AI Drafter 
TaxTMI 
TaxTMI 
2020 (2) TMI 616
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....t as the basic conditions for treating the transaction was deposit are not satisfied. 4. The Ld. Commissioner of Income Tax (Appeals) grossly erred in relying the decision of Hon'ble Mumbai Tribunal in the case of Bombay Oil Industries Ltd. Vs. DCIT, however, the facts of the present case is not identical. 5. The Ld. Commissioner of Income Tax (Appeals) erred in passing the order by accepting the assessee's version without giving any concrete finding and not passed a speaking order on the ground of exclusion of amount of Rs. 2,53,59,490/- being cash component of investment in flat at Surat. 6. The Ld. Commissioner of Income Tax (Appeals) erred in giving the telescopic benefit to the assessee as the assessee made voluntary disclosures based on incriminating material detected during the survey action. 7. The Ld. Commissioner of Income Tax (Appeals) erred in allowing the amount of Rs. 2,53,59,490/- by way of telescopic benefit as the assessee had made the disclosure without any force or coercion and confirmed by the Director many times during the assessment proceedings. 8. For these and such other grounds as may be urged at the time of hear....
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....f Rs. 2,93,26,224/- as loan/advances from M/s. Dhariya Infrastructure Development Pvt. Ltd. and on the said basis, the provisions of Section 2(22)(e) of the Income Tax Act, 1961 (hereinafter referred to as "the Act‟) were involved and the amount was brought to the tax by the Assessing Officer. 2.2 The Ld. CIT(Appeals) had accepted the contention of the assessee by treating the amount received by the assessee as Inter-Corporate Deposit and held that it was not in the nature of loan/advances. The Ld. CIT(Appeals) relying on the decisions of Hon‟ble Madhya Predesh High Court in the case of Sharda Talkies (Firm) Vs. Smt. Madhulata Vyas AIR 1966 MP 68 and also in the matter of Pennwalt (India) Pvt. Ltd. Vs. Registrar of Companies (1987) 62 Comp Case 112 ( Bom.) had granted relief to the assessee. For the sake of completeness, the observation of the Ld. CIT(Appeals) were reproduced herein below: "5. I have carefully considered the facts of the case as well as reply of the appellant. In this case undisputed fact remains that the amount of Rs. 2,93,26,224/- received from Dhariya Infrastructure Pvt. Ltd. is in the nature of "Inter Corporate Deposit" as claimed before....
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....ving common Managing Director of the M/s. Dhariya Infrastructure Development Pvt. Ltd. namely Shri Mukund Dhariya and there was no formal agreement between the assessee and M/s. Dhariya Infrastructure Development Pvt. Ltd. to treat the amount as "Inter Corporate Deposit". Further, Ld. DR submitted that the assessee was not able to establish that M/s. Dhariya Infrastructure Development Pvt. Ltd. was having sufficient/ surplus finds of its own which can be given to the assessee for the purpose of keeping it as deposit and were not borrowed funds. 3. The Ld. AR of the assessee has submitted that the amount given was in the nature of "Inter Corporate Deposit" and was not loan/advances. For that purpose, the Ld. AR of the assessee has drawn our attention to the decisions relied on by the Ld. CIT(Appeals) while giving relief to the assessee. 4. We have heard the rival contentions and perused the material available on record. In the present case, the assessee company namely, M/s.Dhariya Construction Pvt. Ltd. had received loan/advances amounting to Rs. 2,93,26,224/- from M/s. Dhariya Infrastructure Development Pvt. Ltd. for which during the assessment year under consideration, inter....
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....d without issuing an advertisement. (1) The Central Government may, in consultation with the Reserve Bank of India, prescribe the limits up to which, the manner in which and the conditions subject to which deposits may be invited or accepted by a company either from the public or from its members. (2) No company shall invite, or allow any other person to invite or cause to be invited on its behalf, any deposit unless- (a) such deposit is invited or is caused to be invited in accordance with the rules made under sub- section (1), and (b) an advertisement, including therein a statement showing the financial position of the company, has been issued by the company in such form and in such manner as may be prescribed." 4.5 In our opinion, though there is distinction between "Inter Corporate Deposits" and loan/advances, but for that purpose, the assessee was required to substantiate that the amount received by the assessee was in the form of "Inter Corporate Deposits". As mentioned herein above, the assessee was failed to bring on record any documentary evidences except oral submission that the amount received by it was in the form of "Inter Corpora....
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....the opinion that the amount was in the nature of loan/advances only. Merely by mentioning in the ledger account, it was "Inter Corporate Deposit", the nature and colour of transaction would not changed to "Inter Corporate Deposit" ,as it continues to be loan/advances. Hence required to be taxed for the purposes of deemed dividend. We may rely upon the Jurisdictional High Court in the Durga Prasad Mandelia v. Registrar of Companies [1987] 61 Comp. Cas. 479 (Bom., has noticed the distinction between deposits and loans in the context of section 370 of the Companies Act. The Court held as under : "There can be no controversy that in a transaction of a deposit of money or a loan, a relationship of a debtor and creditor must come into existence. The terms "deposit" and "loan" may not be mutually exclusive, but nonetheless in each case what must be considered is the intention of the parties and the circumstances. In the present case, barring the assertion of the respondent that the moneys advanced by the company to the Associated Cement Companies Ltd. constitute a loan and offend section 370 of the Companies Act, there is nothing else to show that these moneys have been advanced ....
