Amos Enterprises Ltd., Ahmedabad V. The ACIT.,Circle-1, Ahmedabad

ITA 1007/AHD/2012

• Counselvise Citation: 100720514 RSA 2012
• Duration Of Justice: 3 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C MISHRA SR DR
• Assessee Lawyers: S N DIVATIA
• Keywords: Principle of natural justice; Fair market value

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD , , BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.1007/AHD/2012 ( / ASSESSMENT YEAR : 2008-09) AMOS ENTERPRISES LTD. 403, 637 PANCHWATI, 2 ND LANE ELLISBRIDGE AHMEDABAD-380 006 / VS. THE ACIT CIRCLE-1 AHMEDABAD ./ ./ PAN/GIR NO. : AABCA 3032 E ( ' / APPELLANT ) .. ( #' / RESPONDENT ) ' $ / APPELLANT BY : SHRI S.N. DIVATIA, AR #' % $ / RESPONDENT BY : SHRI D.C. MISHRA, SR.DR &'( % ) / DATE OF HEARING 21/09/2015 *+, % ) / DATE OF PRONOUNCEMENT 21/10/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-6, AHMEDABAD [CIT(A) IN SHORT] DATED 20/03/2012 PERTAINING TO ASSESSMENT Y EAR (AY) 2008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 1.1 THE ORDER PASSED U/S.250 ON 20-3-2012 FOR A.Y.2008-09 BY CIT(A)-VI, ABAD UPHOLDING THE DISALLOWANCE OF RS. 1,98,891 MAD E BY AO U/S 40A(20(B) ITA NO.1007/AHD /2012 AMOS ENTERPRISES LTD. VS. ACIT ASST.YEAR 2008-09 - 2 - AS EXCESSIVE INTEREST PAYMENT IS WHOLLY ILLEGAL, UN LAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN NOT CONSIDERING FULLY AND PROPERLY THE SUBMISSIONS MADE AND EVIDENCE PRODUCED BY THE APPELLANT WITH REGARD TO THE IMPUGNED DISALL OWANCE. 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST PAYMENTS OF RS. 1,98,8 91 U/S40A(2)(B).. 2.1 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE UPHELD DISALLOWANCE OF INT EREST PAYMENTS OF RS. 1,98,891 U/S 40A(2)(B). 3.1 THE LD. CIT(A) HAS ERRED IN UPHOLDING THAT THAT THE PROVISIONS OF SEC. 40A(2)(B) WERE APPLICABLE TO THE INTEREST PAYMENTS TO THE RELATED PERSONS AND AO HAD ESTABLISHED MORE INTEREST. IT IS, THEREFORE, PRAYED THAT THE DISALLOWANCE OF R S.1,98,891 UPHELD BY THE CIT(A) MAY KINDLY BE DELETED. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE FILE D ITS RETURN OF INCOME ON 28/09/2008 DECLARING TOTAL INCOME OF 95,31,370/-. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 11/12/2010. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER (AO IN SHORT) MAD E DISALLOWANCE IN RESPECT OF EXCESS INTEREST PAID TO PARTIES OF RS.1, 98,891/- BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. THE AS SESSEE BEING AGGRIEVED BY THE ASSESSMENT ORDER, PREFERRED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE D ISMISSED THE APPEAL. NOW, THE ASSESSEE IS FURTHER IN APPEAL BEFORE US. ITA NO.1007/AHD /2012 AMOS ENTERPRISES LTD. VS. ACIT ASST.YEAR 2008-09 - 3 - 3. THE LD.COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUE D THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING THE DISALLOWANCE. HE SUBMITTED THAT THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THE FACT THAT THE DIRECTORS OF THE ASSESSEE-COMPANY TO WHOM THE I NTEREST WAS PAID WAS ASSESSED TO MAXIMUM RATE OF TAX, THEREFORE, THERE W AS NO INTENTION TO EVADE THE TAX LIABILITY. HE FURTHER SUBMITTED THAT MERELY THAT THE PAYMENT OF INTEREST EXCEEDED TO THE PAYMENT MADE TO OTHER P ARTIES