ACIT, Kota V. HIMMATRAM JUHARMAL SARRAF, Kota

ITA 1058/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9682 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 02-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH MEENAJCIT
• Assessee Lawyers: P C PARWAL CA DHK
• Keywords: Rejection of books of accounts; Question of law
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH HKKXPUN] YS[KK LNL; ,OA JH DQY HKKJR] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM VK;DJ VIHY LA-@ ITA NO. 1058/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2013-14. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, KOTA. CUKE VS. M/S HIMMATRAM JUHARMAL SARRA F , RAMPURA BAZAR, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACFH1557R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI PRAKASH MEENA(JCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL(CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 09.03.2017. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 23 /03/2017. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT (A), KOTA, DATED 23.09.2016 PERTAINING TO ASSESSMENT YEAR 2013 -14. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN:- (I) DELETING ADDITION OF RS. 38,94,108/- MADE BY REJECT ING BOOKS OF ACCOUNT U/S 145(3) OF THE ACT; (II) DELETING ADDITION OF RS. 7,96,630/- MADE BY DISALLO WING INTEREST PAID TO PERSON SPECIFIED U/S 40A(2)(B) AT EXCESS RATE; (III) THE APPELLANT CRAVES LIBERTY TO RAISE ADDITIONAL GR OUND AND TO MODIFY/AMEND THE GROUND OF APPEAL AT THE TIME OF HE ARING. 2. BRIEFLY STATED THE FACTS ARE THAT THE CASE OF TH E ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S 143(3) O F THE INCOME TAX ACT, 1961 2 ITA NO. 1058/JP/2016 M/S HIMMATRAM JUHARMAL SARRAF. (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED BY THE ORDER DATED 8 TH JAN. 2016. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER NOTICED VARIOUS DEFECTS INTO THE BOOKS OF ACCOUNTS AND AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE PROFIT. TH EREBY, HE MADE TRADING ADDITION OF RS. 38,94,108/- AND ALSO MADE ADDITION BY INVOKI NG THE PROVISION OF SECTION 40A(2)(B) OF RS. 7,96,630/- AND ALSO MADE ADDITION ON ACCOUNT OF ADHOC DISALLOWANCE OF EXPENSES OUT OF SCOOTERS, CARS, CON VEYANCE, ENTERTAINMENT, SHOP AN TELEPHONE EXPENSES OF RS. 70,391/-. AGGRIEVED BY T HIS, THE ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT (A), WHO AFTER CONSIDERING TH E SUBMISSIONS PARTLY ALLOWED THE APPEAL. OUT OF THREE ADDITIONS, THE LD. CIT(A) CONF IRMED THE ADDITION OF RS. 70,391/- MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES REST OF THE ADDITION WAS DELETED. AGGRIEVED BY THIS, THE REVENUE HAS PREFERRED THE PR ESENT APPEAL. 2. GROUND NO. 1 OF REVENUES APPEAL IS AGAINST DELE TING THE ADDITION OF RS. 38,94,108/-. THE LD. DEPARTMENTAL REPRESENTATIVES SUBMITTED THAT THE LD. CIT (A) WAS NOT JUSTIFIED DELETING THE ADDITION. HE SUBMIT TED THAT THE ASSESSING OFFICER HAS EXAMINED THE BOOKS ON ACCOUNTS AND RECORD VARIOUS O BSERVATIONS. HE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 2.1 ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSESS EE SUPPORTED THE ORDER OF LD. CIT(A) AND ALSO PLACED RELIANCE ON THE FOLLOWING CA SE LAWS: (1) PCIT VS. BHAWANI SILICATE INDUSTRIES (2016) 236 TAXMAN 596 (RAJ.) (HC) (2) MALANI RAMJIVAN JAGANNATH VS. ACIT 316 ITR 120/ 207 CTR 19 (RAJ. (3) CIT V. GOTAN LIME KHANIZ UDYOG 256 ITR 243 (RAJ .) (4) PR. CIT VS. HUES INDIA LTD. 2015-TIOL-2275 (RAJ .) DT. 30-07-2015 (5) ITO VS. SWASTIK UDYOG 29 CCH 829 (JAIPUR) (TRIB .) 3 ITA NO. 1058/JP/2016 M/S HIMMATRAM JUHARMAL SARRAF. (6) PREM CABLES (P) LTD. VS. ASSTT. CIT 56 ITD 382 (JP). (7) CIT VS. SMT. POONAM RANI 326 ITR 223/41 DTR 194 (DEL.) (2010) (8) CIT VS. SAATAL KATTHA & CHEMICAL (P.) LTD. 296 ITR 197 (MP)(HC) (9) ST. TERESAS OIL MILLS VS. STATE OF KERALA 76 I TR 365 (KER.) (10) ACIT VS. NITROCHEM INDIA PVT. LTD. (2015) 43 C CH 54 (AHD.) (TRIB.) 2.2 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW . UNDER THE FACTS OF THE PRESENT CASE IT IS TO BE EXAMINED WHETHER THE ACTION OF THE ASSESSING OFFICER IS JUSTIFIED IN REJECTING BOOKS OF ACCOUNTS OF THE ASSESSEE. THE A SSESSING OFFICER REJECTED BOOKS OF ACCOUNTS BY OBSERVING THAT THE ASSESSEE HAS FAILED TO BRING ANY EVIDENCE TO REBUT THE DEFECTS POINTED OUT TO HIM, DURING THE EXAMINAT ION OF BOOKS OF ACCOUNTS. THE LAW IS WELL- SETTLED THAT THE ASSESSING OFFICER CAN REJECT BOOKS OF ACCOUNT, IF HE IS SATISFIED THAT THE ACCOUNTS SO PLACE BEFORE HIM OR FROM THE MATERIAL SO GATHERED DURING THE ASSESSMENT PROCEEDING, THE ACCOUNTS OF T HE ASSESSEE ARE NOT REFLECTING TRUE AND FAIR PICTURE OF THE PROFIT. HOWEVER, IN T HE PRESENT CASE, WE FIND THAT THE LD. CIT(A) HAS CONSIDERED ALL THE OBJECTION OF THE ASSE SSING OFFICER. WE AGREE WITH THE REASONING OF THE LD. CIT(A) THAT THE OBJECTIONS OF THE ASSESSING OFFICER ARE SUPERFICIAL BASED UPON PRESUMPTION AND NOT UPON THE MATERIAL EV IDENCE. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE INTO THE ORDER OF THE L D. CIT (A), SAME IS HEREBY AFFIRM. 3. GROUND NO. 2 IS AGAINST THE DELETION OF ADDITION OF RS. 7,96,630/- WHICH WAS MADE BY DISALLOWING THE INTEREST TO THE PERSON SPEC IFIED U/S 40A(2)(B) OF THE ACT. THE LD. DEPARTMENTAL REPRESENTATIVES SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT LD. CIT WAS NOT JUSTIFIED IN DEL ETING THE ADDITION. HE SUBMITTED 4 ITA NO. 1058/JP/2016 M/S HIMMATRAM JUHARMAL SARRAF. THAT THE ASSESSEE HAD CLAIMED EXCESSIVE INTEREST AT THE RATE OF 15%. HOWEVER, THE ASSESSING OFFICER TREATED 12% AS REASONABLE PER CON TRA, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE DECISION OF THE CO-ORD INATE BENCH RENDERED IN THE CASE OF M/S UTTAM POLYRUBS INDIA PVT. LTD. VS. ACIT IN I TA NO. 570/JP/2015. HE SUBMITTED THAT THE CO-ORDINATE BENCH HAS ALLOWED UN DER IDENTICAL FACTS INTEREST AT THE RATE OF 18%. 3.1 WE HAVE CONSIDERED, THE RIVAL CONTENTIONS, THAT THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE DECISION OF THE C O-ORDINATE BENCH, WHEREIN THE CO-ORDINATE BENCH IN ITA NO. 570/JP/2015 HAS DECIDE D THE ISSUE BY HOLDING AS UNDER: 2.4 WE HAVE GONE THOUGH THE RIVAL SUBMISSIONS AND THE P ERUSED THE MATERIAL ON RECORD. IT IS NOTED THAT DISALLOWANCE OF RS. 2,26,176/- HAS BEEN MADE BY THE AO ON ACCOUNT OF EXCESSIVE INTEREST @ 21% PAID TO THE PERSONS SPECIFIED U/S 40 A(2)(B) OF THE IT ACT. THE AO THEREAFTER GAVE A SHOW CAUSE NOTICE TO THE APPELLANT AS TO WHY THE IN TEREST PAYMENT MADE TO SPECIFIED PERSONS ON UNSECURED LOANS BE NOT RESTRICTED TO 18% AND THE EX CESSIVE PAYMENT OF 3% INTEREST BE DISALLOWED. IT IS THUS NOTE THAT THE AO AT THE TIME OF ISSUANCE OF SHOW-CAUSE HAS NOT BROUGHT ON RECORD ANY BASIS OR JUSTIFICATION FOR SUGGESTING RATE OF INTER EST @ 18% AS REASONABLE RATE OF INTEREST. SUBSEQUENTLY, BASED ON REPLY FILED BY THE APPELLANT , THE AO STATED THAT THE APPELLANT HAS ITSELF CONFIRMED THE FACT THAT EVEN THE MAXIMUM RATE OF IN TEREST ON BANK LOANS AMOUNTS TO 18% ON CUMULATIVE BASIS AND HE ACCORDINGLY CONFIRMED THE D ISALLOWANCE OF INTEREST IN EXCESS OF 18%. HERE, WHAT NEEDS TO BE APPRECIATED IS THAT THE AO THE LD. CIT(A) HAVE FAILED TO APPRECIATE THE DISTINCTION BETWEEN A SECURED LOAN AND AN UNSECURED LOAN. THE SECURED LOAN COMPARATIVELY CARRIED A LOWER RISK ELEMENT AS COMPARED TO AN UNSECURED LOAN AND B ASIS THE RISK ASSESSMENT AND OTHER CONSIDERATIONS, IT TYPICALLY CARRIED A LOWER RATE O F INTEREST. IN THE INSTANT CASE, THE APPELLANT HAS TAKEN UNSECURED LOAN AND AN APPROPRIATE COMPARISON WOULD HAVE BEEN THE RATE PREVALENT IN THE MARKET VIS-A-VIS UNSECURED LOAN. APPARENTLY, THE A PPELLANT HAS STATED THAT THE PREVAILING MARKET RATE OF INTEREST ON UNSECURED LOANS WAS 24%. HOWEV ER, NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO TO SUGGEST WHAT THE APPELLANT HAS STATED TO BE INCORRECT OR THERE IS A BETTER COMPARISON WHICH IS AVAILABLE. WE HAVE GONE THROUGH THE JUDGMENT OF HONBLE PUNJAB AND HARYANA HIGH COURT IN CASE OF RAMESH CHAND (HUF) (SUPRA). IN THAT CASE, ADDITION WAS MA DE IN APPELLANTS CASE BECAUSE OF HIGHER RATE OF INTEREST PAID BY APPELLANT TO HIS MOTHER AS AGAINST MARKET RATE. THE HIGH COURT CONFIRMED THE ADDITION OF GROUND THAT SINCE TRANSACTION IN QUESTI ON WAS NOT A GENUINE AN BONA FIDE TRANSACTION, TRIBUNAL WAS JUSTIFIED IN CONFIRMING ADDITION OF IN TEREST PAID ON OLD LOAN AT HIGHER RATE OF INTEREST BY APPLYING PROVISIONS OF SECTION 40A(2)(B) AND NO QUESTION OF LAW ARISES. IN THE INSTANT CASE, THERE IS NO SUCH ALLEGATION OR FINDING OF THE LOWER AUTHORITIES THAT THE SUBJECT LOAN TRANSACTION WAS NOT A GENUINE TRANSACTION. HENCE, THIS DECISION IS NO HELP TO THE REVENUE. 5 ITA NO. 1058/JP/2016 M/S HIMMATRAM JUHARMAL SARRAF. WE HAVE ALSO GONE THROUGH THE DECISION OF HONBLE G UJARAT HIGH COURT IN CASE OF ADITYA MEDISALES LTD. (SUPRA) AND FINDS THAT THE SAME SUPPORT THE CA SE OF THE APPELLANT. IN THAT CASE, THE COURT HAS NOTED THAT THE INTEREST ON UNSECURED BORROWINGS IS ALWAYS HIGHER THAN THE RATE OF INTEREST PAID TO THE BANKS OR FINANCIAL INSTITUTION FROM WHERE THE L OANS RAISED ARE SECURED LOAN, AND HAVE ACCORDINGLY ACCEPTED INTEREST PAID TO SUN PHARMACEU TICALS AT THE RATE OF 24% TO BE REASONABLE. IN LIGHT O THE ABOVE, WE ARE OF THE VIEW THAT LD. C IT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS. 2,26,176/- ON ACCOUNT OF INTERE ST PAID BY THE APPELLANT TO SPECIFIED PERSONS U/S 40A(2)(B) OF THE IT ACT. HENCE, GROUND OF THE APPE LLANT IS ALLOWED. IN THE PRESENT CASE, THE ASSESSEE HAS PAID 15% TO T HE PERSONS SPECIFIED U/S 40A(2)(B) UNDER THE FACTS OF THE PRESENT CASE WE AG REE WITH THE LD. CIT(A) THAT THE INTEREST SO CLAIMED IS NOT IN EXCESSIVE TO THE MARK ET RATE. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE INTO THE ORDER OF THE LD. C IT(A), SAME IS HEREBY AFFIRM. THE GROUND IS RAISED BY THE REVENUE IS REJECTED. 4. GROUND NO. 3 IS GENERAL IN NATURE AND NEEDS NO S EPARATE ADJUDICATION. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 1058/JP/2016 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY , THE 23RD DAY OF MARCH 2017 . SD/- SD/- HKKXPUN] ( DQY HKKJR ) ( BHAGCHAND) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 23/03/2017. POOJA/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- ACIT, CIRCLE-2, KOTA. 2. THE RESPONDENT- M/S HIMMATRAM JUHARMAL SARRAF, K OTA 3. THE CIT(A). 6 ITA NO. 1058/JP/2016 M/S HIMMATRAM JUHARMAL SARRAF. 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 1058/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR