M/s.Empee Credit Corporation, Calicut V. The ACIT, Calicut

ITA 13/COCH/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3931 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 19-04-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 16-01-2017
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Assessee Lawyers: P RAGHUNATHAN
• Section: 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER I.T.A. NO. 13 /COCH/201 7 A SSESSMENT YEAR : 2009 - 10 M/S. EMPEE CREDIT CORPORATION, SILK STREET, 8/189, CALICUT-673 082 [PAN: AAAFE 5988M] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), CALICUT. (ASSESSEE - APPELLANT) (REVENUE - RESPONDENT) ASSESSEE BY SHRI P. RAGHUNATHAN, ADV . REVENUE BY SHRI A. DHANARAJ, SR. DR DATE OF HEARING 20 / 0 4 / 201 7 DATE OF PRONOUNCEMENT 2 1 ST / 0 4 /201 7 O R D E R PER GEORGE GEORGE K.,JUDICIAL MEMBER: THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE, I S DIRECTED AGAINST THE ORDER OF THE CIT(A), KOZHIKODE DATED 06/10/2016. THE RELEVAN T ASSESSMENT YEAR IS 2009- 10. 2. THE SOLITARY ISSUE FOR MY CONSIDERATION IS WHE THER THE DISALLOWANCE OF INTEREST PAID TO RELATED CONCERN AMOUNTING TO RS.8, 67,766/- BY INVOKING THE PROVISIONS OF SEC. 40A(2) IS JUSTIFIED OR NOT. I.T.A. NO.13/COCH/2017 2 3. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE WHOLESALE BUSINESS OF CIGARETTES, BISCUITS, CONFECTIONARIES ETC. FOR THE ASSESSMENT YEAR 2009-10, THE RETURN OF INCOME WAS FILED ON 06-07-2009 DECLARING, TOTAL INCOME OF RS. 7,38,310/-. THE ASSESSMENT WAS COMPLETED VIDE ORDE R DATED 12/12/2011 U/S. 143(3) OF THE I.T. ACT. IN THE ASSESSMENT COMPLET ED, THE ASSESSING OFFICER HAD DISALLOWED A SUM OF RS.8,67,767/- BEING EXCESSIVE I NTEREST PAID TO RELATED PARTYS CONCERNS. THE RELEVANT FINDING OF THE ASSESSING OFFICER READS AS FOLLOWS: DURING THE YEAR, THE ASSESSEE INCURRED AN EXPENDIT URE OF RS.44,27,661/- TOWARDS FINANCE COSTS. A PERUSAL OF THIS ACCOUNT R EVEALS THAT OUT OF THE TOTAL FINANCE COSTS, AN AMOUNT OF RS.22,59,569/- IS SEEN AS PAID TO M/S. MANEKLAL PURUSHOTHAM & SONS. IT IS REPORTED IN THE PRESCRIBE D AUDIT REPORT THAT M/S. MANEKLAL PURUSHOTHAM & SONS FALLS UNDER THE PURVIEW OF SECTION 40A(2)(B). THE ASSESSEE WAS SPECIFICALLY DIRECTED TO FURNISH THE C OMPUTATION OF INTEREST AMOUNTING TO RS.22,59,569/- PAID TO M/S. MANEKLAL P URUSHOTHAM & SONS. 2(A). ASSESSEE SUBMITTED THAT THEY HAVE PAID INTERE ST @ 19.21% TO M/S. MANEKLAL PURUSHOTHAM & SONS. BUT FROM THE SUBMITTE D COMPUTATION OF INTEREST STATEMENT, IT IS NOTICED THAT THE ASSESSEE HAS PAID INTEREST TO M/S. MANEKLAL PURUSHOTHAM & SONS @ 19.47%. THE INTEREST IS SEEN AS CHARGED ON A DAILY BASIS. 2(B) A PERUSAL OF THE PARTNERS CURRENT ACCOUNT RE VEALS THE FOLLOWING. ALL THE PARTNERS NAMELY MS SARALA R MEHTA, MS PURNIMA M MEH TA, MS SONALI ALIA HENAS S MEHTA, SANDEEPKUMAR MEHTA AND MS MS NEERU M MEHTA TOGETHER HAVE TRANSFERRED RS.44,03,065.88 (THE CREDIT BALANCE AVA ILABLE IN THEIR CURRENT ACCOUNT) TO M/S. MANEKLAL PURUSHOTHAM & SONS NARRAT ED AS TO MANEKLAL ON 01.04.2008. THE VERY SAME AMOUNT IS AGAIN INTRODUCE D INTO THEIR CURRENT ACCOUNT NARRATED AS BY MANEKLAL ON 31.03.2009. 2(C) THE SUBMITTED ACCOUNT COPY OF THE LOAN ACCOUN T OF M/S. MANEKLAL PURUSHOTHAM & SONS REVEALS THAT THE TRANSFER OF RS. 44,03,065.88 FROM THE PARTNERS CURRENT IS NOT TOWARDS THE LOAN LIABILITY OF THE FIRM. THE OPENING LOAN LIABILITY AS ON 01.04.2008 IS RS.1,12,42,537.61. M /S. MANEKLAL PURSHOTHAM & I.T.A. NO.13/COCH/2017 3 SONS HAS ADVANCED THE VERY SAME AMOUNT OF RS.44,03, 065.88 RECEIVED ON TRANSFER FROM THE PARTNERS CURRENT ACCOUNT TO THE F IRM AS LOAN ON 01.04.2008 AND THE OPENING LOAN LIABILITY IS WORKED OUT AS RS.1,56 ,45,603.49 AND CHARGED INTEREST @ 19.47. 2(D) IF THE PARTNERS HAVE NOT TRANSFERRED THE AMOU NTS STANDING IN THEIR CURRENT ACCOUNT, THE FIRM HAS TO PAY INTEREST TO THE PARTNE RS @ 12% ONLY AS PER THE STATUTE. MORE IMPORTANTLY, IF THE PARTNERS HAVE NO T TRANSFERRED THE AMOUNTS STANDING IN THEIR CURRENT ACCOUNT, THE LIABILITY OF THE FIRM TOWARDS UNSECURED LOAN WILL NOT BE INCREASED FROM RS.1,12,42,537.61 TO RS. 1,56,45,603.49 AS ON 01.04.2008. 2(E) THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE T O PROVE THAT THE PAYMENT OF INTEREST @ 19.5% TO M/S. MANEKLAL PURUSHOTHAM & SON S IS FOR THE BENEFIT OR THE INTEREST OF ITS BUSINESS. IN VIEW OF THE ABOVE FACT S, I AM OF THE VIEW THAT THE PAYMENT OF INTEREST OVER AND ABOVE THE RATE 12% TO M/S. MANEKLAL PURUSHOTHAM & SONS IS EXCESSIVE., UNREASONABLE AND NOT FOR THE LEGITIMATE NEEDS OF THE BUSINESS. AS SUCH, THE INTEREST PAYMENT TO M/S. MAN EKLAL PURUSHOTHAM & SONS HAS TO BE RESTRICTED TO THE PREVAILING RATE OF INTE REST @ 12%. ACCORDINGLY, AN ADDITION OF RS.8,67,766/- BEING INTEREST PAID OVER AND ABOVE 12% IS MADE TO THE TOTAL INCOME RETURNED BY INVOKING THE PROVISIONS OF SECTION 40A OF INCOME TAX ACT, 1961. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE CIT(A) C ONFIRMED THE ADDITION AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE REITERA TED THE SUBMISSIONS M ADE BEFORE THE IT AUTHORITIES. THE LD. DR ON THE OTHER HAND RELIED ON THE FINDINGS OF THE ASSESSING OFFICER AND THE CIT(A). 6. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE INSTANT CASE, THE ASSESSEE WAS PAYING INTEREST @ OF 12% ON THE CREDIT I.T.A. NO.13/COCH/2017 4 BALANCE TO THE PARTNERS. THESE CREDIT BALANCES WER E WITHDRAWN FROM THE PARTNERS ACCOUNT AND WERE GIVEN TO THE RELATED CON CERN, NAMELY, M/S. MANEKLAL PURUSHOTHAM & SONS. M/S. MANEKLAL PURUSHOTHAM & S ONS, IN TURN, ADVANCED THE MONEY TO THE ASSESSEE-FIRM AT A HIGHER RATE OF INTEREST AT 19.5%. THE CIT(A) IN THE IMPUGNED ORDER HAD REPRODUCED THE CUR RENT ACCOUNT OF THE PARTNERS OF THE ASSESSEE-FIRM. THE CIT(A) HAS GIVE N A CATEGORICAL FINDING THAT THE MONEY KEPT IN THE CURRENT ACCOUNT OF THE PARTNE RS WHICH WERE ENTITLED TO INTEREST OF ONLY 12%, WERE WITHDRAWN AND REINVESTED IN THE ASSESSEE-FIRM THROUGH THE RELATED CONCERN AT AN INTEREST RATE OF 19.5%. HAD THE PARTNERS CAPITAL ACCOUNT NOT BEEN WITHDRAWN, THE ASSESSEE WO ULD HAVE BEEN LIABLE ONLY FOR INTEREST AT A RATE OF 12%. BY WITHDRAWING FROM THE PARTNERS CAPITAL ACCOUNT AND PLACING THESE FUNDS WITH THE RELATED PARTY HUF AND THEREAFTER ADVANCING TO THE ASSESSEE AS LOAN FOR HIGHER RATE OF INTEREST AT 19.5% IS ONLY A DEVISE/RUSE TO DIVERT THE ASSESSEES INCOME TO RELATED PARTY NAMEL Y, HUF. THEREFORE, INVOKING THE PROVISIONS OF SECTION 40A(2) AND DISALLOWING IN TEREST PAYMENTS IN THE RELEVANT ASSESSMENT YEAR IS JUSTIFIED. HENCE, ORDER S OF THE I.T. AUTHORITIES ARE CONFIRMED. IT IS ORDERED ACCORDINGLY. I.T.A. NO.13/COCH/2017 5 7. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 21 ST -04-2017. SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER PLACE: KOCHI DATED: 21 ST APRIL, 2017 GJ COPY TO: 1. M/S. EMPEE CREDIT CORPORATION, SILK STREET, 8/189 , CALICUT-673 082. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(1), CALICUT. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), KOZHIKO DE. 4. THE PR. COMMISSIONER OF INCOME-TAX, KOZHIKODE. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER 9 (ASSISTANT REGISTR AR) I.T.A.T ., COCHIN