Case: Commissioner of Income-Tax-12, Mumbai Vs. Jayant H. Modi

1. This appeal of the revenue challenges the order passed by the Income Tax Appellate Tribunal, Mumbai dated 23rd November, 2012. The assessment year is 2006-07.2. The assessees appeal has been allowed by the Tribunal and that is why the revenue being aggrieved is before us.3. Mr. Suresh Kumar submits that the questions of law framed at pages 3 and 4 are substantial questions and, therefore, the appeal deserves to be admitted. He submits that the Tribunal has erred in interfering with the finding of fact recorded by the assessing officer and the Commissioner of Income Tax (Appeals), being the first appellate authority. The Tribunal could not have applied section 2(22)(e)(ii) of the Income Tax Act, 1961, because, loans and advances were obtained from M/s. JMC Securities Pvt. Ltd. but money lending was not a substantial part of the business of that company. In other words, lending of money was not a substantial part of the business of M/s. JMC Securities Pvt. Ltd. from whom loan was obtained by the assessee. The Commissioner had observed that M/s. JMC Securities Pvt. Ltd. was advancing money only to one entity, namely, M/s. Sonal investment. Rest of the sums were advanced to the employees of M/s. JMC Securities Pvt. Ltd., therefore, the exclusionary clause was not applicable and reliance placed on the judgment of this Court in the case of CIT v. Parle Plastics Ltd. [2011] 332 ITR 63 /196 Taxman 62 /[2010] 8 taxmann.com 155 was entirely misplaced.4. We have perused the appeal paper-book with the assistance of Mr. Suresh Kumar, learned counsel appearing for the revenue and Mr. Pardiwalla, learned senior counsel appearing for the assessee. We have also perused that part of the Commissioners order where he observes that M/s. JMC Securities Pvt. Ltd. was not in the business of lending money nor lending of money is a substantial part of the business of the Company. Further, the company advanced loans to only to M/s. Sonal Investment and its employees.5. However, while the Tribunal was deciding the appeal, it referred to all the material and held that during the year under consideration, the assessee received loans of Rs. 551.45 lakhs from M/s. JMC Securities Pvt. Ltd. wherein he was holding 1,53,025 equity shares out of total 3 lakhs equity shares issued. The assessee was beneficial owner of shares in the said company holding more than 10% shares and if that company had accumulated profits of Rs. 3,38,85,459/- as on 31st March, 2006, the assessing officer called upon the assessee who is respondent before us to explain as to why the loan amount to the above extent should not be brought to tax in his hands as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.6. In reply, the assessee contended that the main object of M/s. JMC Securities Pvt. Ltd. was to carry on business as share and stock brokers but its memorandum of association allowed the company to carry on business inter alia of lending or advancing money.7. The Tribunal also referred to the assessment order in the case of M/s. JMC Securities Pvt. Ltd. for the year under consideration, namely 2006-07, wherein the nature of the business of that company was indicated as finance. The company continued in the business of short term finance of idle funds. M/s. JMC Securities Pvt. Ltd. During the year under consideration, earned interest income to the tune of Rs. 9,16,088/- which constituted about 70% of its total business income amounting to Rs. 13,04,088/-. The maximum amount of loan advanced by the company during the year under consideration was to the tune of Rs. 95,45,000/-. That constituted 32% of the total funds available with the said company. In these circumstances, the Tribunal concluded that that the lending of money is a substantial part of the business of M/s. JMC Securities Pvt. Ltd. The addition made by the assessing officer and sustained by the Commissioner was not valid and legal, particularly in the background facts. In the light of the undisputed factual position, we are of the view that the Tribunals order is correct and reliance placed by it on the Division Bench judgment of this Court is not misplaced.8. So far as question (B) on page 4 is concerned, it is stated that this question is covered against the revenue by the Division Bench of this Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81 /194 Taxman 203 . In any event, direction to recompute the disallowance in the light of this judgment does not give rise to a substantial question of law. In these circumstances, the order impugned cannot be termed as perverse and the finding of fact which is consistent with the factual material placed on record, does not raise any substantial questions of law.

Decision:
0[ds]In these circumstances, the Tribunal concluded that that the lending of money is a substantial part of the business of M/s. JMC Securities Pvt. Ltd. The addition made by the assessing officer and sustained by the Commissioner was not valid and legal, particularly in the background facts. In the light of the undisputed factual position, we are of the view that the Tribunals order is correct and reliance placed by it on the Division Bench judgment of this Court is not misplaced.8. So far as question (B) on page 4 is concerned, it is stated that this question is covered against the revenue by the Division Bench of this Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81  /194 Taxman 203  . In any event, direction to recompute the disallowance in the light of this judgment does not give rise to a substantial question of law. In these circumstances, the order impugned cannot be termed as perverse and the finding of fact which is consistent with the factual material placed on record, does not raise any substantial questions of law.