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.... The names appearing in the said list are my sub call tractors and the figures mentioned against each of the names pertains to the payment made during the FY 2009-10. Q.6 Please elaborate as to nature of the contact given to the persons appearing on the aforesaid. Your attention is also drawn to the bundle No.2 impounded during the course of survey which is a green file leveled as "AC Sub contractor Dank Statement file". As you can see that the file contains banks account extracts and income tax records of one Shri Mahendra Devkate. Please elaborate as to how, you are in the possession a/these records and what is your relation with these said individual ; Ans. I confirm having seen the above said document, which forms the part of bundle No.2. The three individuals mentioned above are my sub contractors and my company i.e. DCPL awards labour contracts to the above individuals. However, I am not aware of these records. The assessee was confronted about the above facts on the basis of evidences impounded from the survey premises. d) The point No. 7 is extracted as below- "Q. 7 I am showing you the statement of Shri Mahendra Devkate recorded....
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....td. shall be filing the revised returns of each years and incorporate the afore mentioned income and pay the due taxes along with interest thereon. The assessee was thus, confronted about the above facts on the basis of evidences impounded from the survey premises and shown to him during the statement recording. The impounded materials and the statement of Shri Deokate a subcontractor is also on record. e) The facts regarding investment in flat is elaborated in point No.8, as under: "Q.8: Please refer to the bundle NO.3 which is a Mahavir folder pertaining to ENN ENN Corporation Ltd. Your attention is invited to the page NO.9 of the said bundle and page 5 of the said bundle. PI. explain the entries made at page 9 specially in respect of entry cash Rs. 2,53,59,490/-. Ans. I confirm having seen the above said document which forms the part of bund No.3. The entries mace at page No.9 is related to purchase of a flat No. 302 of B Building in Four Season at Surat. The said property was originally booked by Shri Anup Namdeo Dultani and Mrs. Bharti Dultani. I have purchased the said property at an amount agreed at Rs. 3,64,59,990/- out of which an amount....
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.... furnished the inaccurate particulars of income in the original return i.e. declaration of income before the survey action, the penalty proceedings u/s.271(1)(c) of the IT Act, 1961 is initiated separately." 5.1. The Ld. CIT(Appeals) has considered the submissions of the assessee and granted relief to the assessee by telescoping effect. The Ld. CIT(Appeals) has discussed this issue vide Para 9 to the following effect: "9. I have carefully considered the facts of the case as well as reply of the appellant. In this case it is seen that amount of Rs. 2,53,59,490/-was offered as additional income vide answer to question No.8 of the statement of Shri Mukund Dhariya recorded u/s 133A of the Income Tax Act, 1961 on 10/10/2012. The Assessing Officer has reproduced the same on page 9 of the assessment order. However, for ready ref; the same is reproduced here again: "Q.8: Please refer to the bundle NO.3 which is a Mahavir folder pertaining to ENN ENN Corporation Ltd. Your attention is invited to the page NO.9 of the said bundle and page 5 of the said bundle. PI. explain the entries made at page 9 specially in respect of entry cash Rs. 2,53,59,490/-. Ans. I conf....
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....e was also recorded during the course of survey conducted by the Revenue and in the survey, the assessee had acknowledged the payment of an amount of Rs. 2,53,59,490/- in cash for the purpose of purchasing flat in the name of Director. Besides that the assessee has also declared various amounts which has been received by the assessee company from M/s. Dhariya Infrastructure Development Pvt. Ltd. 5.3 It was also submitted by the Ld. DR that the Ld. CIT(Appeals) has glossed the fact that the amount declared by the assessee for A.Y.2010-11, 2011-12 and 2012-13 amounting to Rs. 64,20,637/-, Rs. 10,391,626/-, and Rs. 16,729,248/- were not shown in the income of the assessee. (Para 8 of the CIT(A)‟s order). However, after accepting the said amount as income for the periods it was declared by the assessee , the assessee has not pressed these grounds before CIT(A) however he had requested for telescoping of these amounts . The Ld. CIT(Appeals) has granted benefit of telescoping for purchasing flat in cash in the name of Director of the company amounting to Rs. 2,53,59,490/-. 5.4 It was also submitted by the Ld. DR that firstly the assessee had accepted the net amount as mention....
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....rvey proceedings. Shri Devkate has stated that there has been no written order made by your company to him as a sub contractor and that he has been receiving only oral communication tcepser ni of the labour work executed by him at our company sites. He has further stated that neither he has any proof of the completion of said work nor has he received of any work completion certificate. In view of the said statement on oath you are hereby requested to clarify as to why it should not be presumed that the sub contract are actually not being executed hut the payments are being made after proper documentation and considering the facts that these are your long trusted employees, the amounts credited into their accounts are ultimately given hack to you in cash after withdrawal rieht morf accounts. Also the presence of extract of bank accounts, IT returns etc in your premises clearly shows the extent of control exercised over your 'employees sub contractors thereby creating the doubts that no work was executed and the money was paid and routed back to the company in cash. Ans. I have gone through the statement of Shri Mahendra Devkate and the facts brought out by you in respec....
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....- as income in the payment made to Prasad Kulkarni, Pradeep Kulkarni and Mahendra Devkate. Once the assessee declared the income, the element of expenditure, if any, has also taken care of by the assessee while doing so. Similarly in reply to Question No.8, the assessee has also acknowledged that the amount of Rs. 2,53,59,490/- was paid in cash besides making all other amount in cheque for purchasing of flat and building in four Seasons, Surat. 7.2 We see there is inherent contradiction in the case of the Revenue. Firstly, if the amount invested by the Director of the Company of Rs. 2,53,59,490/- for purchasing of flat is held to be unexplained cash investment then it cannot be taxed in the hands of the assessee company because flat was purchased in the name of Director of the company and amount was invested by the Director. Now the question arises whether the amount spent by the Director in cash for purchasing flat in his own name can be added in the hands of Assessee Company. The answer to this question is "No". As the amount was used by the Director and the said amount was invested individually. 7.3. It is not the case that the said amount of Rs. 2,53,59,490/- was generate....