Priya Blue Industries Pvt. Ltd., Bhavnagar V. The Asstt. Commissioner of Income Tax, Circle-1, Bhavnagar

ITA 1/AHD/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4454 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 01-01-2018

Judgement Text

, D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV , VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMB ER ./ I.T.A. NOS. 1 & 2/AHD/2018 ( ASSESSMENT YEARS : 2013-14 & 2014-15) PRIYA BLUE INDUSTRIES PVT. LTD. 1563/A, ASHIRWAD, RUPANI SARDARNAGAR ROAD, BHAVNAGAR / VS. ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1, BHAVNAGAR ./ ./ PAN/GIR NO. : AABCP2808B ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI T. P. HEMANI, SR. ADVOCATE / RESPONDENT BY : SHRI VINOD TANWANI, SR.D.R. DATE OF HEARING 25/02/2020 !'# / DATE OF PRONOUNCEMENT 26/02/2020 / O R D E R PER T. S. KAPOOR - AM: THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE A GAINST THE SEPARATE ORDERS OF LEARNED CIT(A)-6, AHMEDABAD BOTH DATED 03/10/2017. THE GROUNDS OF APPEAL TAKEN BY ASSESSEE IN THESE APPEALS RELATE TO DISALLOWANCE OF TRAVELLING EXPENSES AND DISALLOWANCE OF EXPENSES UNDER S.40A(2)(B) OF THE INCOME TAX ACT , 1961 (THE ACT). SINCE, THESE APPEALS INVOLVE SIMILAR ISSUE AND THESE WERE HEARD TOGETHER THEREFORE, FOR THE SAKE OF CONVENIENCE, A COMMON AND CONSOLIDATED ORDER IS BEING PASSED. ITA NOS. 1 & 2/AHD/18 [PRIYA BLUE INDUSTRIES PVT. LTD. VS. ACIT] A.YS. 2013-14 & 2014-15 - 2 - 2. AT THE OUTSET, THE LEARNED A. R. STATED THAT GRO UND NO.1 IN ITA NO.1/AHD/2018 IS NOT PRESSED BECAUSE OF LOW AMOUNT INVOLVED THERE FORE GROUND NO.1 IS DISMISSED AS NOT PRESSED. 3. AS REGARDS GROUND NOS. 2 & 3, THE LEARNED A.R. S UBMITTED THAT THESE GROUNDS RELATE TO DISALLOWANCE OF DOMESTIC TRAVELLING EXPEN SES AND INTERNATIONAL TRAVELLING EXPENSES. IT WAS SUBMITTED THAT THE ASSESSEE IS A C ORPORATE ASSESSEE AND THEREFORE THE ACTION OF THE AO IN DISALLOWING A PART OF TRAVELLIN G EXPENSES ON THE BASIS OF SOME PERSONAL ELEMENT IS NOT JUSTIFIED. OUR ATTENTION W AS INVOLVED TO AN ORDER OF LEARNED CIT(A) IN THE CASE OF ASSESSEE ITSELF FOR AY 2012-1 3 WHEREIN THE LEARNED CIT(A) HAD DELETED SIMILAR DISALLOWANCE. IT WAS SUBMITTED THA T SINCE THE DEPARTMENT DID NOT FILE ANY APPEAL AGAINST SUCH DELETION, THE SAME HAS ATTAINED FINALITY AND THEREFORE, IN THE PRESENT YEAR ALSO THE SAME MAY BE ALLOWED FOLLOWING THE PRI NCIPLES OF CONSISTENCY AS HELD BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES 358 ITR 295 (SC). 