M/s IFB AGRO INDUSTRIES LTD v JCIT (ITA No.114/Kol/2013) (Kolkata ITAT)

Background:

The assessee is a company engaged in the business of manufacture of rectified spirit and IMFL, marine products and trading of feed and beer. The assessee had received Inter-corporate deposits from M/s. IFB. Assessee held 18.82% of the shares of M/s. IFB. The AO treated the same as a loan received by the assessee from M/s. IFB. and invoked the provisions of section 2(22)(e) of the Act. An amount of Rs.17.5 cr. was deposited by M/s. IFB through RTGS in the bank account of the assesee but Rs.12 cr. out of the same was immediately returned as it was deposited without the assessee’s permission.

On appeal, the CIT(A) had accepted the contention of the assessee that the Inter corporate deposit was only to an extent of Rs.11.20 cr. However, the CIT(A) had treated the Inter corporate deposits as a loan and had consequently treated the amount of Rs.11.20 cr. as deemed dividend u/s. 2(22)(e) of the Act.

Assessee’s contentions:

• Inter corporate deposits were not in the nature of loan and the assessee had never asked M/s. IFB for any loan.
• Assessee’s case was squarely covered by the following decisions
  – Bombay Oil Industries Ltd. (2009) 28 SOT 383 (Mum ITAT) wherein it had been held that Intercorporate deposits were different from loans and advances and the same would not come within the purview of deemed dividend.
  – Pradip Kr. Malhotra Vs. CIT 338 ITR 538 (Cal), wherein it has been categorically held that a gratuitous loan or advance given by a company to those classes of shareholders would not come within the purview of section 2(22)(e) of the Act but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholders.
  – Gujarat Gas & Financial Services Ltd. 115 ITD 218 (Ahd) (SB), wherein it was held that the two expressions loans and a deposit are to be taken different and distinction can be summed up by stating that in the case of loan the needy person approaches the lender for obtaining the loan therefrom. Investments made by way of short term deposits cannot be considered as loans and advances.

Tax authorities’ arguments

• The word “Inter-corporate deposit” was very limited to Companies and was synonymous with the term loan as also on the ground that Inter corporate deposit is not a legal word in the I. T. Act nor used any where in the Act to make it different from loans or advances held the same to be a loan for the purpose of invoking the provisions of section 2(22)(e) of the Act.
• Director’s Minutes Book resolutions passed by the Board of Directors could be a fabricated document in so far as the documents were not serially numbered

HELD:

• The provisions of section 2(22)(e) of the Act refers to only ‘loans’ and ‘advances’ it does not talk of a ‘deposit’.
• The fact that the term ‘deposit’ cannot mean a ‘loan’ and that the two terms ‘loan’ and the term ‘deposit’ are two different distinct terms is evident from the explanation to section 269T as also section 269SS of the Act where both the terms are used.
• In section 269T of the Act, the term ‘deposit’ has been explained vide various circular issued by CBDT. Thus, the view taken by the Ld. CIT(A) that the Intercorporate deposit is similar to the loan would no longer have legs to stand.
• In Housing & Urban Development Corporation Ltd. 102 TTJ (Del.) (SB) 936, it was held that that loans and deposits are to be taken different and distinct.
• Following the decision of the coordinate bench of this Tribunal in the case of Bombay Oil Industries Ltd. referred to supra, the addition representing intercorporate deposits treated as loan by the AO and as confirmed by the Ld. CIT(A) stands deleted.