TMI Blog2016 (3) TMI 1409X X X X Extracts X X X X X X X X Extracts X X X X ..... Gossini Fashions Ltd. and M/s Akme Projects Ltd.- HELD THAT:- We find that this argument was taken before us and learned CIT(A) also had obtained remand report from AO and during remand proceedings the AO had made adverse comments in this respect and in response to remand report the assessee vide letter dated 21.02.2014 had again submitted that nature of expenses and details of cheques and bank account details of payee of each and every item of expenditure was submitted and as regards vouchers and nature of expenses the assessee had submitted that they were carried to Jammu but AO unfortunately was on tour, therefore, this could not be produced before him, therefore, in the interest of justice we restore this ground to the Office of Assessing Officer who on the basis of vouchers and nature of expenses should decide the issue afresh. The Assessing Officer should also examine the claim of the learned AR that a part of expenses was not debited to P L Account and was taken to balance sheet. In view of the Ground No.3 is allowed for statistical purposes. Disallowance of 75% of Foreign Traveling Expenses of Directors - HELD THAT:- We find that there is no doubt about the propositi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition in the absence of valid evidence in respect of these expense - AR during appellant proceedings before us had submitted that bills were in the name of M/s Goetze India and a part of expenses were charged to assessee company. Therefore, we restore this ground of appeal to Assessing Officer who should decide the issue afresh after taking into account the basis of charging of these bills to the assessee. He can arrive at the decision after taking into account the practice of assessee in allocation of these expenses in earlier years. In view of the above, Ground No.6 is allowed for statistical purposes. Deemed dividend u/s 2(22)(e) - ICD v/s loan - HELD THAT:- As the amount of ₹ 18.75 crores received by it was a not an ICD but was a loan. We find that ICD means inter-corporate deposits which term is used for making or accepting deposits between two companies. ICD as the name also suggest that it is a part of broader term deposits and therefore, it cannot be distinguished from the deposits as argued by learned AR. The case laws relied by AR relates to distinction between loans and deposits and none of the case laws relates to distinction between deposits and ICD, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ni Fashions Ltd. and M/s Akme Projects Ltd. which have incurred business expenditure on behalf of the appellant. 4. The Ld. CIT-(A) has grossly erred on facts as well as in law in confirming the disallowance of ₹ 1,16,64,875- being 75% of foreign travelling expenses of the Directors. 5. The Ld. CIT-(A) has grossly erred on facts as well as in law in confirming the disallowance of ₹ 10,61,949/- being legal professional expenses. 6. The Ld. CIT-(A) has grossly erred on facts as well as in law in confirming the disallowance of ₹ 10,08,690/- being 100% of the telephone, postage telegram expenses as if the office can be run without these facilities. 7. The Ld. CIT-(A) has grossly erred on facts as well as in law in holding that the amount of ₹ 18,75,00,000/- received by the appellant from M/s Joint Investment Pvt. Ltd. is not an ICD but loan covered u/s 2(22)(e). 8. The Ld. CIT-(A) has grossly erred on facts as well as in law in directing the Ld. AO of sh. Anil Nanda to consider the applicability of deemed dividend in the hands of Sh. Anil Nanda though he was not in appeal before him and without providing any opportunity of hearing to Sh. Anil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature, requires no adjudication and accordingly dismissed. 6.2. Ground of Appeal No 2 relates to addition of ₹ 18,75,00,000/- by invoking the provisions of section 2(22)(e) of the Act. The appellant has argued that the appellant company is not a shareholder of M/s Joint Investment (P) Ltd and accordingly the provisions of section 2(22)(e) are not applicable to the appellant company. The appellant has further argued that the amount received by M/s Joint Investment (P) Ltd is in the nature of deposit and not loans. The matter was remanded .to the AO for verification and his comments thereon. I have gone through the submission of the appellant, assessment order and remand report. The plea of the appellant that the amount received is in the nature of deposit and not loan is not acceptable. The appellant himself in its submission dated 30.12.2012 has accepted that the appellant company has received loan from M/s Joint Investment (P) Ltd. Further, the appellant has failed to justify his arguments and provide the nature and reasons for such deposits. Another plea of the appellant that the provision of section 2(22)(e) of the Act could not be invoked as the appellant