Sahib Synthetics, Ludhiana V. DCIT, Ludhiana

ITA 13/CHANDI/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8485 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 11-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Fair market value
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 13/CHD/2016 ASSESSMENT YEAR: 2008-09 M/S SAHIB SYNTHETICS, VS. THE DCIT VILL, BHORA, G.T. ROAD(WEST), C-III LUDHIANA, LUDHIANA PAN NO. ABBFS6322D (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI S.K. MITTAL DATE OF HEARING : 22/02/2016 DATE OF PRONOUNCEMENT: 22/02/2016 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-1, LUDHIANA DT. 24/11/2015 RELATING TO ASSESSMENT YEAR 2008-09. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1. THAT THE PREJUDICIAL OBSERVATIONS MADE IN THE AP PELLATE AS WELL AS IN THE ASSESSMENT ORDER ARE EITHER UNFOUNDED OR NOT SUSCEP TIBLE OF GIVING RISE TO ANY ADVERSE CONCLUSION. 2. THAT THE HONBLE COMMISSIONER OF INCOME TAX (APP EALS) HAS GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 4,27,632/- BY APPLICATION OF SEC. 40A(2)(B) OF THE INCOME TAX ACT ON THE BASIS OF CONJECTURES, SUR MISES AND WITHOUT ANY BASIS. THE ADDITION BY APPLICATION OF SEC. 40A(2)(B) MERIT S DELETION. 3. THAT THE APPELLANT RESERVES THE RIGHT TO ADD, AL TER OR AMEND THE GROUNDS OF APPEAL. 4. THAT THE APPELLATE ORDER AS WELL AS THE ASSESSME NT ORDER IS AGAINST LAW AND FACTS OF THE CASE. 3. BRIEFLY STATED , THE FACT OF THE CASE ARE THAT T HE ASSESSEE DERIVES INCOME FROM HOSIERY. THE AO NOTED THAT THE ASSESSEE HAD TA KEN UNSECURED LOANS FROM THE FAMILY MEMBERS OF THE PARTNERS OF THE FIRM. HE FURTHER NOTED THAT THE 2 ASSESSEE HAD PAID INTEREST ON UNSECURED LOANS ONLY TO FOUR PERSONS, THE DETAILS OF WHICH ARE AS UNDER: 1. M/S TARA SINGH & SONS (HUF) RS. 94,128/- 2. M/S PARAMJEET SINGH & SONS (HUF) RS. 1,76,636/- 3. SMT. HARJEET KAUR RS. 63,914/- 4. SMT. DAMANJEET KAUR RS. 92,954/- 4. THE AO ASKED THE ASSESSEE AS TO WHY THE INTEREST ON UNSECURED LOANS PAID TO ABOVE PARTIES SHOULD NOT BE DISALLOWED AS PER TH E PROVISIONS OF SECTION 40A(2)(B) OF THE ACT 1961 (IN SHORT THE ACT), AS THE ASSESSEE HAS TAKEN UNSECURED LOANS FROM OTHER FAMILY MEMBERS AND EVEN OUTSIDERS ON WHICH NO INTEREST HAS BEEN PAID. IN RESPONSE TO THE ABOVE QU ERY OF THE AO, THE ASSESSEE SUBMITTED THAT ABOUT 3-4 YEARS BACK, WHEN THE ASSES SEE WAS IN FINANCIAL CRISIS, HE TOOK FUNDS FROM HIS FAMILY MEMBERS WITHOUT INTER EST. INTEREST IS PAID ONLY TO THE ABOVE PERSONS, SINCE BORROWING AS AGREED UPON. THE ASSESSEE FURTHER CONTENDED THAT THE INTEREST CHARGED BY BANK DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION WAS IN THE RANGE OF 13% TO 15% AFTER GIVING COLLATERAL SECURITY TO THE BANK. IT WAS ALSO EXPLAINED BY THE ASSESSEE BEFORE THE AO THAT INTEREST PAID TO THE ABOVE PERSO NS WAS ALLOWED IN THE PAST I.E; FROM ASSESSMENT YEAR 2000-01 TO 2007-08 AND T HE ASSESSMENTS WERE MADE UNDER SECTION 143(3) OF THE ACT. ACCORDINGLY IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT INTEREST PAID @ 12% TO THE ABOVE PERSONS WAS REASONABLE AND THE FUND BORROWED FROM THEM WERE USED FOR BUSIN ESS PURPOSES. THE AO DID NOT ACCEPT THE ABOVE CONTENTION OF THE ASSESSEE AND DISALLOWED THE SUM OF RS. 4,27,632/- UNDER SECTION 40A(2)(B) OF THE ACT. 5. ON APPEAL THE LD. CIT UPHELD THE DISALLOWANCE AN D HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE ABOVE APPEAL WAS