ACIT, Kota V. M/S BAL KISHAN NYATI HUF, BUNDI

ITA 1122/JPR/2011

• Counselvise Citation: 112223114 RSA 2011
• Duration Of Justice: 2 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 23-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL; D C SHARMA
• Assessee Lawyers: TANUJ AGARWAL
• Keywords: Fair market value

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. ME ENA) ITA NO. 1122/JP/2011 ASSESSMENT YEARS : 2008-09 PAN : AAAHN 5696 M THE ACIT VS. M/S. BAL KISHAN NYALI (HUF) CIRCLE- 1 KATRA SHRI BALAJI INDUSTRIES KOTA CHITTOR ROAD, BUNDI (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI D.C. SHARMA & SHRI A.K. KHAN DELWAL ASSESSEE BY : SHRI TANUJ AGARWAL DATE OF HEARING: 16-07-2014 DATE OF PRONOUNCEMENT: 25-07-2014 ORDER PER R.P. TOLANI, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF THE LD. CIT(A), KOTA DATED 28-10-2011 FOR THE ASSESSMENT YEAR 2008-09 WHEREIN THE REVENUE HAS RAISED FOLLOWING GROUNDS IN ITS APP EAL. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN :- (I) DELETING THE DISALLOWANCE OF RS. 57,330/- AS INTEREST CLAIMED ON PERSONAL LOAN. (II) DELETING THE DISALLOWANCE OF RS. 6,17,878/- ON EXCESS INTEREST U/S 40A(2)(B), THEREBY IGNORING THE CASE OF CIT VS. M/S. ABHISHEK INDUSTRIES (P) LTD. ( P&H) (286 ITR 1) 2 (III) DELETING THE ADDITION OF RS. 7,59,236/- ON ACCOUNT OF LOW YIELD OF RICE AND IGNORING THE COMP ARABLE CASE OF SHRI JAI RAM ROHIDA PROP. M/S. SUBH LAXMI INDUSTRIES, BUNDI FOR THE SAME ASSESSMENT YEAR, QUO TED BY THE AO. (IV) THE APPELLANT CRAVES LIBERTY TO RAISE ADDITIONAL GROUND AND TO MODIFY/ AMEND THE GROUND O F APPEAL AT THE TIME OF HEARING. 2.1 THE GROUND NO (IV) OF THE REVENUE IS GENERAL IN NATURE WHICH NEEDS NO ADJUDICATION. 3.1 APROPOS GROUND NO. (I) IN RESPECT OF CLAIM OF INTEREST ON PERSONAL LOAN. THE LD. DR RELIED ON THE ORDER OF THE AO . 4.1 APROPOS GROUND NO. (II), THE LD. DR CONTENDS T HAT THE AO FOUND THAT THE ASSESSEE WAS PAYING INTEREST @ 6% TO UNRELATED PARTY SHRI BHAGAT RAM DARAK WHEREAS THE LOAN AMOUNT RECEIVED FROM THE RE LATIVES, THE ASSESSEE WAS PAYING INTEREST @ 18% PER ANNUM. THIS WAS FOUND TO BE AN EXCESSIVE PAYMENT OF EXPENDITURE TO RELATED PERSONS U/S 40A(2 ) OF THE I.T. ACT, 1961. THE AO ALLOWED THE INTEREST @ 15% TO RELATIVES IN P LACE OF 18% CLAIMED BY THE ASSESSEE BY FOLLOWING OBSERVATION. DURING THE YEAR UNDER CONSIDERATION INTEREST WAS PAID TO ALL RELATIVES @ 18% P.A, WHILE INTEREST WAS PAID TO SHRI BHAGAT RAM DARAK @ 6% P.A. SIR , TERMS AND CONDITIONS OF BORROWING MAY VARY FROM PERSON TO PER SON. AS MENTIONED ABOVE DURING THE YEAR UNDER CONSIDERAT ION INTEREST WAS PAID TO ALL RELATIVE @ 18% P.A. THAT W AS FAIR 3 MARKET RATE OF INTEREST. DURING THE YEAR UNDER CONSIDERATION, SBBJ INTEREST