DCIT, Bangalore V. M/s Amar Radio Corporation, Bangalore

ITA 1311/BANG/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80708 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 05-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHIVAHAR P
• Assessee Lawyers: H N KHINCHA
• Keywords: Fair market value

Judgement Text

ITA NO.1311 OF 2013 AMAR RADIO CORPORATION BANGALOR E PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE ABENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO. 1311/BANG/2013 (ASSESSMENT YEAR: 2009-10) DY. COMMISSIONER OF INCOME TAX, CIRCLE 5(1) 6 TH FLOOR, UNITY BUILDING, P. KALINGA ROAD, BANGALORE 560027 VS. M/S. AMAR RADIO CORPORATION, NO.134-138 SP ROAD, BANGALORE 560 002 PAN: AADFA 3109 M (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI DHIVAHAR P. JCIT, (DR) ASSESSEE BY: SHRI H.N. KHINCHA, CA DATE OF HEARING: 23/09/2014 DATE OF PRONOUNCEMENT: 26/09/2014 O R D E R PER RAJPAL YADAV, J.M. DISSATISFIED WITH THE ORDER OF THE LEARNED CIT (A) DATED 13.06.2013 PASSED FOR ASSESSMENT YEAR 2009-10, THE REVENUE IS IN APPEAL BEFORE US. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT THE LEARNED CIT (A) HAS ERRED IN DELETING THE ADDIT ION OF RS.9,37,418/- WHICH WAS ADDED WITH THE AID OF SECTI ON 40A(2)(B) OF THE INCOME TAX ACT, OUT OF THE INTEREST EXPENSES CLAIMED BY THE ASSESSEE 2. IT EMERGES OUT FROM THE RECORD THAT THE ASSESSEE IS A DEALER AND DISTRIBUTOR OF INDUSTRIAL ELECTRONIC COMPONENTS . IT HAS FILED ITS RETURN OF INCOME ON 24.09.2009 DECLARING AN INC OME OF RS.2,59,07,680/-. THE ASSESSEE HAS DEBITED AN INTER EST EXPENSES ITA NO.1311 OF 2013 AMAR RADIO CORPORATION BANGALOR E PAGE 2 OF 4 OF RS.1,12,75,102/- IN THE P&L A/C AND CLAIMED IT A S AN EXPENDITURE. ON ANALYSIS OF THE RECORD, ASSESSING OFFICER FOUND THAT A SUM OF RS.59,02,732/- PERTAINS TO UNSECURED LOANS WHERE INTEREST HAS BEEN PAID @ 15 TO 18%. ACCORDING TO TH E ASSESSING OFFICER, IN MOST OF THE CASES INTEREST WAS PAID @ 1 8%. ASSESSING OFFICER THEREAFTER OBSERVED THAT INTEREST ON THE BA NK LOAN IN THE ACCOUNTING PERIOD RELEVANT TO THIS PERIOD VARIES IN BETWEEN 9.5% TO.14.5%. THE ASSESSING OFFICER ANNEXED AN ANNEXUR E ALONG WITH THE ASSESSMENT ORDER WHEREIN HE TABULATED THE DETAILS OF THE FAMILY MEMBERS FROM WHERE THE ASSESSEE TOOK LO AN AND COMPUTED INTEREST @ 18%. THE INTEREST PAYMENT IS OF RS.56,24,536/- TO 17 PERSONS INCLUDNG HUF. ASSESSIN G OFFICER FURTHER HELD THAT MOST OF THESE PERSONS FALL WITHIN THE AMBIT OF SECTION 40A(2)(B) OF THE INCOME TAX ACT I.E. THEY A RE RELATIVES OF THE PERSONS MANAGING THE AFFAIRS OF THE ASSESSEE. T HE ASSESSEE MIGHT HAVE EXTENDED UNDUE BENEFIT BY GIVING INTERES T RATE OF 18% ON THEIR LOANS. ACCORDING TO THE ASSESSING OFFICER THE INTEREST BEYOND 15% IS NOT ALLOWABLE. HE GRANTED THE INTERES T EXPENSES @ 15% TO THE ASSESSEE AND MADE DISALLOWANCE OF THE RE ST. THIS 3% DISALLOWANCE LEADS TO AN ADDITION OF RS.9,37,418/-. 3. ON APPEAL, THE LEARNED CIT (A) HAS DELETED THE A DDITION. ACCORDING TO THE LEARNED CIT (A) INTEREST PAYMENT B Y THE ASSESSEE TO THE RELATIVES ON THEIR UNSECURED LOAN IS CONSUME RATE TO THE MARKET TREND. 4. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATIV ES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. SECTION 40A(2) P ROVIDES THAT WHERE AN ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH ITA NO.1311 OF 2013 AMAR RADIO CORPORATION BANGALOR E PAGE 3 OF 4 PAYMENT IS REQUIRED TO BE MADE OR HAS BEEN MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF SECTION 40A(2) AND THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO (A) FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MAD E; OR (B) THE LEGITIMATE NEEDS OF THE BUSINESS OF AN ASSESSEE; OR (C) THE BENEFITS DERIVED BY OR ACCRUING TO AN ASSESSEE, ON RECEIPT OF SUCH GOODS, SERVICES OR FACILITIES, THEN THE ASSESSING O FFICER MAY DISALLOW SO MUCH OF THE EXPENDITURE, AS IS CONSIDER ED BY HIM TO BE EXCESSIVE OR UNREASONABLE. BY ALLOWING THE INTER EST EXPENDITURE @15%, THE ASSESSING OFFICER HAS ACCEPTE D THAT EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINES S. THE ONLY QUESTION IS, WHEHER THE LOAN CAN BE AVAILED BY THE ASSESSEE AT A LOWER RATE OF INTEREST IN THE OPEN MARKET, INSTEAD OF THE PERSONS COVERED BY SECTION 40A(2). THERE IS NO DISPUTE WITH REGARD TO THE PERSONS WHO GAVE LOAN TO THE ASSESSEE, BEING FALLIN G IN THE AMBIT OF CLAUSE (B). NO DOUBT, A LITTLE HIGHER RATE OF IN TERST HAS BEEN GIVEN TO THE INDIVIDUAL BY THE ASSESSEE, BUT IT IS TO BE SEEN THAT FOR THESE LOANS, THE ASSESSEE DID NOT PROVIDE COLLA TERAL SECURITY. THESE ARE UNSECURED LOANS WHERE THE ASSESSEE WAS NO T REQUIRED TO UNDERGO VARIOUS DOCUMENTATION AND FORMALITIES. W HETHER THE ASSESSEE WOULD GET A LOAN FROM THE OPEN MARKET OR N OT IS ALSO A BIG QUESTION. THE FINANCIAL INSTITUTIONS WOULD EXTE ND THE LOAN FACILITY AFTER ASCERTAINING THE FINANCIAL CONDITION S OF THE ASSESSEE. CONSIDERING THESE FACTORS, IF A LITTLE HIGHER RATE OF INTEREST IS BEING GIVEN BY THE ASSESSEE, THEN IT CANNOT BE SAID THAT THIS WAS EXCESSIVE OR UNREASONABLE, KEEPING IN VIEW THE MARK ET RATE AND THE FACILITY AVAILED BY THE ASSESSEE. THE LEARNED F IRST APPELLATE AUTHORITY HAS APPRECIATED THE CONTROVERSY IN RIGHT PERPECTIVE. WE ITA NO.1311 OF 2013 AMAR RADIO CORPORATION BANGALOR E PAGE 4 OF 4 DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT (A), HENCE THIS APPEAL IS REJECTED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2014. SD/- SD/- (JASON P. BOAZ) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 26 TH SEPTEMBER, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE