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2016 (5) TMI 1530
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....n of income on 31.10.2012 disclosing loss 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 deeme....
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....d only if its shares are listed in a recognised Stock Exchange in India or not less than 50% 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 Commis....
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.... (*)' Dividend amount is excluding the Tax thereon. '@' AICIM had also issued Bonus Shares in the ratio of 1: 1. Note: The Cumulative Dividend payout of RS.634.47 lacs for the 5 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 pa....
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....ree with my Id. predecessor who has already decided the issue in favour of the appellant for AY 04-05 vide his *order in ITA No.603/06-07 dated 28.5.08 on the same issue including RS.3 crores which is the subject matter of addition for the present assessment year which was also confirmed 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 or....
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....s/2015 of assessment year 2007-08 for adjudication:- 9. The Department has raised the following grounds:- ''2. The learned CIT(A) erred in directing the AO to verify whether the amounts written off in the books are reduced from the debtors on the assets side of the balance sheet and to allow the 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 computatio....
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....tions, the ld. Assessing Officer has disallowed the claim. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). 11. In the appellate proceedings, the ld. Authorised Representative submitted that diminution in value of investments is admissible under provisions of Act for determination 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) consider....
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....facts and allowed the grounds of the assessee for statistical purpose. Aggrieved by the Commissioner of Income Tax (Appeals) order, the Revenue has assailed an appeal before Tribunal. 12. Before us, the ld. Departmental Representative has agitated that the Commissioner of Income Tax (Appeals) has erred in directing the Assessing Officer to verify the sundry debtors but the assessee has 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) ....
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.... normal course of business. We are not in a position to appreciate the reasons given by the ld. Commissioner of Income Tax (Appeals) and also the facts brought on record by the lower authorities are not sufficient to adjudicate the disputed issue. Therefore, we set aside the order of Commissioner of Income Tax (Appeals) to the file of Assessing Officer for fresh consideration. 15. In the result, the 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 ....
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....delines. The remaining Rs. 8.01 lakhs being investment in subsidiary company M/s. Accel Tele Net Ltd and considering the Auditors observations and impairment the investments the value was written off. The ld. Commissioner of Income Tax (Appeals) considered the submissions on the claim and has dealt meticulously on the nature of expenditure as no income was obtained during the previous year from business activity. 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 ....
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....I, Chennai dated 29.09.2014 passed in ITA No.483/07-08/A-I, for the assessment year 2005-2006, in the proceedings under section 143(3) of the Income Tax Act 1961 [in short the "Act"]. 26. First, we take up assessee appeal in ITA No.23/Mds/2015 of assessment year 2005-06 for adjudication. 27. The assessee has raised the following grounds:- "4. The Commissioner of Income Tax(A) should have accepted and allowed the write 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 proceed....
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....rried forward under the head 'Capital Gains'. In this regard, the ld. Assessing Officer placed reliance on the placed on the following decisions: (i) Vania Silk Mills Private ,Limited vs. CITT 191 ITR 6 (SC) (ii) CIT vs. R. Chidambaranatha Mudailiar [240 ITR 553 (MDS)] On the basis of the above, the advances and investments written off by the assessee to extent of Rs. 45,00,000/- and Rs. 46,96,537/- are disallowed and added to the assessee 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 f....
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....arisen by transfer of any capital asset, which was a pre- condition for loss to be treated as capital loss, thus, such a loss could not be carried forward and set off against capital gains of subsequent years - Held, yes." 4.2.1 In view of the above, the disallowance made by the AO with regard to business loss relating to investment in equity shares and advances given by. the appellant to its subsidiary company are confirmed. The ground is dismissed.'' Aggrieved by the Commissioner 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 subm....
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....xt ground, the company has claimed interest expenditure on loans. The ld. Assessing Officer has found claim of Rs. 77,60,162/- towards interest on borrowed funds. The ld. Assessing Officer made comparison of working capital requirements of the assessee company for two financial years in providing loans and advances to subsidiary and associate companies. The assessee has not collected any interest on advances whereas the assessee has paid interest of Rs. 46,63,272/- on loans obtained from another subsidiary 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 in....
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....e still available it is also possible that some of them might have also gone for investment in sister concern. But there is no quantification available. Therefore, to meet the ends of justice I direct he AO to restrict the disallowance to 3% of the amount outstanding as on 31.3.05 i.e, Rs. 12,35,09, 133 with the sister concerns instead of disallowing the entire interest debited in the P&L a/c. It is directed here to take the end balance amount outstanding as on 31.3.05 for convenience sake since the peak credit 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 contenti....