TaxTMI 
TaxTMI 
2016 (5) TMI 1530
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....of Rs. 1,88,34,771/-. Subsequently, the return was processed u/s.143(1) of the Act. During scrutiny proceedings, the ld. Assessing Officer found that assessee has received an amount of Rs. 3,00,00,000/- from M/s. ACCEL ICIM, a company in which assessee holds more than 10% of shares and voting rights. As per the provisions of Sec. 2(22) (e) of the Act ''any loans or advance received from a company in which the assessee holds more than 10% of the shares with voting power, shall be deemed to be dividend taxable under the Act'' and the ld. Assessing Officer issued notice u/s.148 of the Act. In compliance the assessee filed letter dated 18.02.2009 to treat that the original return filed as return filed in response to notice. The ld. Assessing Officer issued notice u/s.143(2) of the Act and the recorded reasons for reopening the assessment and communicated to the assessee and the assessee filed letter dated 12.03.2009 objecting to the reasons of reassessment proceedings and applicability of provisions of deemed dividend u/s. 2(22) (e) of the Act. The ld. Assessing Officer in assessment order at page Nos.3 to 5 has dealt on the provisions of deemed dividend and facts of the case. The asse....
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....of its shares are allotted unconditionally to the Government or a Corporation established by a Central, State or a Provincial Act. In the instant case, though the assessee and its subsidiary are public limited companies their shares as on the date of the loan were not listed in any recognised Stock Exchange. Also, not less than 50% of the shares have not been allotted to Government or any Corporation as prescribed. To clarify further at this stage, the assessee company was holding 92.43% as on 1/4/2011 and 61.24% as on 31/03/2002 of the shares in the assessee's subsidiary company M/s. Accel lCIM Systems and Services Limited. Therefore, the assessee's argument that they are public companies and therefore provisions of section 2(22)(3) are not applicable to them is invalid. Based on the above discussion, the amount of loan received by the assessee company from its subsidiary company amounting to Rs.3 Crores is brought to tax as dividend u/s.2(22) (e) of the Act and added to the assessee's returned income''. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). 3. In the appellate proceedings, assessee challenged the applicabilit....
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.... years is around 23.56% of the PAT. Thirdly, the appellant company has paid interest of 1 % more than the bank rate on the security deposit kept with it by the subsidiary company. Therefore, the deposit kept with the appellant cannot be taken as deemed dividend. The interest paid by the appellant to its subsidiary company for F.Ys 01-02 to 03- 04 are as under: Financial Year Amount in Rupees 2001-02 47,78,119 2002-03 66,60,002 2003-04 49,36,250 Total 163,74,371 5.2.1 It is also noticed that similar disallowance was made by the AO for AY. 04-05 including RS.3 crores which is a subject matter of discussion for the present assessment year and my Id. predecessor, after a comprehensive analysis of the facts, had held that Sec. 2(22)(e) provisions will not attract the appellant's case since the advance / deposit has arisen out of business contingency for the same facts and circumstances discussed above. His conclusions at para 20.4 are reproduced for ready reference as under: "20.4 . . .. . . . . .. . . Now in the instant case, as discussed above, security deposit was taken as a security by the appellant company for providing the corporate guarantee and the equi....
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....med by the ITAT in its order in ITA NO.1825/Mds/2008 Dated 11.09.2009. Therefore, I direct the Assessing Officer to withdraw the addition made by him. The ground is allowed. and directed the Assessing Officer to delete the addition and allowed the appeal. Aggrieved by the order of Commissioner of Income Tax (Appeals), the Revenue has assailed an appeal before Tribunal. 4. Before us, the ld. Departmental Representative argued the grounds and relied on the findings of the Assessing Officer and further the Commissioner of Income Tax (Appeals) has erred in deleting the disallowance as the assessee is having substantial interest and relied on Tribunal decision of assessee's own case for the assessment year 2004-05. The Revenue has not accepted the decision of Tribunal and appeal has been filed in jurisdictional High Court and prayed the order of Commissioner of Income Tax (Appeals) be set aside and order of Assessing Officer is restored. 5. Contra, the ld. Authorised Representative relied on the order of Commissioner of Income Tax (Appeals) and Tribunal decision of assessment year 2004-05 in assessee's own case. The assessee also filed written submissions, paper book and Tribunal ord....
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....he expenses on such verification. 2. The learned CIT(A) ought to have appreciated the fact that the investments made in Mjs.Accel Systems Group Inc (ASG) appears under the head 'Investments' and not under 'Sundry Debtors'. 2.1 The learned CIT(A) failed to appreciate that any loss in trading of investments must be treated under the head 'Capital Gains' and not under the head 'Income from Business or Profession'. Moreover the assessee has debited the diminution expenses to the P&L Account treating the same as loss even when the number of shares remains to same. 2.2. The case laws relied on by the CIT(A) do not apply to the facts of the case and are entirely on a different footing. In the case law of ITO vs. TCFC Ltd 10 Taxmann 144 (2011), it has been held that the provisions for diminution need to be added back for computation of book profits. In the case of Ashok Leyland Ltd vs DCIT (2014) 47 Taxmann.com 414 (Chennai Tri.) it was held that diminution in value of assets is not an admissible expenditure for computing income of assessee when assets are held as investment, question of diminution in value arises only in the case of assets held by an ....
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....on of assessable income and the action of the Assessing Officer is bad in law. The ld. Authorised Representative argued the grounds and also reiterated the submissions and the findings of the Assessing Officer on the diminution in value of investments. The ld. Assessing Officer is of the opinion the diminution of value is an provision and cannot be allowed as deduction. The ld. Authorised Representative further submitted that the company is a investment company with business operations in BPO activities. The main source of income of the company being income from BPO operations, interest income, rental income and exempted dividend income as per schedule 7 of profit and loss account. The assessee has claimed the loss of diminution in value of investments under the head advances not recoverable and written off. The Commissioner of Income Tax (Appeals) considering the grounds, submissions and findings of the Assessing Officer has observed the claim made by the assessee is not provision but actually written off in profit and loss account at page 5.2 of the order as under:- ''5.2 I have gone through the facts and circumstances of the case. The AO has disallowed an amount of RS.2,39,87,....
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.... actually written off in the books the investments made in subsidiary company M/s. Accel Systems Group Inc. , USA from 50 million USD to 26 million. The ld. DR also filed written submissions and highlighted the disputed issue as there is no sale of shares. The ld. Commissioner of Income Tax (Appeals) has misconceived the facts that the amount written off as bad debts were there is no element of debt except investments and relied on the decision of CIT vs. Lal Woolen and Silk Mills (P) Ltd 333 ITR 254 and referred to the clause 13, of report were opinion expressed by the statutory Auditors as under:- "In our opinion, the company in not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of Clause 4(xiv) of the Companies (Auditor's Report) order 2003 are not applicable to the company''. Further, the Commissioner of Income Tax (Appeals) has erred in making observations that assessee has deducted the amount from profits before taxation and relied on the decision of Kerala High Court in the case of Kerala Small Industries Development Corporation Ltd vs. CIT 270 ITR 452 and prayed for setting aside the Commissioner of Income Tax (App....
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....appeal of the Revenue in ITA No.146/Mds/2015 is partly allowed for statistical purpose. 16. The ground raised in Departmental appeal in ITA 147/Mds/2015 for assessment year 2008-2009 that the assessee claimed loss on account of diminution in value of investments Rs. 4,30,54,755/-. 17. We have considered the facts and submissions made by the ld. Authorised Representative and Departmental Representative, on similar issue was adjudicated by us for the assessment year 2007-08 in ITA No.146/Mds/2015 at para 14 and we partly allow the ground of the Revenue for statistical purpose. 18. In the result, the appeal of the Revenue in ITA No. 147/Mds/2015 is partly allowed for statistical purpose. 19. We take up assessee appeal in ITA No.24/Mds/2015 of assessment year 2009-2010:- The assessee has filed e-return of income on 28.09.2009 admitting total income of Rs. 4,82,650/- and the case was selected for scrutiny and notice u/s.143(2) and 142(1) of the Act was issued. In compliance to notices, the ld. Authorised Representative of assessee appeared from time to time and filed details. The ld. Assessing Officer found that assessee is in the business of providing authorized services for IT pro....
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.... The Assessing Officer has disallowed entire expenditure and ld. Commissioner of Income Tax (Appeals) concurred with the observations of Assessing Officer of separately taxing rental income and the disallowance and upheld the order of Assessing Officer. Aggrieved by the Commissioner of Income Tax (Appeals) order the assessee has assailed an appeal before Tribunal. 21. Before us, the ld. Authorised Representative reiterated the submissions made in assessment and appellate proceedings and argued that the Commissioner of Income Tax (Appeals) should have allowed the claim of expenditure in the nature of administrative though there is no income from BPO operations and the company has written off 10% of share issue price paid and the same could not be converted into shares on account of fall in price of shares. Further, the ld. Authorised Representative has raised two new grounds to allow investments made in the assessment year 2005-06 against the sale of investment in current year. Similarly, advances given to the subsidiary company of Rs. 46,96,537/- in assessment year 2005-06 was not allowed and know claimed on account of sale of company and prayed for allowing the appeal. 22. On th....
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....off the investments amounting to Rs. 45,00,000/- in a subsidiary company considering the impairment of assets and the erosion of the networth of the subsidiary company 5. The Commissioner of Income Tax (Appeals) should have considered company's contention for writing off of advances of Rs,46,96,537/- given to the subsidiary and such advances being not realizable and allowed the write off 6. Expenditure claimed by the company towards interest and other financial charges as normal business expenses as there is no dispute from the assessing officer that these expenditure have not been incurred. The Commissioner of Income Tax (Appeals) was also wrong in restricting the expenditure on percentage basis''. 28. In the assessment proceedings, the ld. Assessing Officer found that the assessee has claimed Rs. 45,00,000/- as advance written off in the profit and loss account. The company has invested in equity capital of 100% subsidiary M/s. Accel Technologies Pvt. Ltd and provide advance to the subsidiary company for working capital requirements. The subsidiary company failed to take offand not carried out any business operations and the assessee company has claimed written off in th....
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....see income. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). 29. The ld. Commissioner of Income Tax (Appeals) considered the submissions of the ld. Authorised Representative and the grounds also findings of the Assessing Officer. Further ld. Authorised Representative explained that the assessee has followed Accounting Standards for Accounting of impairment assets and written off advances and investment in subsidiary companies . The ld. Commissioner of Income Tax (Appeals) considered the submissions on the accounting standards and a elaborately discussed at para 4.2 of his order and dismissed the ground as under:- 4.2 I have carefully considered the submissions filed by the appellant. The appellant holding that it being an investment company, claimed that the loss arisen due to investments and advances given to its subsidiary company whose business has not taken off and became defunct should be allowed as a business loss. I do not agree with this contention of the appellant. Even though the appellant is claiming it as an investment company in the statement of facts filed before me, it was mentioned that "the appellant is carrying o....
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....oner of Income Tax (Appeals) order, the assessee has assailed an appeal before Tribunal. 30. Before us, the ld. Authorised Representative of assessee agitated the grounds raised and also reiterated the submissions of assessment and appellate proceedings. The assessee company being investment company and investments are made in subsidiary companies but due to loss in business operations of subsidiary companym this amount could not be recovered and investments has not yielded any profits and claimed write off and prayed for allowing the deduction. 31. Contra, the ld. Departmental Representative relied on the orders of lower authorities and opposed to the grounds. 32. We heard the rival submissions, perused the material on record. The ld. Authorised Representative contention that investments in shares of the subsidiary company Rs. 45,00,000/- of M/s. Accel Technologies Private Limited with 100% share holding was on commercial expediency and advances are provided to subsidiary company for working capital. The assessee being a investment company could not recover the value of investments in subsidiary company as operations are discontinued and values are negative. Further advances ar....
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....ubsidiary company M/s. Accel ICIM Systems and Services Ltd. whereas the assessee is providing loans to subsidiaries and not charging any interest. The ld. Assessing Officer dealt with the provisions of Sec. 36(1) of the Act were the interest on borrowed capita is allowed only if utilized for the purposes of business of the assessee company and relied on the decision of Punjab and Haryana High Court in the case of CIT vs. Abishek Industries Ltd 286 ITR 1 and observed that the assessee company paid interest on borrowed funds without receiving any income or interest from sister concerns or subsidiaries which are enjoying the financial benefits at the cost of assessee company and disallowed interest of Rs. 77,60,162/-. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). 34. In the appellate proceedings, the ld. Authorised Representative has submitted explanations with supporting judicial decisions and contents on the findings of the Assessing Officer. The ld. Commissioner of Income Tax (Appeals) considered the submissions and case law at page 6 of his order and the transactions between subsidiary company and assessee company are on commerc....
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....redit details are not furnished by the appellant. The ground is partly allowed.'' Aggrieved by the order, the assessee assailed an appeal before Tribunal. 35. Before us, the ld. Authorised Representative agitated the grounds that interest has to be allowed in relation to business expediency and the ld. Commissioner of Income Tax (Appeals) has erred in restricting disallowance to 3% and prayed for allowing the appeal. 36. On the hand, the ld. Departmental Representative relied on the orders of the lower authorities and opposed to the grounds of the assessee. 37. We heard the rival submissions and perused the material on record. The ld. Authorised Representative contention of allowing total claim is only on the basis of investment in subsidiary company and the ld. Commissioner of Income Tax (Appeals) has restricted the claim to 3% of outstanding balance as on balance sheet date which the assessee challenged. Prime facie the company is a investment company, charging of interest on subsidiary company should be considered as good business principle. Otherwise the financial result will show distress implication on liquidity. The ld. Authorised Representative submissions cannot be acc....