RATE ON UNSECURED LOAN (CLEAN OD) WAS 16% AND THAT WAS COMPOUNDABLE ON MONTHLY BASIS. THEREFORE, OVERALL BANK OBTAINED FRO M SBBJ FOR YOUR KIND PERUSAL. THEREFORE, THE INTEREST PAID TO ALL RELATIVES @ 18% P.A. WAS VERY REASONABLE. AS FAR AS INTEREST PAID TO SHRI BHAGAT RAM DARAK @ 6% P.A. IS CONCERNED THAT IS VERY BELOW OF THE FAIR MARKET VAL UE. THE ASSESSEE SUBMITTED THAT INTEREST WAS PAID AT FAIR MARKET RATE OF INTEREST AND THE RATE OF INTERE ST VARIES FROM PERSON TO PERSON. REGARDING INTEREST PAYMENT T O SHRI BHAGAT RAM DARAK, IT SUBMITTED THAT INTEREST P AID IS VERY BLOW OF FAIR MARKET VALUE. HOWEVER, IT IS BEYO ND IMAGINATION THAT WHEN FUNDS ARE AVAILABLE AT JUST 6 % THEN WHY INTEREST PAYMENT WILL BE MADE AT THREE TIM ES THAT RATE OF INTEREST. THE ASSESSEE NEITHER JUSTIFI ED INTEREST PAYMENT TO SHRI BHAGAT RAM DARAK MUCH BELOW THE FAI R MARKET VALUE NOR JUSTIFIED INTEREST PAYMENT TO PERS ONS COVERED U/S 40A(2)AT THE MORE THE FAIR MARKET VALUE . THEREFORE, INTEREST PAYMENT @ 18% IS CONSIDERED TO BE EXCESSIVE AND UNREASONABLE. PAYMENT IS ALLOWED @ 15 % AND BALANCE AMOUNT OF RS. 6,17,878/- IS ADDED TO TO TAL INCOME OF THE ASSESSEE. THE LD. DR CONTENDS THAT THE AO WAS MORE THAN REASO NABLE INASMUCH AS THE COMPARABLE CASE OF PAYMENT OF INTEREST IN ASSESSEE' S CASE WAS AT 6%. THEREFORE, APPLICATION OF THE PROVISION OF SECTION 40A(2) AS TO INTEREST PAYMENT TO RELATED PARTIES SHOULD HAVE BEEN RESTRIC TED TO 6% AND NOT AT 15% APPLIED BY THE AO. 4.2 THE LD. CIT(A) WITHOUT APPRECIATING THE COMPARA BLE CASE IN ASSESSEE'S CASE DELETED THE DISALLOWANCE BY FOLLOWING OBSERVAT ION. 4 4. 62 ..FOR DISALLOWANCE U/S 40A2(B), THE ASSESSING OFFICER HAS TO ESTABLISH THAT THE EXPENDI TURE IS EXCESSIVE OR UNREASONABLE IN COMPARISON TO FAIR MAR KET VALUE OF THE SERVICES FOR WHICH PAYMENT IS MADE TO RELATIVES. THE FAIR MARKET VALUE CANNOT BE BASED ON ISOLATED INCIDENT. CONSIDERING THE PREVAILING MARKET RATE OF INTEREST ON UNSECURED LOANS, THE INTEREST PAYMENT @ 18% CANN OT BE CONSIDERED EXCESSIVE. IN VIEW OF THE ABOVE, THE ADDITION OF RS. 6,17,878/ - IS DIRECTED TO BE DELETED. 4.3 THE LD. DR CONTENDS THAT THE LD. CIT(A) HAS ERR ED IN HOLDING THAT THE AO HAS TO ESTABLISH THAT THE EXPENDITURE IS UNREASO NABLE. THE AO HAS DISCHARGED HIS BURDEN BY DEMONSTRATING THAT PAYMENT OF INTEREST MADE TO UNRELATED PARTY I.E. SHRI BHAGAT RAM DARAK WAS AT 6 % AND IT WAS PAID BY THE ASSESSEE HIMSELF. THEREFORE, THE FINDING OF THE LD. CIT(A) IS CONTRARY TO THE RECORD AND IT DOES NOT MEET THE RELEVANT OBSERVATIO N OF THE AO 5.1 APROPOS GROUND NO. 3, IT IS PLEADED THAT THE AS SESSEE OPERATES A RICE MILL. THE AO OBSERVED THAT THE ASSESSEE YIELD OF RI CE FROM MILLING OF PADDY IN THIS YEAR WAS AT 64.18% AS COMPARED TO 64.49% IN THE PRECEDING YEAR. THE ASSESSEE IN THIS BEHALF GAVE A GENERAL REPLY AB OUT EVERY YEAR CLIMATIC CHANGES, WATER AVAILABILITY, TEMPERATURE AND MONSOO N ETC. THE AO FOUND THE REPLY OF THE ASSESSEE AS VAGUE AND NON-SPECIFIC AND THUS HE MADE THE DISALLOWANCE BY FOLLOWING OBSERVATION. 5 IT IS SUBMITTED THAT YIELD DEPENDS ON MANY FACTORS LIKE QUALITY OF PADDY, PRODUCTION CONDITIONS, QUALITY OF INFRASTRUCTURE, NATURE OF RICE PRODUCTION ETC. HE SUBMITTED THAT EACH YEAR PADDY IS DIFFERENT . HOWEV ER, APART FROM COUNTING THE REASONS ATTRIBUTABLE TO DIF FERENT YIELD, THE ASSESSEE FAILED TO SPECIFY THE REASONS IN THIS CASE WHICH RESULTED IN LOWER YIELD IN HIS CASE. THE ONUS IS ON THE ASSESSEE TO JUSTIFY THE LOWER YIELD. HOWE VER, HE HAS NOT SPECIFIED WHICH FACTORS ARE DIFFERENT IN TH E YEAR UNDER CONSIDERATION FROM THAT OF THE LAST YEAR. HOW QUALITY OF PADDY IS DIFFERENT THIS YEAR THAT OF TH E LAST YEAR. THIS IS NOT VERIFIABLE WHEN NO QUALITYWISE DE TAILED ARE MAINTAINED BY THE ASSESSEE. THE ASSESSEE HAS NO T MAINTAINED ANY QUALITYWISE DETAILS DURING THE YEAR. FURTHER THE ASSESSEE HAS NOT SPECIFIED WHAT DIFFERE NCE IS MADE IN THE NATURE OF PRODUCTION DURING THE YEAR? O R WHAT DIFFERENCE IS MADE IN PRODUCTION CONDITION BY THE ASSESSEE?. IN VIEW OF THE ABOVE DISCUSSION, THE REPLY OF THE ASSESSEE IS NOT ACCEPTABLE. THE ASSESSEE FAILED TO JUSTIFY THE MANUFACTURING RESULTS. FURTHER FOR THE FOLLOWIN G REASONS, THESE MANUFACTURING RESULTS ARE ALSO NOT ACCEPTABLE. 5.2 THE LD. CIT(A) DELETED THIS ADDITION BY FOLLOWI NG OBSERVATION. 4.72. I HAVE GONE THROUGH THE AOS FINDING AND ASSESSEE'S SUBMISSION. THE ASSESSEE HAS SHOWN YIELD OF 64.18% DURING THE YEAR. DURING THE LAST 3 YEARS THE ASSESSEE HAS SHOWN YIELD 64.49%, 64.29% AND 64.67%. IN THE CASE OF ASSESSEE IN ASSESSMENT YEAR 2006-07 MY PREDECESSOR CIT(A) HAS DELETED THE 6 ADDITION ON THIS ISSUE. THE FACT BEING SIMILAR THE ADDITION ON ACCOUNT OF LOW YIELD IS DIRECTED TO BE DELETED. 5.3 THE LD. DR CONTENDS THAT EVERY YEAR IS AN INDEP ENDENT UNIT OF ASSESSMENT AND WITHOUT MENTIONING THE REASONS OF TH EN LD. CIT(A) FOR THE ASSESSMENT YEAR 2006-07, THE LD. CIT(A), KOTA HAS D ELETED THE ADDITION. THUS THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS WITHOUT COGENT REASON. 6.1 APROPOS GROUND NO. 1, THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE AO HAS FAILED TO APPRECIATE THAT THE INTEREST P AID BY THE ASSESSEE WAS NOT ON PERSONAL LOAN BUT IT WAS ON CC LIMIT. THE LD. CI T(A) HAS DELETED THE ADDITION OF RS. 57,330/- VIDE PARA 4.52 OF HIS ORD ER. THE LD. DR HAS NOT DISPUTED THIS ASPECT. THE ASSESSEE IS AN INDIVIDUAL / PROPRIETOR AND LOAN HAS BEEN RAISED ON CC LIMIT. THE LOAN HAS BEEN UTILIZE D FOR ASSESSEE BUSINESS AND IT CANNOT BE REGARDED AS INTEREST ON PERSONAL L OAN. 7.1 APROPOS GROUND NO. 2 RELATING TO RATE OF INTER EST, THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT IN PREVIOUS YEARS ALSO T HE INTEREST TO RELATIVES HAVE BEEN ALLOWED. IT IS A KNOWN FACT THAT OUTSIDER CAN INSIST FOR REPAYMENT OF LOAN AT ANY TIME WHEREAS THE RELATIVES DEPOSITS ARE FOR LONG TERM. THEREFORE, HIGHER PAYMENT OF RATE OF INTEREST IS JUSTIFIED. 7 8.1 APROPOS GROUND NO. 3 I.E. ADDITION ON ACCOUNT OF LOW YIELD, THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT REJECTED BY THE AO. THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT IN PARA 2 OF THE ASSESSMENT ORDER, THE AO HAS HIMSELF RECORDED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE EXAMINED ON TEST CHE CK BASIS. NO ADVERSE FINDINGS ARE THERE. HOWEVER, FOR UNKNOWN REASONS, I T HAS BEEN HELD THAT NO QUALITYWISE DETAILS ARE MAINTAINED BY THE ASSESSEE WHEREAS THE FACT OF THE MATTER IS THAT DAY-TO-DAY PRODUCTION AND MILLING RE GISTER ALONGWITH STOCK REGISTER ARE MAINTAINED BY THE ASSESSEE AND THEY WE RE PRODUCED BEFORE THE AO FOR VERIFICATION DURING ASSESSMENT PROCEEDINGS. IN THE REGULAR MILLING PROCESS, THE QUALITYWISE STOCK REGISTER CANNOT BE M AINTAINED AS AFTER THE PRODUCTION AND DEPENDING UPON THE QUALITY OF THE RI CE, THE SAME IS SEGREGATED. THE QUANTITYWISE DETAILS OF RAW MATERIA L I.E. PADDY AND FINISHED GOODS I.E. RICE MANUFACTURED WERE PRODUCED BEFORE T HE AO. THE NON- AVAILABILITY OF QUALITYWISE STOCK HAS NO EFFECT ON THE YIELD OF RICE. EVERY YEAR THE YIELD OF RICE CANNOT BE SAME AND MARGINAL FLUCT UATION IS REGULAR FEATURE IN THE RICE MANUFACTURING ACTIVITY. IF THE AO WAS NO T SATISFIED ABOUT THE VALUATION OF THE STOCK DUE TO QUALITYWISE THEN IN T HAT CASE AT THE MOST THE ADDITION IN RESPECT OF VALUATION OF CLOSING STOCK MAY HAVE BEEN CONSIDERED. WHEN OVERALL QUANTITATIVE DETAILS OF THE STOCK ARE AVAILABLE FROM BOOKS, THEN 8 TRADING RESULTS ARE ACCEPTED AND ADDITION CANNOT BE MADE ON YIELD BASIS. IN CASE OF ADDITION TO THE CLOSING STOCK, THE ASSESSEE WOULD HAVE BEEN ENTITLED TO TAKE THE SAME AS OPENING STOCK IN THE EARLIER YE AR. IT WOULD HAVE BEEN THE REVENUE NEUTRAL EXERCISE COMPARING BOTH THE YEARS AND AT THE MOST ASSESSMENT OF POSTPONEMENT OF PROFIT MAY ARISE. IN ANY CASE, THE AO HAS NOT ADOPTED THIS COURSE AND MADE THE ADDITION ON ACCOUN T OF YIELD WHICH IS NOT JUSTIFIED. HOWEVER, THE ORDER OF THE LD. CIT(A) IS RELIED ON THIS ISSUE.. 9.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACT, IT EMERGES THAT THERE WAS NO PAYMENT OF INTEREST ON PERSONAL ACCOUNT. THE INTEREST OF RS. 5 7,330/- WAS PAID ON C.C. LIMIT UTILIZATION FOR ASSESSEE'S BUSINESS. THEREFOR E, THE LD. CIT(A) HAS RIGHTLY DELETED THIS ADDITION. THUS GROUND NO. 1 OF THE REVENUE IS DISMISSED. 