FIXED FOR HEARING ON 22/02/ 2016. NOBODY APPEARED ON BEHALF OF THE ASSESSEE ON THE DATE OF H EARING, DESPITE SERVICE OF NOTICE BY RPAD. THE ASSESSEE HAS ALSO NOT SUBMITTED ANY APPLICATION SEEKING ADJOURNMENT OF THE HEARING OF THE CASE. IT APPEARS THAT THE ASSESSEE IS NOT 3 INTERESTED TO PURSUE THE MATTER. UNDER THESE CIRCUM STANCES, I AM CONSTRAINED TO DISPOSE OFF THE APPEAL ON MERITS, OF COURSE, AFTER HEARING THE LD. DR. 7. I HAVE HEARD LD. DR AT LENGTH AND HAVE ALSO PERU SED THE MATERIALS AVAILABLE ON RECORD. IT IS AN ADMITTED FACT THAT TH E INTEREST @ 12% PER ANNUM WAS BEING PAID TO THE RELATIVES MENTIONED HERE IN A BOVE. FURTHER, IT IS ALL ALONG BEING THE ASSESSEES CONTENTION THAT THE INTEREST @ 12% PER ANNUM BEING PAID CONSISTENTLY AS CLAIMED AND ALLOWED IN EARLIER YEAR S TOO. IT APPEARS THAT IN THE INSTANT CASE THE AO HAS DISALLOWED THE INTEREST ON THE GROUNDS THAT THE ASSESSEE HAS TAKEN LOANS FROM OUTSIDERS I.E; PERSONS NOT COV ERED UNDER SECTION 40A(2)(B) OF SUBSTANTIAL AMOUNT AND CITED THE EXAMPLE OF SH. SUKHMINDER SINGH FROM WHOM A LOAN OF RS. 12,50,000/- WAS TAKEN AND NO INT EREST ON THE SAID AMOUNT WAS PAID. ON THE OTHER HAND THE ASSESSEE PAID THE I NTEREST @12% ON LOANS TAKEN FROM RELATIVES. SECONDLY, THE ASSESSEE HIMSELF WAS PAYING TAXES IN THE HIGHER TAX SLAB WHEREAS THE AFORESAID PARTIES WERE PAYING MINI MAL TAX HAVING INTEREST INCOME EARNED FROM THE ASSESSEES FIRM ONLY. 8. IN MY OPINION THE ABOVE GROUNDS OF THE AO ARE NO T TENABLE IN LAW BECAUSE FOR THE PURPOSE OF DISALLOWANCE UNDER SECTI ON 40A(2)(B) OF THE ACT, IT IS TO BE SEEN WHETHER THE EXPENDITURE IS EXCESSIVE OR REASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FAC ILITIES FOR WHICH THE PAYMENT HAS BEEN MADE. IN MY OPINION, IT IS A MATTER OF COM MON KNOWLEDGE THAT THE INTEREST ON UNSECURED LOANS IS NORMALLY MORE THAN T HE INTEREST PAYABLE ON SECURED LOANS. IN THE CASE OF MARKET LOANS NO SECUR ITY IS GIVEN AND NO PAPER OR OTHER FORMALITIES ARE REQUIRED TO BE COMPLETED. UNS ECURED LOANS IS ALSO AVAILABLE AT CALL AND CONVENIENCE OF THE ASSESSEE A S AND WHEN REQUIRED. IN THE INSTANT CASE THE ASSESSEE CONTENDED THAT THE INTERE ST CHARGED BY THE BANK DURING THE RELEVANT FINANCIAL YEAR WAS 13% TO 15% A ND THE ASSESSEE HAS NOT PAID INTEREST TO ANY PERSON COVERED UNDER SECTION 40A(2) (B) OF THE ACT EXCEEDING 12% DURING THE YEAR UNDER CONSIDERATION. AS I HAVE ALREADY OBSERVED HEREINABOVE THAT THE INTEREST PAID TO ABOVE PERSONS HAS BEEN ALLOWED IN THE 4 PAST I.E; FROM ASSESSMENT YEAR 2000-01 TO 2007-08 AND THE ASSESSMENTS WERE MADE UNDER SECTION 143(3) OF THE ACT, AND THEREFORE , THERE WAS NO JUSTIFICATION IN MAKING THE IMPUGNED DISALLOWANCE. THE REASONABLE NESS OF THE INTEREST PAID HAS TO BE SEEN FROM THE MARKET CONDITION / RATES. T HE REVENUE AUTHORITIES CANNOT ASK THE ASSESSEE TO EARN MORE PROFITS. THUS, CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE I HOLD THAT T HE INTEREST PAID @ 12% PER ANNUM TO THE PERSONS COVERED UNDER SECTION 40A(2)(B ) OF THE ACT, CANNOT BE HELD EXCESSIVE AND UNREASONABLE KEEPING IN VIEW THE PREVALENT MARKET RATE. ACCORDINGLY, I DELETE THE ADDITION OF RS. 4,27,632/ - MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A). 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 22/02/2016. SD/- (H.L.KARWA) VICE PRESIDENT DATED : 22/02/2016 AG COPY TO:1. THE APPELLANT,2. THE RESPONDENT,3.THE CI T, 4.THE CIT(A),5. THE LD. DR