4. AS REGARDS GROUND NOS. 4 & 5, THE LEARNED AR SUB MITTED THAT THESE GROUNDS RELATE TO DISALLOWANCE UNDER S.40A(2)(B) OF THE ACT . EXPLAINING THE FACTS OF THE CASE, THE LEARNED A.R. SUBMITTED THAT THE ASSESSEE HAD PAID I NTEREST TO DIRECTORS @ 18% PER ANNUM AND THE AO HAS RESTRICTED THE SAME TO 13% HOL DING THE SAME TO BE EXCESSIVE. HE FURTHER STATED THAT LEARNED CIT(A) HAS CONFIRMED THE DISALLOWANCE IGNORING HIS EARLIER DECISION IN THE CASE OF THE ASSESSEE ITSELF WHEREIN THE INTEREST @ 18% WAS HELD TO BE REASONABLE AND WAS ALLOWED. THE LEARNED A.R. FU RTHER SUBMITTED THAT THE HONBLE TRIBUNAL VIDE ORDER DATED 13.04.2018 HAS DISMISSED THE APPEAL OF REVENUE ON THIS ISSUE. 5. AS REGARDS APPEAL IN ITA NO. 2/AHD/2018, THE LEA RNED A.R. SUBMITTED THAT IN THIS APPEAL ONLY ONE ISSUE OF DISALLOWANCE UNDER S. 40A(2)(B) IS INVOLVED AND SUBMITTED THAT SIMILAR ARGUMENT FOR DELETION OF THE SAME MAY BE NOTED AS ARGUED IN ITA NO.1/AHD/2018. 6. THE LEARNED D.R., ON THE OTHER HAND, AS REGARDIN G DISALLOWANCE OF TRAVELLING EXPENSES RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW WHEREAS ON THE OTHER ISSUE OF DISALLOWANCE UNDER S.40A(20(B) OF THE ACT, THE LEAR NED SR. D.R. REFERRED TO THE ORDER OF LEARNED CIT(A) WHEREIN HE HAS CONFIRMED THE DISALLO WANCE BY DISTINGUISHING THE ORDER OF LEARNED CIT(A) IN EARLIER YEAR. THE LEARNED SR. D.R. SUBMITTED THAT LEARNED CIT(A) ITA NOS. 1 & 2/AHD/18 [PRIYA BLUE INDUSTRIES PVT. LTD. VS. ACIT] A.YS. 2013-14 & 2014-15 - 3 - HAS MADE A CATEGORICAL FINDING OF FACT THAT IN EARL IER YEAR THE ASSESSEE HAD PAID INTEREST TO OTHER UNRELATED PARTIES @ 18% WHICH IS NOT THE C ASE IN THE PRESENT YEARS. 7. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT ASSESSEE IS A BODY CORPORATE AND DURING THE YEAR IT INCURRED CERTAIN TRAVELLING EXPENSES BOTH DOMESTIC AS WELL AS INTERN ATIONAL AND AO DISALLOWED 20% OF THE EXPENDITURE BY HOLDING THAT EXPENSES INCURRED B Y ASSESSEE MAY INVOLVE AN ELEMENT OF PERSONAL NATURE. BEFORE LEARNED CIT(A), IT WAS CONTENDED THAT SIMILAR DISALLOWANCE WAS MADE IN EARLIER YEAR AND LEARNED CIT(A) HAD DEL ETED THE SAME RELYING ON THE JUDGMENT OF SAYAJI IRON & ENGG. CO. VS. CIT 253 ITR 749 (GUJ.). HOWEVER, THE LEARNED CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSE E BY HOLDING THAT RULE OF RES JUDICATA DO NOT APPLY TO INCOME TAX PROCEEDINGS. WE FIND TH AT ASSESSEE IS ENGAGED IN SIMILAR KIND OF ACTIVITIES AS IN THE EARLIER YEAR AND SIMIL AR ISSUE AROSE IN AY 2012-13 AND WHEREIN THE LEARNED CIT(A) HAD DELETED THE SIMILAR DISALLOWANCE BY HOLDING AS UNDER: 7.