Southern India Bidi Works Pvt.Ltd., Baroda V. The Addl.CIT.,Range-4, Baroda

ITA 1118/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1259 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 22-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD .., , !' BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ I.T.A. NO.1118/AHD/2013 ( / ASSESSMENT YEAR : 2009-10) SOUTHERN INDIA BIDI WORKS PVT.LTD. GORDHANBHAI JETHABHAI COMPOUND NR. POST OFFICE AT & POST BAJWA BARODA 391 310 / VS. THE ADDL.CIT RANGE-4 AAYAKARBHAVAN BARODA $ ./ ./ PAN/GIR NO. : AACCS 9802 M ( $' / APPELLANT ) .. ( ()$' / RESPONDENT ) $'* / APPELLANT BY : SHRI TUSHAR P. HEMANI, AR ()$'+* / RESPONDENT BY : SHRI K. MADHUSUDAN, SR.DR ,+ / DATE OF HEARING 14/06/2016 -./+ / DATE OF PRONOUNCEMENT 22/06/2016 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-III, BARODA D ATED 08/02/2013 FOR THE ASSESSMENT YEAR 2009-10. ITA NO. 1118/AH D/2013 SOUTHERN INDIA BIDI WORKS PVT.LTD. VS. ADDL.CIT ASST.YEAR 2009-10 - 2 - 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- 2.1. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF BEEDIES. THE ASSESSEE ELECTRONICA LLY FILED ITS RETURN OF INCOME FOR AY 2009-10 ON 08/09/2009 DECLARING TO TAL INCOME AT RS.NIL AFTER CLAIMING SET OFF BROUGHT FORWARD BUSIN ESS LOSS. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') VIDE ORDER DATED 09/11/2011 AND THE TOTAL IN COME, BEFORE SET OFF OF BROUGHT FORWARD BUSINESS LOSS, WAS DETERMINED AT RS. 1,89,46,781/-. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A), WHO VIDE ORDER DATED 08/02/2013 (IN APPE AL NO.CAB/III- 151/2011-12) DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), ASSESSEE IS NOW IN APPEAL B EFORE AND HAS RAISED FOLLOWING GROUNDS:- 1.00 ON THE FACTS AND CIRCUMSTANCES OF YOUR APPELLA NTS CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S)-III, BARODA (LD.CIT(A) IN SHORT) HAS ERRED IN PASSING ORDER MERELY RELYING ON PREDECESSORS ORDER FOR AY 2007-0 8 WITHOUT BRINGING INDEPENDENT FINDING OF HIS OWN. 2.00 ON THE FACTS AND IN THE CIRCUMSTANCES OF YOUR APPELLANTS CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN CONFIRMING D ISALLOWING IN RESPECT OF INTEREST PAID ON UNSECURED LOANS TO CERT AIN DEPOSITORS ON WRONG PLEA THAT YOUR APPELLANT FAILED TO ESTABLI SH COMMERCIAL EXPEDIENCY IN PAYING INTEREST AT THE RATE OF 18% TO SUCH DEPOSITORS. ITA NO. 1118/AH D/2013 SOUTHERN INDIA BIDI WORKS PVT.LTD. VS. ADDL.CIT ASST.YEAR 2009-10 - 3 - 3.00 ON THE FACTS AND IN THE CIRCUMSTANCES OF YOUR APPELLANTS CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN CONFIRMING D ISALLOWANCE OF INTEREST PAID @ 18% ON UNSECURED LOANS CARRIED O VER SINCE PAST AND ON-REPAYMENT THEREOF WAS PURELY A COMMERCI AL AND BUSINESS DECISION. 4.00 THE LD.CIT(A) HAS FURTHER ERRED IN NOT CONSIDE RING DECISIONS RELIED UPON BY YOUR APPELLANT. 2.2. BEFORE US, AT THE OUTSET, LD.AR SUBMITTED THAT THOUGH THE ASSESSEE HAS RAISED VARIOUS GROUNDS, BUT THE SOLITARY ISSUE IS ABOUT THE DISALLOWANCE OF INTEREST PAYMENT. 2.3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE HAD PAID INTEREST OF RS.41,62,972/- ON THE UNSECURED LOANS BORROWED BY IT. FROM THE LIST OF PARTIES FROM WH OM ASSESSEE HAD BORROWED LOANS, AO NOTICED THAT ASSESSEE HAD PAID I NTEREST @18% TO THREE PARTIES; NAMELY, SHRI SIDDHARTHKUMAR P.PATEL, SMT. KALPNABEN S.PATEL AND SHREE SIDDHARTHKUMAR P.PATEL FAMILY TRU ST, ALL THESE PERSONS WERE COVERED U/S.40A(2)(B) OF THE ACT. HE ALSO NOT ICED THAT IN CASE OF OTHER PARTIES FROM WHOM ASSESSEE HAD BORROWED MONEY , ASSESSEE HAD PAID INTEREST @ 12%. THE ASSESSEE WAS THEREFORE AS KED TO JUSTIFY THE INTEREST @ 18% AND TO SHOW-CAUSE AS TO WHY THE EXCE SS INTEREST PAID NOT BE DISALLOWED TO WHICH THE ASSESSEE INTER-ALIA SUBMITTED THAT THE LOANS WHICH HAVE BEEN BORROWED FROM RELATIVES ARE UNSECUR ED LOSS INVOLVING HIGHER RISK TO THEM AND, THEREFORE, THEY WERE COMP ENSATED WITH HIGHER ITA NO. 1118/AH D/2013 SOUTHERN INDIA BIDI WORKS PVT.LTD. VS. ADDL.CIT ASST.YEAR 2009-10 - 4 - RATE OF INTEREST, THE PARTIES TO WHOM THE INTEREST WAS PAID FALL UNDER HIGHER TAX BRACKET AND, THEREFORE, THERE WAS NO LOS S TO REVENUE AND THAT THE MONEY WAS BORROWED TO MEET THE BUSINESS REQUIRE MENT AND WAS DRIVEN BY COMMERCIAL COMPULSIONS. THE SUBMISSION O F THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO AS HE WAS OF THE VIE W THAT ASSESSEE HAD KEPT SURPLUS FUNDS IN FIXED DEPOSITS IN THE BANK WH ICH WAS FETCHING LOW INTEREST INCOME AND AS A PRUDENT BUSINESS MAN, THER E WAS NO REASON TO BORROW MONEY AS UNSECURED LOAN AND PAY EXCESSIVE IN TEREST. HE ACCORDINGLY, DISALLOWED THE EXCESS INTEREST EXPENSE S CALCULATED AT 6% (18% - 12%) AND WORKED OUT THE INTEREST DISALLOWANC E AT RS.13,26,964/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A), WHO CONFIRMED THE ACTION OF THE AO BY HO LDING AS UNDER:- 4.3. I HAVE CONSIDERED THE FACTS OF THE CASE AND S UBMISSION MADE BY AR OF THE APPELLANT. SIMILAR ADDITIONS WERE MADE I N THE ASSESSMENT ORDER FOR A.Y. 2007-08 IN APPELLANTS OWN CASE. MY PREDECESSOR VIDE HIS ORDER IN APPEAL NO.CAB/III-95/10-11 DATED 29.11 .2010 HAS CONFIRMED THIS ADDITION AFTER MAKING DETAILED DISCU SSIONS IN THE BODY OF THE APPELLANT ORDER. THIS DECISION WAS FOLLOWED BY ME IN THE APPELLANT ORDER DATED 13.04.2012 FOR THE AY 2008-09 IN THE AP PELLANTS OWN CASE IN APPEAL NO.CAB/III-152/10-11. FOLLOWING THE SAME , IN THE CURRENT YEAR ALSO, THE ADDITION MADE BY THE A.O. IS CONFIRM ED AND THIS GROUND OF APPEAL IS DISMISSED. 2.3. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. ITA NO. 1118/AH D/2013 SOUTHERN INDIA BIDI WORKS PVT.LTD. VS. ADDL.CIT ASST.YEAR 2009-10 - 5 - 2.4. BEFORE US, LD.AR, AT THE OUTSET, SUBMITTED THA T WHILE CONFIRMING THE ACTION OF AO, LD.CIT(A) HAD MAINLY RELIED ON THE DE CISION OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR AY 2007-08. HE SUBMITTED THAT AGAINST THE ORDER OF LD.CIT(A) FOR AY 2007-08, ASSE SSEE HAD CARRIED THE MATTER BEFORE THE HONBLE TRIBUNAL AND THE HONBLE TRIBUNAL IN ITA NOS.1847/AHD/2011 AND 1113/AHD/2012 FOR AYS 2007-08 & 2008-09 RESPECTIVELY VIDE ORDER DATED 12/07/2013 HAD DECIDE D THE ISSUE IN FAVOUR OF ASSESSEE. HE ALSO PLACED ON RECORD THE COPY OF THE AFORESAID DECISION. HE THEREFORE SUBMITTED THAT SINCE THE INTEREST PAYM ENT HAVE BEEN ALLOWED IN PAST, THERE WAS NO REASON FOR DISALLOWING THE EX PENSES IN THE YEAR UNDER CONSIDERATION MORE SO WHEN THE PARTIES TO WH OM THE ASSESSEE HAD PAID INTEREST ARE SAME PARTIES TO WHOM THE INTEREST WAS PAID IN AYS 2007- 08 AND 2008-09. THE LD. AR SUBMITTED THAT SINCE TH E ADDITION IN AY 2007-08 WHICH WAS RELIED UPON BY THE LD.CIT(A) HAS BEEN DECIDED IN FAVOUR OF ASSESSEE, THEREFORE, FOLLOWING THE DECISI ON OF THE COORDINATE BENCH(SUPRA), THE PRESENT GROUND BE DECIDED IN FAV OUR OF ASSESSEE. ON THE OTHER HAND, LD.SR.DR DID NOT CONTROVERT THE SUB MISSIONS MADE BY THE LD.AR BUT HOWEVER SUPPORTED THE ORDERS OF THE AO A ND LD.CIT(A). 3. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO DI SALLOWANCE OF INTEREST EXPENDITURE U/S.40A(2)(B) OF THE ACT. WE FIND THAT THE LD.CIT(A) WHILE ITA NO. 1118/AH D/2013 SOUTHERN INDIA BIDI WORKS PVT.LTD. VS. ADDL.CIT ASST.YEAR 2009-10 - 6 - UPHOLDING THE ORDER OF AO HAD RELIED UPON THE DECIS ION OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR AY 2007-08. WE FURTHER FIND THAT AGAINST THE ORDER OF LD.CIT(A) FOR AY 2007-08, ASSE SSEE HAD CARRIED THE MATTER IN APPEAL BEFORE THE COORDINATE BENCH OF TRI BUNAL AND THE COORDINATE BENCH (ITAT A BENCH AHMEDABAD) HAD DEC IDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER:- 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT ADDITION OF RS.9,86,656/- HAS BEEN MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISION OF SECTION 40A(2) (A)OF THE ACT AS HE FOUND THAT INTEREST @ 18 % HAS BEEN PAID TO THE PERSONS COVERED U/S 40A(2)(A) WHILE INTEREST @ 12 % IN OTHE R CASES. THE ASSESSEE'S CONTENTION HAS BEEN THAT 18 % INTEREST P AYMENT WAS NOT ON HIGHER SIDE AS THE SAME RATE OF INTEREST WAS PAI D BY THE ASSESSEE TO THESE PARTIES IN EARLIER YEARS ALSO WHICH WAS AC CEPTED BY THE REVENUE. WE FURTHER FIND THAT IN THE CASES OF AMBIC A GINNING AND PRESSING P. LTD AND M/S. RAJ STEEL INDUSTRIES, THIS BENCH OF THE TRIBUNAL HAS HELD THAT 18 % RATE OF INTEREST ON SEC URED LOANS WAS REASONABLE AND ADDITION WAS CALLED FOR BY INVOKING THE PROVISIONS OF SEC. 46A(2)(A) OR THE ACT FOR PAYING INTEREST AT THIS RATE. RESPECTFULLY FOLLOWING THE SAME, WE ARE OF THE CONS IDERED OPINION THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKIN G THE PROVISIONS OF SEC. 40A(2)(A) OF THE ACT IN THIS CASE FOR MAKING T HE ADDITION OF RS.9,86,656/- AND THE ADDITION SO MADE/SUSTAINED IS HEREBY DELETED. 3.1. IN THE ABSENCE OF ANY DISTINCTIVE FEATURE POIN TED OUT BY THE REVENUE AND MORE SO WHEN THE PARTIES TO WHOM THE IN TEREST PAID BY THE ASSESSEE DURING THE IMPUGNED YEAR BEING THE SAME PA RTIES TO WHOM THE ITA NO. 1118/AH D/2013 SOUTHERN INDIA BIDI WORKS PVT.LTD. VS. ADDL.CIT ASST.YEAR 2009-10 - 7 - ASSESSEE HAD PAID THE INTEREST FOR AYS 2007-08 & 20 08-09, WE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDIN ATE BENCH AND FOR SIMILAR REASONS, ARE OF THE VIEW THAT NO DISALLOWAN CE OF INTEREST WAS CALLED FOR IN THE PRESENT CASE. WE THUS DIRECT THE DELETION OF ADDITION MADE BY THE AO. THUS, GROUND OF ASSESSEE IS ALLOWE D. 4. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 22/06/2016 SD/- SD/- .. () () ( R.P. TOLANI) ( ANIL CHATURVEDI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 22/ 06 /2016 3..,.../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ()$' / THE RESPONDENT. 3. 456 7 / CONCERNED CIT 4. 7 ( ) / THE CIT(A)-III, BARODA 5. 89:(56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<=, / GUARD FILE. / BY ORDER, )8( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD