Shrikant Ghansshyamdas Darak, Bagalkot V. Income Tax Officer, Ward-1, Bagalkot

ITA 1119/BANG/2014

• Counselvise Citation: 111921114 RSA 2014
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 01-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: S VENKATESAN

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JM (SMC) ITA NO.1119(B)/2014 (ASSESSMENT YEAR : 2008-09) SHRI SHRIKANT GHANASHYAMDAS DARAK, C/O J.G.DARAK, H.L.SAREE MERCHANTS, ILKAL, TAL: HUNGUND. PAN NO.ABHPD5589M APPELLANT VS THE INCOME-TAX OFFICER, WARD-1, BAGALKOT RESPONDENT ASSESSEE BY : SHRI S. VENKATESAN, CA REVENUE BY : DR. P.K.SRIHARI, ADDL.CIT DATE OF HEARING : 20-08-2015 DATE OF PRONOUNCEMENT : 31-08 -2015 O R D E R PER SMT ASHA VIJAYARAGHAVAN, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A), BELGAUM, DATED 04-06-2014 FOR THE ASSESSMENT YEAR 2 008-09. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILE D ITS RETURN OF INCOME ON 27-09-2008 DECLARING AN INCOME OF RS.1,36 ,810/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT ON 15-10-2009 A ND THE RETURN WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) WAS SER VED ON THE ASSESSEE ON 19-09-2009. ITA NO.1119(BANG)2014 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESEE HAD PAID INTEREST TO DEPOSITORS I.E DARAK SALES CORPORATION,3G DARAK, CH ANPA S DARAK AND SUDHARSHAN TRADING COMPANY AT THE RATE OF 18%. TH ESE PERSONS ARE RELATED TO THE ASSESSEE AND SPECIFIED U/S 40A(2)(B) AND THE INTEREST WAS CONSIDERED EXCESSIVE WHEN COMPARED TO THE PREVAILI NG INTEREST RATE SCENARIO DURING THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR 2008-09. THE ASSESSEE HAD BORROWED AT A HIGHER RATE AND LENT THE MONIES TO A SISTER CONCERN AT LOWER RATE. THEREFORE, THE INTEREST PAID IN EXCESS OF 15% IS CONSIDERED AS EXCESSIVE U/S 40A(2)(A) AND DISALLOWE D BY THE AO. THE DISALLOWANCE WAS AMOUNTING TO RS.3,03,232/- . 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A). 5. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED AS FOL LOWS; I) THAT THE UNSECURED LOANS ARE SINCE FROM THE BEG INNING OF THE BUSINESS, IN EARLIER YEARS ALSO ASSESSEE HAS PAID T HE INTEREST. II) THAT THE ASSESEE BORROWED UNSECURED LOAN FROM F AMILY MEMBERS AS IT IS EASILY MADE AVAILABLE TO HIM. IV) THAT THE NORMAL RATE OF INTEREST ON CASH CREDI T VARIES FROM 18% TO 24% IN THE MARKET ON COMPOUND INTEREST BASIS. V) THAT THE ASSESSEE WAS FORCED TO OPT FOR UNSECURE D LOANS FROM FAMILY MEMBERS AND RELATIVES AS OTHER SOURCES WERE COSTLY BECAUSE TO MAKE ARRANGEMENT FOR SECURITY LOAN OR CASH CREDIT PROCES SING CHARGES, REGISTRATION CHARGES, ETC. WERE TO BE INCURRED FOR LOANS OTHER THAN THE UNSECURED LOANS. ITA NO.1119(BANG)2014 3 VII) THAT IN THE ORDER OF ASSESSMENT THE ASSESSING AUTHORITY HAS NOT BROUGHT ON RECORD THE REASON FOR TREATING THE INTER EST RATE ADOPTED BY THE ASSESSEE AS HIGH. ASSESSEE HAS ENCLOSED THE ORDER C OPY OF APPELLATE TRIBUNAL OF AHMEDABAD A BENCH, WHICH GIVES THE RE ASONABLENESS TO THE CLAIM OF THE ASSESSEE ON PAYMENT OF INTEREST @18% O N UNSECURED LOANS. VIII) THE RECIPIENTS OF THE INTEREST HAVE ALREADY D ECLARED THIS RECEIPT OF INTEREST AS INCOME IN THEIR RETURNS. THE TDS PROVIS IONS AS REQUIRED U/S 194A HAVE BEEN COMPILED BY THE ASSESSEE. 