TaxTMI 
TaxTMI 
TaxTMI 
2007 (12) TMI 406
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....f income. On the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) ought to have upheld the order of the Assessing Officer. It is therefore prayed that the order of the learned Commissioner of Income-tax (Appeals) be set aside and that of the Assessing Officer be restored to the above extent." 2. We have heard the parties. 3. So far as the issue involved in ground No. 1 is concerned the facts as revealed from the records are that the assessee is engaged in the business of manufacturing of plastic film capacitors and electrolytic capacitors. The raw materials used are aluminium metalised polypropylene film, resin and aluminium foils. The return of income for the assessment year 1996-97 declaring a total loss of Rs. 37,28,279 was filed on November 29, 1996, which was processed under section 143(1)(a) of the Act on February 25, 1997. 4. During the course of assessment proceedings under section 143(3) of the Act, the Assessing Officer noticed that the assessee had taken a loan of Rs. 37,77,474 from another company styled M/s. Indulal Dahyabhai Investment P. Ltd. From perusal of the details on records, the Assessing Officer further noticed that....
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....icer. 6. The learned Commissioner of Income-tax (Appeals) accepted the assessee's claim and deleted the addition made on account of deemed dividend income as per his findings contained in paragraph 3.1 of the appellate order, which read as under : "One of the main object clause as per memorandum and articles of association of the lender is 'to lend and advance money or to give credit to such persons or companies and on such terms as may be expedient'. Further, these funds used for advancing money is much more than invested in shares. Merely the income from various sources cannot be the sole criteria to decide what is the principal business. The funds utilised during the year, the facts of income being more from interest than from dividend next year, no fresh investment during the year but rise in borrowing and lending read along with object clause established that the main business of the lender includes 'borrowing and lending' activity and that the money is advanced in the ordinary course of business. As such to the advances, there was no scope of its taxability as deemed dividend. Without prejudice to the finding even on facts, rupees six lakhs being capital reserve could not ....
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....arch 31, 1996, which was furnished before the Commissioner of Income-tax (Appeals) as well as the Assessing Officer that the amount deployed during the course of money lending business is Rs. 37,77,474 (loan to the assessee) and Rs. 1,08,099 (loan to M/s. Goyal Metalic P. Ltd.) whereas the investment in shares from which the assessee received dividend was only to the tune of Rs. 4,14,300. He, therefore, submitted that the deployment of funds during the course of money lending business being about ten times to the funds set apart for investment in shares, the money lending business of that company for the assessment year 1996-97 was absolutely substantial one and therefore, the Commissioner of Income-tax (Appeals) was justified in deleting the addition under reference. 9. On a query by the Bench the learned authorised representative confirmed that the assessee had paid due interest on the loan of Rs. 37,70,475 which was not disputed by the learned Departmental representative. 10. We have considered the rival submissions and the facts and circumstances of the case and have gone through the provisions of section 2(22)(e)(ii) which are in the following lines : "(e) any payment by a....
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....r after the 31st day of March, 1948, and before the 1st day of April, 1956 ; Explanation 2.-The expression 'accumulated profits', in subclauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those subclauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place ; Explanation 3.-For the purposes of this clause,- (a) 'concern' means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent. of the income of such concern." 11. After careful consideration of riva....
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....ix main objects of the payer company, but the assessee was carrying on this business in preference to other business and at the same time had deployed funds to the extent of Rs. 37,77,475 by way of loan to the assessee and to the tune of Rs. 1,08,099 to Goyal Metalic P. Ltd., out of total funds available at Rs. 44,56,304 as against the deployment of amount of Rs. 4,14,300 as investment in shares earning dividend. 12. In view of the aforesaid facts which were not disputed by the Revenue, we are of the opinion that substantial part of the business carried on by M/s. Indulal Dahyabhai Investment P. Ltd., was that of money lending and consequential loan given to the assessee (on interest) was loan having been given during the course of money lending business. We, therefore, are of the opinion that the assessee's case was not covered by the provisions of section 2(22)(e) and the Commissioner of Income-tax (Appeals) was quite justified in deleting the addition. The order of the Commissioner of Income-tax (Appeals), on this point is therefore confirmed. 13. So far as the issue involved in ground No. 2 is concerned, the Assessing Officer during the course of assessment proceedings notice....
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....he nature of evidences required to be produced to justify the claim, the appellant cannot produce them. It has given relevant details on the basis of submissions made. I find that the Assessing Officer is wrong in holding that the assessee's case is not covered within the ambit of section 37(1) of the Income-tax Act. The addition made is therefore directed to be deleted." 16. It was, in view of the above facts and circumstances of the case, that the learned Departmental representative supported the order of the Assessing Officer on this point. 17. The learned authorised representative supported the order of the Commissioner of Income-tax (Appeals) by submitting that the managing director of the company had visited alone and no family member has accompanied him. So if the visit has not been for the assessee's business, then, in normal course he would not have visited alone. He further submitted that the visit was made to Hongkong, Taiwan, Korea and Shanghai because the assessee was purchasing the raw materials from those countries and wanted to explore the possibility of exports. The learned authorised representative further submitted that the details of foreign travelling expense....