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSION OF THE APPELLANT. THE AO NOTED THAT THERE IS A PERSONAL EL EMENT IN THE TRAVELING EXPENSES AND INTERNATIONAL TRAVELING EXPENSES THEREFORE DISALLOW ED RS. 1,39,846/- AND RS. 1,00,250/- BEING 20% OF THE TOTAL EXPENSES. THE APPELLANT RELI ED ON THE DECISIONS OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SAYAJI IRO N AND ENGINEERING COMPANY VS. CIT (253 ITR 749) AND DINESH MILLS LTD. 254 ITR 673 WHE RE IT HAS BEEN HELD THAT THE DISALLOWANCE ON ACCOUNT OF PERSONAL ELEMENT IN FORE IGN TRAVELLING IS NOT JUSTIFIED THEREFORE RESPECTFULLY FOLLOWING THE ABOVE DECISION S THE ADDITION MADE BY THE AO IS DELETED. THE GROUND IS ALLOWED. 8. WE FIND THAT THE AO IN THE EARLIER YEAR HAD DISA LLOWED TRAVELLING EXPENSES BY HOLDING THE SAME OBSERVATIONS AS IN THE YEAR UNDER CONSIDERATION WHICH IS THAT ASSESSEE WAS NOT ABLE TO ESTABLISH CO-ORDINATION BETWEEN THE TRAVELLING EXPENSES AND CONSEQUENTIAL TRANSACTION OF THE BUSINESS. THE LEA RNED CIT(A)S ACTION IN NOT ALLOWING RELIEF TO THE ASSESSEE IN THESE YEARS IS NOT JUSTIF IED SPECIFICALLY IN VIEW OF THE FACT THAT FACTS AND CIRCUMSTANCES IN BOTH YEARS REMAINED SAME AND MOREOVER THE REVENUE DID NOT FILE ANY APPEAL AGAINST THE ORDER OF LEARNED CIT(A) . 9. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, TH E ACTION OF THE AUTHORITIES BELOW DURING THE PRESENT YEAR, IS NOT JUSTIFIED AND THERE FORE THE DISALLOWANCE SUSTAINED BY THE LEARNED CIT(A) IS DELETED. IN VIEW OF THE ABOVE, G ROUND NOS. 2 & 3 ARE ALLOWED. ITA NOS. 1 & 2/AHD/18 [PRIYA BLUE INDUSTRIES PVT. LTD. VS. ACIT] A.YS. 2013-14 & 2014-15 - 4 - 10. NOW COMING TO DISALLOWANCE UNDER S.40A(2)(B) OF THE ACT, WE FIND THAT SIMILAR ISSUE AROSE IN THE CASE OF ASSESSEE ITSELF FOR AY 2 011-12 AND IN THAT YEAR ALSO THE INTEREST WAS PAID TO SAME DIRECTORS @ 18% AND LEARNED CIT(A) HAD ALLOWED THE RELIEF TO THE ASSESSEE. THE REVENUE TOOK THE MATTER TO THE HONB LE TRIBUNAL AND HONBLE TRIBUNAL VIDE ORDER DATED 13.04.2018 DISMISSED THIS GROUND B Y HOLDING AS UNDER: 6. WE HAVE HEARD BOTH THE PARTIES. THE LIMITE D ISSUE FOR ADJUDICATION IN THE INSTANT CASE IS APPLICABILITY OF SECTION 40A(2)(B) OF THE A CT TO THE INTEREST PAID TO DIRECTORS IN EXCESS OF INTEREST PAID TO OTHER PARTIES. ON BEHAL F OF THE ASSESSEE, IT WAS FIRSTLY CONTENDED THAT IT IS NOT THE DIRECTORS OF THE ASS ESSEE ALONE WHO HAVE BEEN PAID INTEREST @ 18% P.A. ON THE LOANS/ADVANCES AVAILED BUT THERE ARE OTHER PARTIES TOO TO WHOM INTEREST @ 18% P.A. WAS PAID ON THE LOANS/ADVANCES AVAILED. THE PARTIES MARINE LINE SHIP BREAKERS PVT. LTD. AND R. K. GUPTA & SONS WAS REFERRED TO AUGMENT THE AFORESAID CONTENTION. IT IS THUS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE PROVISIONS OF SECTION 40A(2)(B) CANNOT BE APPLIED TO INTEREST COSTS TOWAR DS BORROWALS FROM DIRECTORS WHERE THE INTEREST COST INCURRED QUA NON-RELATED PARTIES ARE SIMILAR AND COMPARABLE. SECONDLY, IT IS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE VALUE OF SERVICES I.E. MARKET RATE OF INTEREST HAS NOT BEEN INDEPENDENTLY DETERMI NED BY AO AT ALL AND THEREFORE THERE WAS NO WARRANT FOR THE AO TO HOLD INTEREST PAID TO THE DIRECTORS AS EXCESSIVE TO THE EXTENT OF 5% ON THE LOANS AVAILED. FOR THIS PROPOS ITION, THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SARJAN RE ALITIES LTD. (2014) 50 TAXMANN.COM 52(GUJ.) WAS RELIED UPON. IN SHORT, IT WAS CONTEND ED ON BEHALF OF THE ASSESSEE THAT THE INTEREST PAID TO THE DIRECTORS @ 18% PER ANNUM ON T HE LOANS AVAILED CANNOT BE SAID TO BE EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE COMPARABLE CASES AS POINTED OUT AND ALSO IN THE ABSENCE OF ANY INDEPENDENT FINDING TOWARDS PREVALENT MARKET RATE OF INTEREST TO BE LOWER THAN THE RATE AT WHICH INTERES T COSTS HAVE BEEN INCURRED. 7. WE FIND SUBSTANCE AT THE FIRST INSTANCE ON THE P LEA PADDLED ON BEHALF OF THE ASSESSEE THAT INTEREST RATE @ 18% CANNOT BE SEEN AS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FACT THAT THE ASSESSEE HAS INCURRED INTEREST COSTS AT THE SIMILAR RATE ON BORROWED FUNDS FROM UNCONTROLLED PARTIES. THIS FA CT ITSELF PROVES THE CASE OF THE ASSESSEE IN AFFIRMATIVE. THE REVENUE HAS NOT BEEN A BLE TO COUNTER THIS ASPECT OF JUSTIFICATION FOR MAKING PAYMENT OF INTEREST ALLEGE D AT HIGHER RATE QUA OTHER LENDERS. THEREFORE, WE DO NOT CONSIDER IT NECESSARY TO LOOK INTO THE OTHER PLEA OF THE ASSESSEE ON REQUIREMENT OF DETERMINATION OF MARKET RATE OF INTE REST INDEPENDENTLY. IN VIEW OF THE AFORESAID DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DRAWING CONCLUSION IN FAVOUR OF THE ASSESSEE. 11. THOUGH IN THE AY 2011-2, THE HONBLE TRIBUNAL H AD MADE A FINDING OF FACT THAT INTEREST @ 18% WAS PAID TO OTHER UNRELATED PARTIES ALSO WHICH AS PER LEARNED CIT(A) IS NOT THE CASE IN THE PRESENT YEAR AS IN THE PRESENT YEAR HE HAS OBSERVED THAT INTEREST @ 18% WAS NOT PAID TO OTHER UNRELATED PARTIES. HOWEV ER, WHILE ADJUDICATING THE ISSUE HE HAS TOTALLY IGNORED THE ALTERNATIVE SUBMISSIONS OF THE ASSESSEE WHICH THOUGH HE HAS NOTED IN HIS ORDER BUT DID NOT AJUDICATE THE SAME. FOR THE SAKE OF COMPLETENESS, THE SUBMISSIONS OF ASSESSEE AS NOTED BY THE CIT(A) ARE REPRODUCED BELOW: ITA NOS. 1 & 2/AHD/18 [PRIYA BLUE INDUSTRIES PVT. LTD. VS. ACIT] A.YS. 2013-14 & 2014-15 - 5 - '6. GROUND #4 CHALLENGES THE ACTION OF LEARNED AO I N CONCLUDING THE INTEREST OF RS.44,26,446/- PAID-TO THE RELATED PARTIES TO BE EX CESSIVE AND UNREASONABLE AND DISALLOWED THE SAME U/S. 40A(2)(B) OF THE ACT. 6.1. THE LD. AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE APPELLANT HAS MADE THE INTEREST PAYMENT