WOULD NOT PER SE AUTHORIZE THE AO TO TREAT THE INTEREST PAID TO T HE DIRECTORS WAS EXCESSIVE. THE LD.COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE INTEREST PAID TO THE DIRECTOR IS APPROVED BY THE BOARD OF DI RECTORS OF THE ASSESSEE-COMPANY. THE LD.COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE AUTHORITIES HAVE ALSO FAILED TO APPRECIATE THE FACT THAT THE PREVAILING RATE OF INTEREST IS MUCH HIGHER THAN THE INTEREST PAID T O THE DIRECTOR. HE FURTHER SUBMITTED THAT THE AO HAS COMPARED THE INTE REST PAID TO THE PARTIES WITHOUT APPRECIATING THE FACT THAT DUE TO T HE LIMITATION OF BORROWINGS FROM THE BANKS, THE COMPANY CANNOT BORRO W AS PER THE NORMS OF THE BANKS BEYOND CERTAIN LIMITS AND THEREFORE ON LY OPTION AVAILABLE TO THE COMPANY IS TO ACCEPT THE DEPOSITS FROM THE DIRE CTORS OR PRIVATE PARTY AS PER THE PREVAILING CONDITION OF THE MARKET. HE SUBMITTED THAT EVEN OTHERWISE ALSO, THE COMPARISON BETWEEN THE SECURED LOAN FROM BANKS AND THE UNSECURED LOAN BEING DEPOSITS ARE AT A DIFFEREN T FOOTINGS, INVOLVES SO MANY COMMERCIAL ASPECTS. FURTHER, LD.COUNSEL FOR T HE ASSESSEE SUBMITTED ITA NO.1007/AHD /2012 AMOS ENTERPRISES LTD. VS. ACIT ASST.YEAR 2008-09 - 4 - THAT THE AUTHORITIES BELOW HAVE FAILED TO APPRECIAT E THE FACT THAT THE INTEREST PAID TO OTHER DEPOSITOR WAS 12% SINCE THE DEPOSIT AMOUNT IS VERY SMALL. 3.1. ON THE CONTRARY, LD.SR.DR VEHEMENTLY OPPOSED T HE SUBMISSIONS OF THE LD.COUNSEL FOR THE ASSESSEE AND SUBMITTED THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND SUPPORTED BY VARIOUS JUDICIAL PRONOUNCEMENTS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E ASSESSEE-COMPANY DECLARED TOTAL INCOME OF RS.95,31,370/-. THE DISAL LOWANCE IS MADE OF RS.1,98,891/- BEING THE DIFFERENCE BETWEEN THE INTE REST PAID TO THE DIRECTOR AND INTEREST PAID TO OTHER PARTIES. THE A O HAS NOT GIVEN ANY FINDING WITH REGARD TO THE FAIR MARKET RATE OF THE INTEREST PAID TO THE DIRECTOR. AS PER SECTION 40A(2)(B) OF THE ACT, THE AO IS EXPECTED TO GIVE A FINDING AS TO HOW THE EXPENDITURE AS CLAIMED IS E XCESSIVE OR UNREASONABLE. HAVING REGARD TO THE FAIR MARKET VAL UE OF THE EXPENDITURE, THE AO HAS NOT GIVEN ANY FINDING AS TO WHY THE EXPL ANATION GIVEN BY THE ASSESSEE THAT THE INTEREST PAID AT THE RATE OF 12% WAS TOWARDS THE SMALL BORROWINGS. LOOKING TO THE TOTALITY OF THE FACTS O F THE CASE AND AFTER CONSIDERING THE PREVAILING MARKET VALUE, WE ARE OF THE CONSIDERED VIEW THAT THE INTEREST PAID TO THE DIRECTOR AT THE RATE OF 14% ON UNSECURED LOAN ITA NO.1007/AHD /2012 AMOS ENTERPRISES LTD. VS. ACIT ASST.YEAR 2008-09 - 5 - IS NOT EXCESSIVE OR UNREASONABLE HAVING REGARDING T O THE FAIR MARKET VALUE OF THE SAME. HENCE, GROUND NOS.1.1 TO 3.1 OF THE A SSESSEES APPEAL ARE ALLOWED. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON WEDNESDAY, THE 21 ST DAY OF OCTOBER, 2015 AT AHMEDABAD. SD/- SD/- ( ) ( ) ( PRAMOD KUMAR ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 21/ 10 /2015 0)..& , '.&../ T.C. NAIR, SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 123 4 / CONCERNED CIT 4. 4 ( ) / THE CIT(A)-6, AHMEDABAD 5. 5'6 &23 , ) 23 , , 1 / DR, ITAT, AHMEDABAD 6. 689 :( / GUARD FILE. / BY ORDER, #5 //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD