TMI Blog2010 (3) TMI 1204X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the share holders and the Directors of the assessee-Company and SSPL were common. The Assessing Officer stated that the immediate source of advances were interest bearing loan from sister concerns. The Assessing Officer after considering the date of deposit disallowed interest of ₹ 30,105 on the ground that there was no business exigency or productivity in giving loan by the assessee to its sister concern SSPL. Being aggrieved, the assessee filed appeal before the first appellate authority. 3.2. The assessee contended that the amount advanced to SSPL was given out of refund of share application money and no interest bearing funds were used. The learned CIT(A) called for remand report from the Assessing Officer. The Assessing Officer, in the remand report, stated that on examination of the loan account, it is revealed that interest bearing loans from M/s.Geeta Ganesh Promoters were partly utilized to make interest free advance. It is also mentioned in the remand report that refund of interest bearing loans and share application money constituted business fund of the assessee and should have been utilized for the purpose of business. 3.3. The learned CIT(A), af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in respect of the amount given out of interest free advance available with the assessee. Therefore, we consider it prudent to restore this issue to the file of the Assessing Officer with the direction that he should make the disallowance of the interest only in respect of the interest free advances given by the assessee to SSPL out of interest bearing fund and not in respect of advance given out of non-interest bearing fund. Subject to above, ground No.2 of the appeal is allowed in part. 4. In ground No.3 of the appeal, the assessee has disputed the order of the learned CIT(A) in confirming the addition of ₹ 50,698 on account of interest against interest free advances given to (a) Smt. Kalpana Pandey, (b) Sri Kartick Pandy and (c) M/s.Greenland Enclave (P) Ltd. 4.1. During the course of assessment proceedings, the Assessing Officer observed that the assessee had given interest free advances to the following persons. 1) Kaklpana Pandey .. ₹ 10 lakhs 2) Kartick Pandey .. ₹ 10 lakhs 3) M/s.Greenland Enclave Pvt. Ltd. .. ₹ 37,37,500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e through the orders of the authorities below as well as the material available on record. As far as the loan of ₹ 10,00,000 each given to Kalpana Pandey and Kartick Pandey, the learned AR has stated that interest free advances were given out of interest bearing funds available with the assessee. Therefore, the order of the learned CIT(A) in that regard is confirmed. 4.5. However, in regard to the loan given to M/s.Greenland Enclave P Ltd., on perusal of the chart placed at page 15 of the PB, we find substance in the submission of the learned AR of the assessee that assessee was also having interest free advances with it and therefore, no disallowance of interest should be made in respect of the amount given out of interest free advance available with the assessee. Therefore, we consider it prudent to restore this issue i.e., relating to advance given to M/s.Greenland Enclave P Ltd., to the file of the Assessing Officer with the direction that he should make the disallowance of the interest only in respect of the interest free advances given by the assessee to M/s.Greenland Enclave (P) Ltd., out of interest bearing fund and not in respect of advance given out of non-intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved, the assessee filed appeal before the first appellate authority. 7.1. On behalf of the assessee, it was contended that M/s.Tanuj Holding Pvt. Ltd was a NBFC and therefore, loan received from it would be outside the purview of Section 2(22)(e) of the Act. It was further contended that loans were granted by M/s. Tolly Nirman Pvt. Ltd and M/s.Prasad Group Resources Pvt. Ltd., were in the ordinary course of their business i.e., financing and granting loans and advances. The assessee in support of its contention filed certified copy of Registration issued by the Reserve Bank of India declaring M/s.Tanuj Holdings Pvt. Ltd., as an NBFC. 7.2. The learned CIT(A) called for remand report from the Assessing Officer. 7.3. The learned CIT(A) has stated that the Assessing Officer, in his remand report, accepted that M/s. Tanuj Holdings Pvt. Ltd., is a NBFC and the amount received from it of ₹ 2,36,50,000 could not be considered as deemed dividend u/s.2(22)(e) of the Act. Therefore, the learned CIT(A) has deleted the said addition of ₹ 2,36,50,000. 7.4. As regard to loan received from M/s.Tolly Nirman Pvt. Ltd., the Assessing Officer in his remand report has stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee regarding the deployment of fund by M/s.Prasad Group Resources Pvt. Ltd., in different activities was misleading in that it has considered advances towards property purchase as advance in the finance business. The learned CIT(A) has further stated that the assessee claim that its substantial business is giving loans and advances is not borne out by facts even if the activity over the period of time is concerned. The learned CIT(A) has further stated that M/s.Prasad Group Resources Pvt. Ltd., is not registered as an NBFC. The tax audit report also states the business as investment and share trading. Considering the above facts, the learned CIT(A) has held that the addition of loan and advance received by the assessee from M/s.Prasad Group Resources Pvt. Ltd., as deemed dividend is upheld. However learned CIT(A) limited the additon to the extent of accumulated profits which stands at ₹ 89,41,505 as against the addition of ₹ 1,28,00,000 made by the Assessing Officer. 7.8. Being aggrieved, the assessee has filed further appeal before the Tribunal disputing the addition confirmed by the learned CIT(A) of ₹ 89,41,505 as deemed dividend of the loan and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The learned DR also placed reliance on the decision of the ITAT, Delhi Bench in the case of Rekha Modi v. ITO [(2007) 13 SOT 512]. 7.11. We have heard the learned Representatives of the parties and have perused the orders of the authorities below. We have also gone through the order of the coordinate Bench, ITAT, Kolkata dt.28.10.2009 in the case of M/s.Prasad Group Resources Pvt. Ltd. (supra) as also the decision of the ITAT, Delhi Bench, in the case of Rekha Modi v. ITO (supra) as relied on by the learned Representatives of the respective parties. 6.12. No doubt, it is a fact that as per the Bengal Money-Lenders Act,1940 read with RBI report, it is one of the requirement to obtain registration/license from the concerned State for carrying on business of money lending. We observe that M/s.Prasad Group Resources Pvt. Ltd., has not got itself registered and/or obtained license for carrying on business of money lending and accordingly, the said concern can be made liable for necessary action under the concerned Act of the State Government. However, for the purpose of Income-tax Act we have to consider the nature of business activities as per the provisions of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of M/s.Prasad Group Resources Pvt. Ltd., in ITA No.1760/KOL/2008 vide order dt.28.10.2009(supra), we hold that the provision of Section 2(22)(e) of the Act is not applicable for the loan taken by the assessee from M/s.Prasad Group Resources Pvt. Ltd., as the principal business of M/s.Prasad Group Resources Pvt. Ltd., is of granting loans and advances in the Assessment Year under consideration. On the other hand, the decision in the case of Rekha Modi v. ITO (supra), relied on by the learned DR, we observe that the assessee Company out of its total fund of ₹ 2.62 Crores used only an amount to the extent of ₹ 42.68 lakhs i.e., 16.29% for money lending business. It was observed that the money lending business of the said Company constituted less than 20% of the total business of the Company and accordingly, it was held that it could not be said to be a substantial part of the business of the said company. Therefore, we are of the considered view that the above decision in the case of Rekha Modi v. ITO (supra) is not applicable to the facts before us. 7.13. Hence, ground No.5 of the appeal taken by the assessee is allowed. 8. In the result, the appeal of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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