TO ITS DIRECTORS IN THE Y EAR UNDER CONSIDERATION. THE LD. AO FURTHER OBSERVED THAT THE APPELLANT HAS PAID THE INTEREST TO RELATED PARTIES AT THE RATE OF 18% AND THAT THE INTEREST PA ID TO OTHER THIRD PARTIES ARE AT LESSER OR SAME RATE. THE LD. AO THEREFORE ISSUED A SHOW CAUSE NOTICE TO THE APPELLANT TO EXPLAIN SUCH DIFFERENCES IN THE RATE O F INTEREST. THE APPELLANT IN THIS REGARD EXPLAINED TO THE LD. AO VIDE ITS REPLY DATED 23/02/2015 THAT THE FUNDS BORROWED FROM ALL THE PARTIES ARE FOR BUSINES S PURPOSE. MOREOVER, THE RATE OF INTEREST FROM THE BANKS AND FROM RELATED PA RTIES VARIES ON THE BASIS OF MARKET CIRCUMSTANCES AND ALSO ON THE TERMS AND COND ITIONS OF EACH AND EVERY ADVANCES AND LOANS AS ALSO THE REPAYMENT TERMS. THE LD. AO HOWEVER, FAILED TO UNDERSTAND THE FACTS SUBMITTED BY THE APPELLANT AND HELD THE INTEREST RATE OF 11- 13% AS REASONABLE. THE LD. AO ALLEGED THAT EVEN CON SIDERING 2% ADDITIONAL INTEREST RATE FOR GUARANTEE IN CASE OF LOANS FROM R ELATED PARTIES, THERE WOULD BE EXCESS INTEREST RATE OF 5% FOR THAT REASON, THE LD. AO DISALLOWED INTEREST OF RS.40,15,247/- U/S. 40A(2)(B) OF THE ACT. THE LEARN ED AO FURTHER DID NOT APPRECIATE THAT THE ADVANCES FROM ODESSEY CORPORATI ON WAS NOT AGAINST THE SALES BUT THE LOAN TAKEN ON INTEREST. THE LD. AO TH EREFORE GROSSLY ERRED IN DISALLOWING THE INTEREST AMOUNT OF RS.40,28,592/-. 6.2. AT THE OUTSET, THE APPELLANT MOST RESPECTFULL Y SUBMITS THAT AN IDENTICAL ISSUE WAS HEARD IN APPELLANT'S OWN CASE IN FOR A. Y 2011-12 W HEREIN IT WAS HELD THAT INTERESTED PAID AT THE RATE OF 18% IS REASONABLE. T HE COPY OF SUCH ORDER IS PLACED ALONG WITH THIS SUBMISSION HEREWITH MARKED A S ANNEXURE-B. 6.3. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE A BOVE, THE APPELLANT MOST RESPECTFULLY SUBMITS THAT LEARNED AO HAS HIMSELF ST ATED THAT THE APPELLANT HAS PAID INTEREST OF 11-18% TO PARTIES OTHER THAN RELAT ED PARTIES, (PLEASE REFER PARA 1), PAGE NO. 6 OF THE ASSESSMENT ORDER READ WITH PA GE NO. 45 OF THE P/B. IT IS FURTHER SUBMITTED THAT THE LEARNED AO HAS FURTHER N OT OBJECTED THAT SUCH RELATED PARTIES BEING- DIRECTORS OF THE APPELLANT HAVE GIVE N GUARANTEES AGAINST THE RISKS OF BORROWING BY THE APPELLANT. ACCORDINGLY, LOOKING UPON THE OVERALL PICTURE, INTEREST PAID BY THE APPELLANT TO SUCH DIRECTORS IS NOT EXCESSIVE AS FAR AS INTEREST IS BENCHMARKED FROM WITHIN THE ORGANISATION AND THE APPELLANT HAS PAID INTEREST @18% PER ANNUM TO UNRELATED PARTIES LIKE M /S MADHAV INDUSTRIES CORPORATION, SHRI ANIL GOYAL, M/S U.K. GUPTA & SONS REFERRED AT PAGE NO.45OFTHE P/B. 64. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE AB OVE, THE PROVISIONS OF S.40A(2)(B) ARE AS UNDER FOR YOUR READY REFERENCE:- '40A. (2) (2)(A) WHERE THE ASSESSES INCURS ANY EXPE NDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REF ERRED TO IN CLAUSE (B) OF THIS SUB-SECTION, AND THE ASSESSING OFFICER IS OF OPINIO N THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MOD E OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE B ENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION : (B) THE PERSONS REFERRED TO IN CLAUSE (A) ARE THE FOLLOWING, NAMELY : (II) WHERE THE ASSESSEE IS AN INDIVIDUAL ANY RELATI VE OF THE ASSESSEE; (III) WHERE THE ASSESSEE IS A COMPANY, FIRM, ANY D IRECTOR OF THE COMPANY, PARTNER OF THE FIRM, OR ASSOCIATION OF PERSONS OF HINDU UN-MEMBER OF THE ASSOCIATION OR FAMILY, OR ANY RELATIVE OF SUCH DIVIDED FAMILY DIRECTOR, PARTNER OR MEMBER; ITA NOS. 1 & 2/AHD/18 [PRIYA BLUE INDUSTRIES PVT. LTD. VS. ACIT] A.YS. 2013-14 & 2014-15 - 6 - (III) ANY INDIVIDUAL WHO HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE, OR ANY RELATIVE OF SUCH INDIVIDUAL; (IV) A COMPANY, FIRM, ASSOCIATION OF PERSONS OR HIN DU UNDIVIDED FAMILY HAVING A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE OR ANY DIRECTOR, PARTNER OR MEMBER OF SUCH COMPANY, FIRM, ASSOCIATIO N OR FAMILY, OR ANY RELATIVE OF SUCH DIRECTOR, PARTNER OR MEMBER OR ANY OTHER CO MPANY CARRYING ON BUSINESS OR PROFESSION IN WHICH THE FIRST MENTIONED COMPANY HAS SUBSTANTIAL INTEREST; (V) A COMPANY, FIRM, ASSOCIATION OF PERSONS OR HIND U UNDIVIDED FAMILY OF WHICH A DIRECTOR, PARTNER OR MEMBER, AS THE CASE MAY BE, HA S A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE; OR ANY DIRECTOR, PARTNER OR MEMBER OF SUCH COMPANY, FIRM, ASSOCIATION OR FAMILY OR ANY RELATIVE OF SUCH DIRECTOR, PARTNER OR MEMBER; (VI) ANY PERSON WHO CARRIES ON A BUSINESS OR PROFES SION, (A) WHERE THE ASSESSEE BEING AN INDIVIDUAL, OR ANY RELATIVE OF SUCH ASSESSEE, HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THAT PERSON; OR (B) WHERE THE ASSESSEE BEING A COMPANY, FIRM, ASSOC IATION OF PERSONS OR HINDU UNDIVIDED FAMILY, OR ANY DIRECTOR OF SUCH COMPANY, PARTNER OF SUCH FIRM OR MEMBER OF THE ASSOCIATION OR FAMILY, OR ANY RELATIVE OF SUCH DIRECTOR, PARTNER OR MEMBER, HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THAT PERSON. 4.0. PLAIN READING OF THE ABOVE PROVISIONS CLEARLY TRANSPIRES THAT WHILE BENCHMARKING THE RATE, THE LEARNED AO HAS TO CONSID ER THE FAIR MARKET VALUE OF SERVICES AND NOT THE INTERNAL BENCHMARKING. LEGALLY , IT IS WELL SETTLED THAT FOR APPLYING SECTION 4QA(2)(B), WITHOUT DETERMINING THE MARKET VALUE OF THE GOODS/SERVICES PROVIDED, THE DISALLOWANCE CANNOT BE SUSTAINED. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: CIT V. ASHOK J. PATEL [2014] 43 TAXMONN.COM 22 7 (GUJARAT) CIT V. ENVIRO CONTROL ASSOCIATED (P.) LTD. [2014] 43 TAXMANN.COM 291 (GUJARAT). AS IT IS CLEARLY ESTABLISHED FROM THE FINDINGS THAT THE LEARNED AO HAS NOT DRAWN HIS ENERGIES TOWARDS ARRIVING AT THE FAIR MARKET VA LUE OF THE SERVICES, THE APPELLANT MOST RESPECTFULLY SUBMITS THAT NO DISALLO WANCE COULD HAVE BEEN MADE LOOKING UPON THE INTERNAL INTEREST PAYMENTS MADE BY THE APPELLANT. 6.5. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE A BOVE, THE APPELLANT MOST RESPECTFULLY SUBMITS THAT SO FAR AS FAIR MARKET RAT E OF INTEREST TO RELATED PARTIES IS CONCERNED, IT IS MOST RESPECTFULLY SUBMITTED THA T LOANS GRANTED BY SUCH DIRECTORS TO THE APPELLANT ARE 'UNSECURED' IN NATUR E. NATIONALISED OR PRIVATE BANKS WHILE CREATING ASSETS IN SUCH CATEGORIES CHAR GE INTEREST AT THE RATE OF 24% TO 40% . HOWEVER, IN PRESENT CASE, THE APPELLA NT HAS JUST PAID INTEREST AT THE RATE OF 18% (INCLUSIVE OF CHARGE AGAINST THE GU ARANTEES). IT IS FURTHER SUBMITTED THAT IN ORDER TO END THE LITIGATION IN SU CH CATEGORY, VARIOUS TRIBUNALS HAVE CONCLUDED THAT RATE OF 24% IS 'FAIR' SO FAR AS MARKET VALUE OF SUCH SERVICES ARE CONCERNED. IT IS MOST RESPECTFULLY SUB MITTED THE HON'BLE AHMEDABAD TRIBUNAL IN THE CASE OF OMKARMAL GAURISHA NKER -VS- ITO REPORTED IN 92 TTJ (AHD.) 223 HAS HELD THAT INTEREST PAID TO RELATIVES @24% IS REASONABLE. IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE, INTEREST PAID BY THE APPELLANT BEFORE US IS ONLY 18% AND THUS IT IS MOST RESPECTFULLY REQUESTED TO KINDLY DELETE THE IMPUGNED DISALLOWANCES MADE U/S 4 0A(2)(B) OF THE ACT ON THIS GROUND AS WELL. 6.6. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE AB OVE, THE APPELLANT MOST RESPECTFULLY SUBMITS THAT RELATED PARTIES BEING SAN JAY P. MEHTA & TRUPTI S. MEHTA PAYS TAXES AT THE MAXIMUM MARGINAL RATE IE. 3 0%. MOREOVER, REMOVING ITA NOS. 1 & 2/AHD/18 [PRIYA BLUE INDUSTRIES PVT. LTD. VS. ACIT] A.YS. 2013-14 & 2014-15 - 7 - THE ALLEGED EXCESS INTEREST, THEY WOULD BE STILL TA XED AT THE SAME RATE. ACCORDINGLY, THE APPELLANT WAS NEVER GOING TO BE BE NEFITTED OUT OF SUCH ADJUSTMENT AND THUS NO ADDITION SHOULD BE MADE. REL IANCE IS PLACED ON THE JUDGMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. I NDU INDU NISSAN OXO CHEMICAL INDUSTRIES LTD. WHEREIN IT HAS BEEN HELD THAT WHERE RECIPIENT OF PAYMENT WAS TAXED AT MAXIMUM RATE, NO ADDITION COULD BE MADE UNDER SECTION 40A(2). THE COPY OF ORDER IS PLACED A LONG WITH THIS SUBMISSION HEREWITH MARKED AS ANNEXURE-C. 12. IN THE ABOVE SUBMISSIONS TO LEARNED CIT(A), THE ASSESSEE HAS BROUGHT INTO HIS KIND ATTENTION THAT THE FINDING OF AO THAT ASSESSEE HAD PAID INTEREST RANGING FROM 11 TO 13% TO UNRELATED PARTIES WAS NOT CORRECT AND HAD IN VITED ATTENTION TO PAGE NO.75 OF PAPER BOOK WHEREIN THE APPELLANT HAD PAID INTEREST @ 15% TO UNRELATED PARTY AS WELL. IT WAS ALSO SUBMITTED THAT APPLYING SECTION 40A(2)(B) OF THE ACT WITHOUT DETERMINING THE MARKET VALUE OF GOODS/SERVICES PROVIDED, THE DISALL OWANCE CANNOT BE SUSTAINED AND RELIANCE WAS ALSO PLACED ON THE TWO JUDGMENTS OF HO NBLE GUJARAT HIGH COURT. IT WAS ALSO SUBMITTED THAT LOANS GRANTED BY SUCH DIRECTORS TO THE APPELLANT WERE UNSECURED IN NATURE AND NATIONALIZED OR PRIVATE BANKS WHILE GRAN TING LOANS IN SUCH CATEGORIES CHARGED INTEREST @ 24% TO 40%. IT WAS FURTHER SUBMITTED TO HIM THAT VARIOUS TRIBUNALS HAVE CONCLUDED THAT RATE OF 24% IS FAIR SO FAR AS TO MAR KET VALUE OF SUCH SERVICES ARE CONCERNED AND IN THIS RESPECT AND ORDER OF AHMEDABA D TRIBUNAL IN THE CASE OF OMKARMAL GAURISHANKER VS. ITO, 92 TTJ (AHD) 223 WAS ALSO RELIED. HOWEVER, THE LEARNED CIT(A) HAS TOTALLY IGNORED THESE SUBMISSIONS WHICH WERE QUITE RELEVANT AS THE FUNDS OBTAINED FROM RELATED PARTIES ARE GENERALLY WITHOUT ANY SECURITY AND SUCH FUNDS ARE NOT REPAYABLE IN NEAR FUTURE AND THEREFORE THESE LOANS FALL IN THE H IGH RISK CATEGORY AND THEREFORE CARRY HIGHER RATE OF INTEREST. FURTHER, WE FIND THAT THE AUTHORITIES BELOW HAVE NOT COMMENTED ON THE REASONABLENESS OF THE EXPENDITURE. THEREFOR E, KEEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE FACT THAT AO D ID NOT INDEPENDENTLY DETERMINE THE REASONABLENESS OF INTEREST PAID TO DIRECTORS AND FO LLOWING JUDICIAL PRECEDENTS IN THE CASE OF ASSESSEE ITSELF, THIS ADDITION IS ALSO DELETED. IN VIEW OF THE ABOVE, GROUND NOS. 4 & 5 ARE ALLOW ED. 13. REST OF THE GROUNDS TAKEN BY THE ASSESSEE DO NO T REQUIRE ANY ADJUDICATION AS THESE ARE CONSEQUENTIAL IN NATURE. IN VIEW OF THE ABOVE, APPEAL OF THE ASSESSEE IN IT A NO.1/AHD/2018 IS ALLOWED. ITA NOS. 1 & 2/AHD/18 [PRIYA BLUE INDUSTRIES PVT. LTD. VS. ACIT] A.YS. 2013-14 & 2014-15 - 8 - ITA NO. 2/AHD/2018 - A.Y. 2014-15 14. ONLY SINGLE ISSUE IS INVOLVED IN THIS APPEAL WH ICH IS DISALLOWANCE UNDER S.40A(2)(B) OF THE ACT AND WHICH IS COVERED BY GROU NDS 1 TO 3. KEEPING IN VIEW OUR FINDING IN ITA NO.1/AHD/2018, GROUNDS OF APPEAL ARE ALSO ALLOWED. REST OF THE GROUNDS TAKEN BY ASSESSEE DO NOT REQUIRE ANY ADJUDICATION A S THESE ARE CONSEQUENTIAL IN NATURE. 15. IN NUT SHELL, BOTH THE APPEALS FILED BY THE ASS ESSEE ARE PARTLY ALLOWED. SD/- SD/- (RAJPAL YADAV) (T. S. KAPOOR) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD: DATED 26/02/2020 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 26/02/20 20