IL & FS Water Ltd., CHENNAI V. ITO Ward 10(1), Mumbai

ITA 1250/CHNY/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4784 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 12-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN
• Assessee Lawyers: R VISHWANATHAN

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B (SMC) BENCH: CHENNAI . , BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER ./ ITA NO.1250/CHNY/2018 /ASSESSMENT YEAR: 2010-11 M/S.IL & FS WATER LTD., A4-A5, NAVINS PRESIDIUM, NO.103, NELSON MANICKAM ROAD, AMINJIKARAI, CHENNAI-600 029. VS. THE INCOME TAX OFFICER, WARD-10(1)(4), MUMBAI. [PAN:AABCI 8059 B] ( $ /APPELLANT) ( %&$ /RESPONDENT) $ ' / APPELLANT BY : MR.R.VISHWANATHAN, FCA %&$ ' /RESPONDENT BY : MR.B. SAGADEVAN, JCIT ' /DATE OF HEARING : 11.10.2018 ' /DATE OF PRONOUNCEMENT : 15.10.2018 / O R D E R PER ABRAHAM P.GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE WHICH IS DIRE CTED AN ORDER DATED 06.12.2017 OF THE COMMISSIONER OF INCOME TAX (APPEALS)-13, C HENNAI, IT HAS RAISED TWO ISSUES THROUGH ITS GROUNDS 1 TO 3. 2. FIRST ISSUE IS ON A DISALLOWANCE OF RS.15,01,906/- MADE BY THE AO U/S.40A(2)(B) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND THE SECOND ISSUE IS ON A DISALLOWANCE OF RS.7,97,442/- ON AI R TICKET AND BOARDING EXPENSES. ITA NO.1250/CHNY/2018 :- 2 -: 3. LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AS SESSEE ENGAGED IN THE BUSINESS OF WATER MANAGEMENT AND CONSULTANCY AN D FILED ITS RETURN FOR THE IMPUGNED AY DECLARING TOTAL INCOME OF RS.1,14,720/-. AS PER THE LD.AR, THE ASSESSEE WAS A SUBSIDIARY OF ONE M/S.IL & FS LT D. SUBMISSION OF THE LD.AR WAS THAT THE ASSESSEE HAD DEBITED INTEREST OF RS.51,06,479/- ON A SECURED TERM LOAN OF RS.6.00 CRS. TAKEN FROM ITS HOLD ING COMPANY. AS PER THE LD.AR, RATE AT WHICH INTEREST WAS PAID WAS @17% P.A. SUBMISSION OF THE LD.AR WAS THAT THE AO RESTRICTED THE INTEREST TO @12 % AND MADE A DISALLOWANCE OF THE DIFFERENCE COMING TO RS.15,01,906/-. AS PER THE LD.AR, THE AO HAD RELIED ON SEC.40A(2)(B) OF THE ACT FOR MAKI NG SUCH DISALLOWANCE. FURTHER, AS PER LD.AR, SUCH DISALLOWANCE WAS CONFIR MED BY THE LD.CIT(A). CONTENTION OF THE LD.AR IS THAT SEC.40A(2)(B) OF THE ACT WAS NOT APPLICABLE SINCE M/S.IL & FS WATER LTD., WAS THE HOLDING COMPA NY. FURTHER, AS PER THE LD.AR, EVEN OTHERWISE, THE INTEREST PAID @17% WAS NOT EXCESSIVE. AS PER THE LD.AR, THE AO AS WELL AS THE LD.CIT(A) HAD CONS IDERED BANK RATE OF 12% AS REASONABLE WITHOUT REFERRING TO ANY DOCUMENT, AN D WITHOUT CITING ANY REASON WHY THEY CONSIDERED BANK RATE FOR COMPARISON . THUS, ACCORDING TO HIM, THE DISALLOWANCE MADE WAS UNFAIR. 4. PER CONTRA, LD.DR SUBMITTED THAT SEC.40A(2)(B) OF THE ACT WAS CLEARLY APPLICABLE. ACCORDING TO HIM, THERE WAS NO REASON WHY ASSESSEE PAID EXCESSIVE INTEREST TO ITS HOLDING COMPANY ON LOANS RAISED FROM THEM. 5. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E ORDERS OF THE AUTHORITIES BELOW CAREFULLY. LOWER AUTHORITIES HAD CONSIDERED @12% TO BE A ITA NO.1250/CHNY/2018 :- 3 -: REASONABLE RATE FOR PAYMENT OF INTEREST. THE LD.AO STATES IN HIS ORDER THAT @12% P.A. WAS REASONABLE, BASED ON MARKET RATES. AS AGAINST THIS, THE LD.CIT(A) SAYS THAT RATE OF 12% WAS WHAT WAS CHARGED BY THE BANKS. IN MY OPINION, THE COMPARISON ATTEMPTED BY THE LOWER AUTH ORITIES WAS INCORRECT. LOANS FROM PRIVATE PARTIES WILL ALWAYS HAVE HIGHER RATE OF INTEREST THAN LOANS FROM BANKS, SINCE FORMALITIES AND PROCEDURES TO BE FOLLOWED WHILE APPLYING FOR A LOAN FROM BANK, IS MUCH MORE CUMBERSOME THAN LOAN FROM PRIVATE PARTIES. IT IS A PRINCIPLE OF ECONOMICS THAT RISK AND RETURN S GO TOGETHER. IN MY OPINION, RATE OF INTEREST @17% PAID BY THE ASSESSEE O N THE LOANS RAISED BY IT FROM ITS HOLDING COMPANY COULD NOT HAVE BEEN CONSID ERED EXCESSIVE UNLESS SIMILAR COMPARABLE CASES WERE IDENTIFIED BY THE LD. AO. THE DISALLOWANCE WAS NOT WARRANTED. SUCH DISALLOWANCE STANDS DELETE D. 6. SECOND ISSUE RAISED BY THE ASSESSEE IS WITH REGAR D TO THE DISALLOWANCE OF RS.7,97,442/- BEING AIR TICKET AND BOARDING EXPENSES. LD.AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAD NOTED THAT ASS ESSEE HAD DEBITED RS.54,33,218/- AS AIR TICKET CHARGES AND RS.25,41,196/- AS BO ARDING EXPENSES IN HIS P&L A/C. IT SEEMS DESPITE REQUEST FROM THE LD.AO, THE ASSESSEE DID NOT PROVIDE ANY DOCUMENTARY EVIDENCE F OR JUSTIFYING THE CLAIM, EXCEPT FOR FURNISHING A COPY OF THE LEDGER ACCOUNT. THE AO CONSIDERING THE POSSIBILITY OF PERSONAL EXPENDITURE BEING IMBEDDED IN THIS CLAIM DISALLOWED 10%. APPEAL OF THE ASSESSEE BEFORE THE LD.CIT(A) DID NOT MEET WITH ANY SUCCESS. 7. NOW BEFORE US, LD.AR SUBMITTED THAT THE FULL DETA ILS OF THE CLAIM WAS FILED BEFORE THE LD.CIT(A). ACCORDING TO HIM, EMPL OYEES WERE REQUIRED TO ITA NO.1250/CHNY/2018 :- 4 -: UNDERTAKE TOURS IN DISCHARGE OF THEIR OFFICIAL DUTI ES AND THE ASSESSEE WAS HAVING SUPPORTING VOUCHERS. 8. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E ORDERS OF THE AUTHORITIES BELOW CAREFULLY. THE AO HAS DISALLOWED @10% OF THE CLAIM OF AIR FARE AND BOARDING EXPENSES, CONSIDERING THE FAILURE OF THE ASSESSEE TO PRODUCE VOUCHERS IN SUPPORT OF THE CLAIM. EXCEPT F OR FILING A LEDGER COPY, ASSESSEE HAD NOT FILED ANY EVIDENCE BEFORE THE AO. NO DOUBT, LD.CIT(A) HAS TAKEN NOTE OF THE VOUCHERS WHICH WERE FILED BEFORE HIM ALONG WITH EXTRACT OF THE STATEMENT BUT DID NOT FIND IT TO BE SATISFACTOR Y. IN MY OPINION, ASSESSEE WAS NOT ABLE TO JUSTIFY ITS CLAIM WITH PROPER EVIDE NCE. LOWER AUTHORITIES COULD NOT BE FAULTED FOR MAKING A DISALLOWANCE @10% OF SUCH CLAIM. I DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE LOWE R AUTHORITIES ON THIS ISSUE. ACCORDINGLY, SUCH DISALLOWANCE IS SUSTAINED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED ON THE 15 TH DAY OF OCTOBER, 2018, IN CHENNAI. SD/- ( . ) (ABRAHAM P.GEORGE) /ACCOUNTANT MEMBER /CHENNAI, . /DATED: OCTOBER 15, 2018. TLN ' %/0 10 /COPY TO: 1. $ /APPELLANT 4. 2 /CIT 2. %&$ /RESPONDENT 5. 0 % /DR 3. 2 ( ) /CIT(A) 6. /GF