6. THE CIT(A) HAS HELD AS UNDER; BY LENDING THE MONEY AT A LOWER RATE TO ANOTHER SI STER CONCERN THE ASSESSEE HAS ITSELF STANDARD FOR THE FA IR MARKET VALUE OF THE GOODS/SERVICES/FACILITIES AS ENVISAGED BY SECTION 40A(2)(A)A AND AVAILED BY THE ASSESSEE WHICH SHOULD BE APPLIED TO THE ASSESSEE HIMSELF. IN THE CASE LAW QUOTED BY THE ASSESSEE, THE FACTS ARE DIFFERENT IN AS MUCH AS THE ASSESSEE IN THAT CASE HAD NOT LENT LOANS TO SISTER CONCERNS AT A LOWER RATE. IN THIS VIEW OF THE MATTER, I AM OF THE VIEW THAT THE ACTION OF THE AO IN TREATING THE INTEREST PAID @18% AS EXCESSIVE AND ADOPTING THE RATE OF INTEREST @15% AS REASONABLE IS CORRECT IN THE FACTS AND THE CIRCUMST ANCES OF THIS CASE. THEREFORE, THE ADDITION OF RS.3,03,232 /- MADE BY THE AO IS SUSTAINED. 7. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.1119(BANG)2014 4 8. THE LEARNED COUNSEL FOR THE ASSESSEE SRI VENKATE SAN, BROUGHT TO OUR NOTICE THAT THE UNSECURED LOANS ARE FROM THE CO MMENCEMENT OF THE BUSINESS AND THE ASSESSEE HAD PAID INTEREST IN THE EARLIER YEARS ALSO. 8.1 THE LEARNED COUNSEL ALSO POINTED OUT THAT NORMA L RATE OF INTEREST ON CASH CREDIT IS ALSO FROM 18 TO 24% IN THE MARKET ON COMPOUNDED INTEREST BASIS. THE ASSESSEE HAD ALSO BORROWED UNS ECURED LOAN FROM THE FAMILY MEMBERS AS IT IS EASIER TO OBTAIN LOAN FROM RELATIVES AND FAMILY MEMBERS RATHER THAN THE BANK OR ANY FINANCIAL INSTI TUTIONS. THE ASSESSEE HAD TO TAKE THESE LOANS OUT OF BUSINESS EXPEDIENCY. 9. THE LEARNED DR RELIED ON THE ORDER OF THE ASSESS ING OFFICER. THE LEARNED COUNSEL HAS SUBMITTED THAT IN THE CASE OF C IT VS SRIDEVI ENTERPRISES, THE HONBLE KARNATAKA HIGH COURT HAS H ELD THAT SINCE THERE WAS NO DISALLOWANCE IN THE PAST YEARS WHEN MONEYS HAD BEEN ADVANCED THE OPENING BALANCE COULD NOT BE CONSIDERED IN THIS YEAR. IT WAS FURTHER HELD BY THE KARNATAKA HIGH COURT THAT AMOUNT DUE ON THE FIRST DAY OF THE ACCOUNTING YEAR WAS THE AMOUNT STOOD OUTSTANDING ON THE LAST DAY OF THE PREVIOUS YEAR AND THEREFORE, ITS NATURE AND STATUS COULD NOT BE DIFFERENT AS ON THE LAST DAY OF THE PREVIOUS YEAR. IN VIEW THE DECISION OF THE HONBLE KARNATAKA HIGH COURT THAT, WOULD NOT BE EQUITABLE T O PERMIT THE REVENUE TO TAKE A DIFFERENT STAND NOW IN RESPECT OF THE AMO UNTS WHICH WERE THE SUBJECT MATTER OF PREVIOUS YEARS ASSESSMENTS. ITA NO.1119(BANG)2014 5 10. IN THE PRESENT CASE, BEFORE US SINCE THE LOANS ARE FROM THE BEGINNING OF THE BUSINESS THE DECISION OF THE HONB LE KARNATAKA HIGH COURT SQUARELY APPLIES IN THIS CASE IN FAVOUR OF TH E ASSESSEE. THE LEARNED COUNSEL ALSO RELIED ON THE DECISION OF THE AHMEDABA D BENCH OF THE TRIBUNAL IN THE CASE OF M/S EXCESS ENGINEERS VS ITO IN ITA NO.92(AHD.)/2010 DATED 14-12-2012 WHEREIN IT WAS HE LD THAT THE INTEREST PAYMENT OF 18% HAS BEEN HELD AS REASONABLE. THEREF ORE, WE ARE OF THE OPINION THAT BOTH THE LOWER AUTHORITIES TREATING TH E INTEREST PAYMENT AT 18% AS EXCESSIVE AND ADOPTING THE RATE OF 15% AS RE ASONABLE IS INCORRECT. THE ADDITION OF RS.3,33,232/- IS HEREBY DELETED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 31 ST AUGUST, 2015. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER D A T E D : 26-08-2015 PLACE: BANGALORE AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE