ACIT,Cir - 34,kolkata., Kolkata V. M/s Berry & Co., Kolkata

ITA 104/KOL/2013

• Counselvise Citation: 10423514 RSA 2013
• Duration Of Justice: 2 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 16-01-2013
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA PRASAD JCITLD
• Assessee Lawyers: G IRISH SHARMA FCA LD A
• Section: 143(3)

Judgement Text

ITA NO. 104/KOL/2013-C-AM M/S. BERRY & CO.. 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, K OLKATA BEFORE : SHRI MAHAVIR SINGH,JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A NO. 104/KOL/2013 A.Y : 2009-10 A.C.I.T, CIR-34, KOLKATA VS. M/S. BERRY & CO. PAN: AAFFB 4043D (APPELLANT) (RESP ONDENT) FOR THE APPELLANT/DEPARTMENT: SHRI RAJENDRA PRASAD, JCIT/LD.DR FOR THE RESPONDENT/ ASSESSEE: SHRI G IRISH SHARMA, FCA, LD.AR DATE OF HEARING: 19-11 -2015 DATE OF PRONOUNCEMENT: 27- 11-20 15 ORDER SHRI M.BALAGANESH, AM THIS APPEAL OF THE REVENUE ARISES OUT OF THE ORDER OF THE LEARNED CIT(A)-XX, KOLKATA IN APPEAL NO. 311/CIT(A)-XX/RANGE-34/2011-1 2/KOL DATED 05-11-2012 FOR THE ASST YEAR 2009-10 PASSED AGAINST THE ORDER OF A SSESSMENT FRAMED BY THE LEARNED AO U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAF TER REFERRED TO AS THE ACT). 1.1 THE GROUND NO.1 RAISED BY THE REVENUE IS GENERA L IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LEARNED AO IS JUSTIFIED IN ALLOWING THE INTEREST RATE OF 9% PER A NNUM ON LOANS BORROWED BY HIM AS AN ALLOWABLE EXPENDITURE TREATING THE BALANCE RATE AS EXCESSIVE OR UNREASONABLE IN TERMS OF SECTION 40A(2) OF THE ACT. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE AS SESSEE IS A PARTNERSHIP FIRM DEALING PRIMARILY IN COTTON FABRICS SPECIALLY FINISHED / PR OCESSED FABRICS AND DENIM FABRICS. IT ITA NO. 104/KOL/2013-C-AM M/S. BERRY & CO.. 2 ALSO SUPPLIES FABRICS DIRECTLY TO LARGE AND MEDIUM SIZED GARMENT MANUFACTURING UNITS. THE ASSESSEE BORROWED UNSECURED LOANS FROM VARIOUS PARTIES AS ON 31.3.2009 TO THE TUNE OF RS. 21,85,58,853/-. THE INTEREST RATES ON THESE LOANS VARY FROM 9% TO 15% PER ANNUM. SOME OF THE PARTIES WHO HAD ADVANCED MONIES TO THE ASSESSEE INCLUDE RELATED PARTIES OF THE ASSESSEE. THE LEARNED AO OBSERVED THAT 9% RATE OF INTEREST IS TO BE HELD REASONABLE AND ANY RATE IN EXCESS OF 9% WAS FO UND TO BE EXCESSIVE OR UNREASONABLE AND INVOKED THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT IN RESPECT OF INTEREST PAID TO RELATED PARTIES OF THE ASSESSEE. THE ASSESSEE HAD BORROWED LOANS FROM UNRELATED PARTIES AT THE INTEREST RATES RANGING FRO M 12 TO 15 % PER ANNUM. THE LEARNED AO OBSERVED THAT 9% RATE OF INTEREST IS REASONABLE FOR LOANS FROM UNRELATED PARTIES ALSO AND ANY RATE IN EXCESS OF 9% WAS ALSO DISALLOWED BY THE LEARNED AO WITHOUT MENTIONING ANY SECTION UNDER WHICH THE DISALLOWANCE WAS MADE BY HIM. OUT OF TOTAL INTEREST PAID ON UNSECURED LOANS BY THE ASSESSEE TO THE EXTENT OF RS. 59,46,279/- DURING THE ASST YEAR UNDER APPEAL, A SUM OF RS. 14,40,595/ - WAS DISALLOWED BY THE LEARNED AO. 2.2. ON FIRST APPEAL, THE LEARNED CITA DULY APPREC IATED THE CONTENTIONS OF THE ASSESSEE THAT MOST OF THE LOANS BORROWED BY THE ASS ESSEE ARE ONLY BROUGHT FORWARD LOANS FROM EARLIER YEARS AND DURING THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAD BORROWED LOAN FROM SARVAPRATHAM INVESTMENTS LTD AT THE INTEREST RATE OF 12% PER ANNUM. MOREOVER, THE LEARNED CITA FOUND THAT THE PARTY WISE DETAILS OF UNSECURED LOANS AND INTEREST PAID THEREON TOGETHER WITH THE R ESPECTIVE RATE OF INTEREST WAS FURNISHED BEFORE THE LEARNED AO AND MAXIMUM INTERES T RATE WAS RANGING FROM 9 TO 15% PER ANNUM AND LOANS WERE BORROWED FROM RELATED PARTIES AND FROM UNRELATED PARTIES. THE LEARNED CITA ALSO OBSERVED THAT EVEN THE BANK LOANS BORROWED BY THE ASSESSEE WERE AT AN INTEREST RATE OF 12.5% TO 14% P ER ANNUM. ACCORDINGLY, THE LEARNED CITA DELETED THE ADDITION MADE IN THIS REGA RD. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- ITA NO. 104/KOL/2013-C-AM M/S. BERRY & CO.. 3 2 LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT TH AT THE INTEREST RATE BEING EXCESSIVE THE AO APPLIED THE LOWEST AVAI LABLE RATE OF 9% AT WHICH THE LOAN HAS BEEN TAKEN FROM SISTER/GROUP CON CERNS AGAINST ALL THE LOANS TAKEN. FURTHER THE ASSESSEE HAS CLAIMED H IGHER RATE OF INTEREST ON UNSECURED LOANS INSPITE OF THE FACT THA T THERE WAS HUGE FUND/CAPITAL AVAILABLE WITH THE ASSESSEE WHICH HAS ULTIMATELY BEEN ADVANCED TO SOME PARTIES INTEREST FREE. 2.3. THE LEARNED DR VEHEMENTLY RELIED ON THE ORDE R OF THE LEARNED AO. IN RESPONSE TO THIS, THE LEARNED AR REITERATED THE FACTUAL SUBM ISSIONS MADE BY HIM BEFORE THE LOWER AUTHORITIES AND ARGUED THAT THE LEARNED AO HA D ADOPTED 9% RATE OF INTEREST AS REASONABLE INTEREST IN RESPECT OF LOANS FROM UNRELA TED PARTIES WITHOUT MENTIONING THE SECTION UNDER WHICH HE IS DISALLOWING THE INTEREST PAID. THE LEARNED AR ARGUED THAT EVEN OTHERWISE AN ADDITION IS TO BE MADE, IT CANNOT BE MADE U/S 40A(2)(B) OF THE ACT IN RESPECT OF INTEREST PAID TO UNRELATED PARTIES. HEN CE HE ARGUED THAT IN ANY CASE, THE DISALLOWANCE OF INTEREST PAID TO UNRELATED PARTIES TO THE EXTENT OF RS. 7,75,135/- CANNOT BE MADE AT ALL. HE FURTHER ARGUED THAT IN RESPEC T OF INTEREST PAID TO RELATED PARTIES, THE LEARNED AO HAD ADOPTED THE LEAST OF THE BORROWING R ATES AND HAD CONSIDERED THAT TO BE THE REASONABLE RATE OF INTEREST WITHOUT BRINGING AN Y MATERIAL ON RECORD WITH REGARD TO THE FAIR MARKET RATE OF INTEREST. HE FURTHER ARGUE D THAT EVEN THE SECURED LOANS WERE BORROWED FROM BANK BY THE ASSESSEE AT AN INTEREST R ATE RANGING FROM 12.5% TO 14% AND HENCE IN THESE CIRCUMSTANCES, THE INTEREST PAID ON UNSECURED LOANS TO RELATED PARTIES AT THE RATE OF 9 TO 12 % IS VERY REASONABLE AND HENCE THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT CANNOT BE APPLIED IN THIS CASE. 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LEARNED CITA HAD GIVEN CAT EGORICAL FINDINGS WITH REGARD TO THE ENTIRE FACTUAL MATRIX OF THE CASE IN HIS APPELL ATE ORDER. FOR THE SAKE OF BREVITY, THE FACTS STATED THEREON ARE NOT REITERATED HEREIN. WE FIND THAT THE ACTION OF THE LEARNED AO IN ADOPTING THE LOWEST RATE OF INTEREST ON UNSEC URED LOANS FROM RELATED PARTIES AT THE RATE OF 9% IS NOT APPRECIATED FOR THE SIMPLE RE ASON THAT EVEN THE SECURED LOANS ITA NO. 104/KOL/2013-C-AM M/S. BERRY & CO.. 4 RECEIVED FROM BANK BY THE ASSESSEE WAS BORROWED AT THE INTEREST RATES OF 12.5% TO 14%. HENCE LOGICALLY THE UNSECURED LOANS ARE NORMA LLY SUPPOSED TO BE BORROWED AT HIGHER RATE OF INTEREST. BUT IN THE INSTANT CASE, T HE SITUATION IS REVERSE. THE LEARNED CITA HELD THAT THE LOANS BORROWED WERE GENUINE LOAN S AND WERE BORROWED FOR THE PURPOSE OF BUSINESS AND HELD THAT THE LEARNED AO HA D NOT BROUGHT ANY MATERIAL ON RECORD TO ESTABLISH THAT THE PREVAILING MARKET RATE OF INTEREST ON UNSECURED LOAN IS LOWER THAN WHAT THE ASSESSEE HAD PAID. MOREOVER, THE INT ENTION BEHIND INTRODUCTION OF SECTION 40A(2)(B) OF THE ACT IS ONLY TO ENSURE THAT THE ASSESSEE SHOULD NOT TAKE AWAY THE PROFITS OF THE BUSINESS BY PAYING BUSINESS EXPE NDITURES TO RELATED PARTIES IN ORDER TO AVOID TAX LIABILITY. BUT WE FIND THAT THIS INTENT ION IS TOTALLY ABSENT AND THE ASSESSEE HAD ACTUALLY CONDUCTED ITS BUSINESS IN THE SITUATIO N COMPLETELY FAVOURABLE TO THE REVENUE AND HENCE THERE CANNOT BE ANY DISALLOWANCE OF INTEREST U/S 40A(2)(B) OF THE ACT OR ANY OTHER SECTION IN THE INCOME TAX ACT IN T HE FACTS AND CIRCUMSTANCES OF THE CASE. 2.4.1. WE ALSO FIND THAT THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY IN ASST YEARS 2007-08 & 2008-09 AND NO DISALLOWANCE WAS MADE BY T HE LEARNED AO IN THIS REGARD EVEN THOUGH THE MAJORITY OF THE LOANS ARE ONLY BROU GHT FORWARD FROM EARLIER YEARS. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD BORROWED LOAN DURING THE YEAR ONLY FROM ONE PARTY I.E SARVAPATHAM INVESTMENTS LTD AT THE INTEREST RAT E OF 12%. WE HOLD THAT WHEN THE LOANS WERE BORROWED FOR THE PURPOSE OF BUSINESS ON WHICH FACT THERE IS ABSOLUTELY NO DISPUTE, THEN THERE CANNOT BE ANY DISALLOWANCE OF I NTEREST, MORE SO, IN THE FACTS AND CIRCUMSTANCES OF THIS CASE WHERE THE INTEREST PAID ON UNSECURED LOANS IS LESS THAN INTEREST PAID TO BANK ON SECURED LOANS. 2.4.2. WE ALSO FIND THAT THE LEARNED AO HAD ADOPTE D EVEN THE INTEREST PAID ON UNSECURED LOANS TO UNRELATED PARTIES AS EXCESSIVE O R UNREASONABLE WITHOUT APPRECIATING THE FACT THAT THE PROVISIONS OF SECTION 40A(2)(B) O F THE ACT ITSELF WOULD NOT BE APPLICABLE THEREON. ITA NO. 104/KOL/2013-C-AM M/S. BERRY & CO.. 5 2.4.3. WE ALSO FIND THAT THE ONE OF THE REASONS F OR REACHING TO THE CONCLUSION THAT THE INTEREST PAID ON UNSECURED LOANS IS EXCESSIVE OR UN REASONABLE BY THE LEARNED AO IS THAT THE ASSESEEE HAD GIVEN INTEREST FREE LOANS AND ADVANCES. FROM THE PERUSAL OF DETAILS AVAILABLE ON RECORD, WE FIND THAT THESE ADV ANCES REPRESENT STAFF ADVANCE, SECURITY DEPOSITS, INCOME TAX REFUNDABLE AND TRADE ADVANCES TO BUSINESS PARTIES. IT IS NOT EVEN THE CASE OF THE LEARNED AO THAT THE BORROW ED FUNDS WERE DIVERTED FOR ADVANCING INTEREST FREE ADVANCES TO RELATED CONCERN S. WE FIND THAT EVEN MAJORITY OF THESE ADVANCES WERE MADE BY THE ASSESSEE IN THE EAR LIER YEARS. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES, W E HOLD THAT THE LEARNED CIT(A) HAD DEALT WITH THIS ISSUE ELABORATELY AND WE FIND NO IN FIRMITY IN HIS ORDER AND ACCORDINGLY, THE GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 3. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LEARNED CITA IS JUSTIFIED IN RESTRICTING THE DISALLOWANCE OF REPAIR S AND MAINTENANCE AND COOLIE AND CARTAGE EXPENSES TO 10% AS AGAINST 15% MADE BY THE LEARNED AO ON AN ESTIMATED BASIS IN RESPECT OF SELF MADE VOUCHERS. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE DEBITED REPAIRS AND MAINTENANCE AND COOLIE AND CARTAGE EXPENSES TO THE EXTENT OF RS . 5,19,376/- AND RS. 37,70,167/- IN ITS PROFIT AND LOSS ACCOUNT AND CLAIMED THE SAME AS DEDUCTION. THE LEARNED AO MECHANICALLY PROCEEDED TO MAKE DISALLOWANCE AT THE RATE OF 15% OF THE AFORESAID EXPENDITURE ON AN ESTIMATED BASIS AS THE VOUCHERS A RE ONLY SELF MADE AND HENCE THE POSSIBILITY OF INFLATION OF EXPENDITURE COULD NOT B E RULED OUT. ON FIRST APPEAL, THE LEARNED CITA RESTRICTED THE DISALLOWANCE TO 10% FOR THE SAME REASON. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GRO UNDS:- 3. THE LD.CIT(A) HAS ERRED IN RESTRICTING THE DISAL LOWANCE ON ACCOUNT OF REPAIRS AND MAINTENANCE TO 10% WITHOUT C ONSIDERING THE ITA NO. 104/KOL/2013-C-AM M/S. BERRY & CO.. 6 FACT THAT THE ASSESSEE HAS COMPLETELY FAILED TO PRO DUCE/FURNISH ALL BILLS/VOUCHERS AND COULD NOT PRODUCE THE GENUINENES S OF EXPENSES TO THE EXTENT OF RS.5,19,376/- AND WHEN ACCORDING TO HIS O PINION EXPENSES ON ACCOUNT OF REPAIRS AND MAINTENANCE WERE SUPPORTED B Y SELF MADE VOUCHERS WHERE THERE IS EVERY POSSIBILITY TO INFLAT E THE EXPENDITURE. 4. THE CIT(A) HAS ERRED IN RESTRICTING THE DISALLOW ANCE ON ACCOUNT OF COOLIE AND CARTAGE TO 10% WITHOUT CONSID ERING THE FACT THAT THE ASSESSEE HAS COMPLETELY FAILED TO PRODUCE/FURNI SH ALL BILLS/VOUCHERS AND COULD NOT PRODUCE THE GENUINENESS OF EXPENSES T O THE EXTENT OF RS.31,71,626/- AND WHEN ACCORDING TO HIS OPINION EX PENSES ON ACCOUNT OF COOLIE AND CARTAGE WERE SUPPORTED BY SELF MADE V OUCHERS WHERE THERE IS EVERY POSSIBILITY TO INFLATE THE EXPENDITU RE. 3.2. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDE R OF THE LEARNED AO. IN RESPONSE TO THIS, THE LEARNED AR VEHEMENTLY SUPPORT ED THE ORDER OF THE LEARNED CIT(A). 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT BOTH THE LOWER AUTHORITIES HA D COME TO A CONCLUSION THAT THE POSSIBILITY OF INFLATING THE EXPENDITURES BY WAY OF SELF MADE VOUCHERS CANNOT BE RULED OUT WHICH FACT IS NOT REFUTED BY THE LEARNED AR. HENCE IN THESE FACTS AND CIRCUMSTANCES, WE FIND TO MEET THE ENDS OF JUSTICE, DISALLOWANCE MADE BY THE LEARNED CITA IS REASONABLE AND HENCE WE DO NOT FIND ANY REA SON TO INTERFERE WITH HIS ORDER. ACCORDINGLY, THE GROUND NOS. 3 & 4 RAISED BY THE RE VENUE ARE DISMISSED. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 27 / 1 1 /2015 SD/- ( MAHAVIR SINGH, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 27 /11/2015 ITA NO. 104/KOL/2013-C-AM M/S. BERRY & CO.. 7 1. . THE APPELLANT: ACIT, CIR-34, AAYKAR POORVA, 7 TH FL., 110 SHANTIPALLY, KOL-107. . 2 THE RESPONDENT-M/S. BERRY & CO. P-12 BAIYU CHOWK B LDG, NEW HOWRAH BRIDGE APPROACH RD, BRABOURNE RD, KOL-1 3 / THE CIT, 4.THE CIT(A) 5 . DR, KOLKATA BENCH 6 . GUARD FILE . TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS COPY OF THE ORDER FORWARDED TO:-