co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant company. The Hon'ble ITAT Bench Mumbai in the case of Skyline India Recruit company (P)Ltd vs ITO (2008} 24 SOT 402 (Mum) has held that for applicability of s. 2(22)(e), it is not necessary that the payer or the payee must have shareholdings in other company. If the loans and advances are given by one company to other company in which the shareholder is common having sufficient holding or has a beneficial interest in both the companies, provisions of s. 2(22)(e) can be invoked. Now the question arises in whose hands , the deemed dividend so determined should be taxed. The fact that a company is specifically listed among the entities that are regarded as 'concern' indicates that the intention is also to rope in loans or advances to companies and partnership firms, and to achieve that the payments to such concerns has to be taxed but will be taxed in the hands of such person who owns shares with certain percentage of voting rights and shareholders holding a substantial interest in the company. On the perusal of provisions of the Act and relevant judgments , I am of the opinion that since the entire purpose is to tax dividends, and dividends can arise only to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 20012-13 itself clarifies that the said amounts standing in the books of the appellant were not payable by the appellant and therefore, justifies the addition made by the AO. The plea of the appellant that it has written off these amounts itself in the books of the company is not acceptable as such action was taken by the company long after the addition was made by the AO only to avoid the interest on tax on such addition and penalty initiated by the AO on such addition. This ground of appeal of the appellant is therefore dismissed. However, the appellant may revise the return for the assessment year 2012-13 or file rectification application u/s 154 for the said year to avoid double taxation. 6.4. Ground of Appeal no 4 relates to addition of ₹ 7,14,870/- and ₹ 15,803/- on account of reimbursement of expenses by invoking the provisions of section 40(A)(2)(b) of the Act. The appellant has argued that these expenses were incurred on behalf of sister concerns and were reimbursed by those concerns. These expenses were not booked in the profit and loss account and accordingly no disallowance is called for. The matter was remanded to the AO for verification an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant has filed details of travelling expenses which were remanded to the AO for verification. The AO in his remand report has reported that out of ₹ 1,69,23,913/-, ₹ 1,55,53,166/- has been expended on foreign travel of the directors and the narration made by the appellant in the sub ledger mentions that the travels are made for exploring further business opportunities. On perusal of submission of the appellant, assessment order and remand report, it is noticed that there is no business of the company in the foreign countries visited by the directors. The plea of the appellant that the expenditure of ₹ 1.69 crore on foreign travel was wholly expended for exploring new business could not be accepted. This expenditure included travel expenses of personal attendant of the director. The result of such huge expenses on foreign travelling should have been reflected in some widening of business opportunity and potential, which is not the case. The foreign travel expenses are not commensurate but disproportionate to the income. I am of the opinion that the expenditure on foreign travels of director is excessive and involves the expenditure of personal nature and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal is dismissed. 6.9. Ground of Appeal no 9 relates to disallowance of ₹ 14,89,911/- out of interest expenses being 12% of the interest free advances of ₹ 1,24,15,932/- given by the appellant. The appellant has provided details of these advances and argued that the disallowance of interest expenditure made by the AO is not justified. The submission of the appellant was remanded to the AO for verification and comments thereon. The AO in his remand report has reported that most of the amount represents the charges receivable from parties are in the nature of debtors and does not represents cash advances. These advances also includes ₹ 60,00,000/- for purchase of vehicles and ₹ 26,40,560/- being amount embezzled by an employee standing in his name. From the perusal of submission of the appellant, assessment order and remand report, it is observed that amounts standing in the current assets does not represent the interest free advances and accordingly the disallowance of interest expenses is not justified. This ground of appeal is accordingly allowed and a relief of ₹ 14,89,911/- is allowed. 6.10. Ground of Appeal No 10 relates to disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, it was further submitted that both the ICDs were written back on 31.3.2012 and were duly credited to P L Account and in this respect our attention was invited to paper book page 82. He submitted that this fact of written back was also not denied by Assessing Officer in his remand report. He argued that it has been judicially settled that no addition can be made in the year in which there is no remission or no cessation of liability. The liability was shown in the balance sheet as on 31.3.2007 and since the assessee was a limited company this amounted to acknowledgement of debts in favour of the creditors. Therefore, he argued that in view of the circumstances no addition could be made for the credit of ₹ 35,00,000/- which was continuing from earlier years. Reliance in this respect was placed on the following case laws. (i) CIT vs. narendra Mohan Mathur, (2014)97 DTR 428 (ii) CIT vs. ENAM Securities Pvt. Ltd., (2012) 345 ITR 64 (Bom) (iii) CIT vs. Bhogilal Ramjibhai Atara, 22 Taxman 313 (Guj). (iv) CIT vs.Vardman Overseas Ltd. 343 ITR 408 (Delhi). (vi) DCIT vs. Hotel Excelsior Ltd., 60 DTR 450 (Del) (Trib). 8. Arguing upon Ground No.3, the learned AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . B2C IMPLANTS, 141 TTJ(Mum).638. It was submitted that learned CIT(A) during the course of hearing had specifically required assessee to file vouchers for amount exceeding ₹ 10,00,000/- each and accordingly, the relevant vouchers were filed on 11.03.2014 and in this respect our attention was invited to paper book page 181. He submitted that learned CIT(A) did not find anything wrong either with the details of the expenditure or with the vouchers. However, he disallowed 75% of expenditure purely on the basis of surmises and conjectures. 11. Arguing upon the Ground No.5, the learned AR submitted that expenses were incurred on legal and professional expenses and details of such expenses were filed indicating the purpose of each expenditure. During the course of hearing the learned CIT(A) specifically required the assessee to file vouchers for amount exceeding ₹ 1,00,000/-. Accordingly, the vouchers were filed vide letter dated 11.03.2014 and in this respect our attention was invited to paper book page 180. The learned CIT(A) allowed the expenditure for which the vouchers were filed and the balance was disallowed for which vouchers were not filed. The learned AR s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive later on therefore, he argued that deposit is entirely different from a loan or advance and learned CIT(A) has wrongly recorded his findings that ICD is a loan covered u/s 2(22)(e) of the Act. Reliance in this respect was placed on the judgment of Hon ble Allahabad High Court in the case of CIT vs. M/s Atul Engineering Udyog, TS-609-HC- 2014(All). The learned AR further placed his reliance on the following case laws. (i) Baidyanath Plastic Industries (P) Ltd. Ors. Vs. K. L. Anand, ITO,230 ITR 522 (Del). (ii) Industrial Enterprises vs. DCIT,73 ITD 252 (Hyd). Inviting our attention to the balance sheet placed at paper book page 120, the learned AR submitted that assessee had classified the amount as inter-corporate deposit and it was grouped under the broader head of unsecured loans as there is no other head in the format of balance sheet prescribed under the Companies Act. He submitted that M/s Joint Investment Ltd. had shown the amount given to the assessee under the head Current Assets, Loans Advances as per schedule F of its balance sheet (Page 107). In view of the above facts it was submitted that the findings of learned CIT(A) that the amount received by as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this respect are correct. 19. Arguing Ground No.8, regarding learned CIT(A) s direction to Assessing Officer in the case of Sh. Anil Nanda, the learned DR submitted that CIT(A) had exercised the power as an investigator as he has power of both i.e., as an adjudicator and as investigator. The learned DR submitted that since the learned CIT(A) has given the directions as an investigator and therefore, no appeal against the investigator lies before ITAT and therefore, it was submitted that the ground may be dismissed. 20. The learned AR in his rejoinder submitted that all details and details as required by learned CIT(A) were filed before him and he had sent the same to Assessing Officer for the comments, however, the Assessing Officer was not available as he was on tour, therefore, there is no fault of the assessee. The learned AR submitted that nature of ICD as explained earlier is different then that of loans or advance and therefore, the provisions of section 2(22)(e) were not applicable as the definition covers only loans or advance and does not cover ICD. 21. Arguing appeal filed by the Department, the learned DR submitted that all the points of dipsute has already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Gossini Fashions Ltd. and M/s Akme Projects Ltd., we find that the assessee had not filed vouchers in support of the expenses claimed to have been reimbursed and learned AR had further argued that out of reimbursement made for amount of ₹ 5,02,152/- only ₹ 87,320/- was taken to P L Account. We find that this argument was taken before us and learned CIT(A) also had obtained remand report from Assessing Officer and during remand proceedings the Assessing Officer had made adverse comments in this respect and in response to remand report the assessee vide letter dated 21.02.2014 had again submitted that nature of expenses and details of cheques and bank account details of payee of each and every item of expenditure was submitted and as regards vouchers and nature of expenses the assessee had submitted that they were carried to Jammu but AO unfortunately was on tour, therefore, this could not be produced before him, therefore, in the interest of justice we restore this ground to the Office of Assessing Officer who on the basis of vouchers and nature of expenses should decide the issue afresh. The Assessing Officer should also examine the claim of the learned AR that a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the above, Ground No.5 is allowed for statistical purpose. 29. As regards Ground No.6 regarding upholding of 100% disallowance of Telephone expenses and telegram expenses, we find that there is no dispute that no bill was in the name of assessee s company or its employees, however, it is also a fact that no office can be run without incurrence of these expenses. The learned CIT(A) has upheld the addition in the absence of valid evidence in respect of these expenses. The learned AR during appellant proceedings before us had submitted that bills were in the name of M/s Goetze India and a part of expenses were charged to assessee company. Therefore, we restore this ground of appeal to Assessing Officer who should decide the issue afresh after taking into account the basis of charging of these bills to the assessee. He can arrive at the decision after taking into account the practice of assessee in allocation of these expenses in earlier years. In view of the above, Ground No.6 is allowed for statistical purposes. 30. Now coming to Ground No.7, regarding the grievance of assessee with the findings of learned CIT(A) that the amount of ₹ 18.75 crores received by it was a no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we find that the first ground of appeal taken by Revenue is the addition of deemed dividend deleted by learned CIT(A). In this respect, we find that admittedly the assessee was not a share holder in the company M/s Joint Investment Pvt. Ltd. who had made loans to the assessee company. One of the conditions for application of section 2(22)(e) is that loan/deposit should have been made to the share holder. The learned DR had heavily placed his reliance on the second limb of section 2(22)(e) and had argued that his stress is on or to any concern in which such share holder is a member or a partner in which he has a substantial interest . In this respect, we find that the second limb also talks about the interest of share holder in any concern, therefore, first and foremost conditions for the application of section 2(22)(e) is that payee must be a share holder which is not the case in the present case. We further find that in the case of sister concern of the assessee M/s GTZ Securities Ltd. similar question arose and the Hon ble J K High Court in this case of CIT vs. GTZ Securities Ltd. reported at 359 ITR 345 has held that deemed dividend u/s 2(22)(e) is taxable only in the hands o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regards Ground No.2 we find that learned CIT(A) has allowed relief to the assessee on the basis of remand report by Assessing Officer and learned CIT(A) has allowed relief only to the extent of verification of vouchers by Assessing Officer. The learned DR was not able to controvert the findings of learned CIT(A) in this respect. Therefore, Ground No.2 is dismissed. 35. As regards Ground No.3, we find that learned CIT(A) had allowed part relief on account of unexplained expenses on the basis of remand report received from Assessing Officer. The learned CIT(A) has allowed relief to the extent for an amount for which Assessing Officer in his remand report has accepted to have verified the vouchers. The learned DR was not able to controvert findings of learned CIT(A) in this respect. Therefore, Ground No.3 is dismissed. 36. As regards Ground No.4, regarding notional interest on interest free advances, we find that that AO in his remand report has reported that most of the amount represented charges receivable from parties and amount receivable were in the nature of debtors and did not represent cash advances. The Assessing Officer also mentioned that out of advances ₹ 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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