9.2 APROPOS GROUND NO. 2, THE AO HAS INVOKED THE PR OVISION OF SECTION 40A(2)(B) OF THE ACT, FINDING THAT THE PAYMENT OF I NTEREST TO UNRELATED PARTY WAS AT 6% WHEREAS THE ASSESSEE PAID INTEREST @ 18% TO THE RELATIVES. ACCORDING TO THE DEPARTMENT, THE AO GAVE COMPARABL E CASES FROM THE ASSESSEE'S BOOKS ONLY WHEREAS THE LD. CIT(A) HAS ER RONEOUSLY HELD THAT NO COMPARATIVE INSTANCES HAVE BEEN GIVEN. THERE IS SOM E MERIT IN THE ARGUMENTS OF THE LD. DR TO THIS EFFECT. THE ASSESSE E HAS NOT DISPUTED IN PAYING INTEREST @ 6% TO SHRI BHAGAT RAM DARAK AND U NRELATED PARTY. 9 HOWEVER, AT THE SAME TIME, WE FIND THAT THE ASSESSE E HAS SHOWN ADVANCES FROM BANKS AT PAGE 21 OF HIS PAPER BOOK AS UNDER:- 1. SBBJ TERM LOAN RS., 19,95,932.27 2. SBBJ CC ACCOUNT RS. 3,50,86,782.45 THESE BORROWINGS FROM BANK CARRIES RATE OF INTEREST AT 15%.THE AO ADOPTED THE RATE OF INTEREST AT 15% TAKING INTO CONSIDERATI ON THE HIGHER RATE OF INTEREST ON BANK LOAN. SINCE THE AO HAS DISCHARGED HIS BURDE N IN TERMS OF SECTION 40A(2)(B) OF THE ACT, WE FIND NO INFIRMITY IN THE O RDER OF THE AO. THEREFORE, THE RATE OF INTEREST @ 15% PAYABLE TO RELATED PART Y IS REASONABLE IN TERMS OF SECTION 40A(20(B) OF THE ACT. HENCE, WE UPHOLD THE ORDER OF THE AO ON THIS ISSUE AND REVERSE THE ORDER OF THE LD. CIT(A). THE GROUND NO. 2 OF THE REVENUE IS ALLOWED. 9.3 APROPOS GROUND NO. 3 OF THE REVENUE, WE FIND ME RIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE . THE AO HAS RE CORDED A FINDING THAT ASSESSEE'S BOOKS ARE EXAMINED ON TEST CHECK BASIS. WHEN THE BOOKS ARE ACCEPTED THEN THE YIELD CANNOT BE ESTIMATED WITHOUT ANY MATERIAL. IT IS A KNOWN FACT THAT DEPENDING UPON THE MACHINERY, QUALI TY OF THE SEEDS, MOISTURE IN PADDY, MONSOONS ETC. MARGINAL FLUCTUATI ON IN YIELD IS ALLOWABLE. THEREFORE IN THE ABSENCE OF REJECTION OF BOOKS OF A CCOUNT, THE YIELD CANNOT BE ESTIMATED. BESIDES, THE AO AT THE MOST COULD HAV E CONSIDERED THE 10 ADDITION ON ACCOUNT OF VALUATION OF STOCK IN CASE IT WAS FOUND THAT QUALITYWISE DAY-TO-DAY PRODUCTION WAS NOT MAINTAINE D BY THE ASSESSEE DELIBERATELY. THIS IS NOT MET OUT BY THE AO. IN VIE W THEREOF, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) DELETING T HE ADDITION IN RESPECT OF PADDY YIELD. THUS THE ORDER OF THE LD. CIT(A) IS UP HELD. THE GROUND NO. 3 OF THE REVENUE IS DISMISSED. 10.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JULY, 2014. SD/- SD/- (T.R. MEENA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR DATED: 25 TH JULY, 2014 *MISHRA COPY FORWARDED TO:- 1. THE ACIT, CIRCLE- 1, KOTA 2. M/S. BAL KISHAN NYALI (HUF) 3. THE LD. CIT 4. THE LD. CIT(A), JAIPUR 5..THE LD. DR 6.THE GUARD FILE (ITA NO. 1122/JP/2011) BY ORDER AR ITAT, JAIPUR 11 12 13