The premium was not paid for the benefit of the comp .....

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e argument of the appellant is that it is perquisite as per terms of employment and allowable as salary to directors. However during the course of appeal hearing it is confirmed that insurance premium is not paid by the appellant as per terms of employment and it is not perquisite in the hands of directors. In the personal income tax returns of the directors, insurance premium paid by the appellant company was not offered for tax. In the light of these facts available on record and confronted to .....

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A reads as under:- 4.3 I have considered the facts of the case; assessment order 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 expens .....

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larly 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 disallowed expenses relatable to exempt income as per rule 8D which is mandatory from assessment year 2008-09. For interest, proportioned expense is disallowable whereas for other expenses .5% of investment value is .....

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hile making investments, both borrowed funds as well as own funds were used hence one cannot say that borrowed funds were used only for business purpose and owned capital was only used for Investment. Admittedly no separate accounts ere maintained for business and investment activities therefore appellant's claim is not justified that borrowed funds were not used in making investment. Therefore in the absence of clear cut details of utilization of funds, the formula given in rule 8D which is .....

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adjournment. Since, this is an old matter and the assessee has been frequently taking adjournments without any justifiable cause, we decided to proceed ex parte. 20. Having heard the ld. D.R., we have carefully perused the orders of the authorities below. The first grievance of the assessee relates to the addition of ₹ 1,55,20,000/- treated as deemed dividend u/s. 2(22)(e) of the Act. The undisputed fact is that the assessee is holding 26.81% shares in ATLPL. It is also an undisputed fact .....

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alance 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 ₹ 10/- 1000000.00 1000000.00 Each (P.Y. 100000) 1900000 8% Cummu. Red. Preference 19000000.00 19000000.00 Shares of ₹ 10/- each fully paid up 20000000.00 2000000.00 (P.Y. 1900000) Issued,Subscribed & Paid up: 100000 Equity Shares of ₹ 10/- 1000000.00 1 .....

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shares of even one rupee to anyone. There is no documentary evidence on record to suggest that the assessee has applied for the increase in its authorized share capital. When the subscribed and paid up share capital has fully exhausted, the authorized share capital of the assessee company claiming to have received share application money of ₹ 1.55 crores is nothing but eyewash and afterthought just to manipulate the facts. The theory of share application money can be demolished simply by t .....

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it can be proved that the impugned amount is Inter-Corporate Deposits, the claim of the assessee cannot be accepted. 24. Considering the afore-stated facts in totality, we do not find any merits in this ground of appeal and the same is dismissed. 25. Coming to the second grievance of the assessee which relates to the disallowance of Insurance Premium, there is no denying that the Insurance Premium has been paid on the life of the Directors of the Company. The claim of the assessee that such Ins .....

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