Chamarthy Krishna Rao, Eluru V. The Joint Commissioner of Income Tax, Eluru Range (I/c), Eluru

ITA 138/VIZ/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5244 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 26-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Keywords: Notional interest
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 13 8 / VIZ /201 8 (ASST. YEAR : 20 11 - 12 ) CHAMARTHY KRISHNA RAO, PROP. SURYA ENTERPRISES, D.NO. 13 - 3 - 91, BESIDE ELURU RAILWAY STATION, A.S.R. STADIUM ROAD, ELURU . V S . J CIT, ELURU RANGE , ELURU . PAN NO. ABDPC 2212 Q (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADV OCATE . DEPARTMENT BY : SMT. SUMAN MALIK SR. DR DATE OF HEARING : 2 1 / 1 2 /201 8 . DATE OF PRONOUNCEMENT : 06 / 0 2 /201 9 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 12 , HYDERABAD , DATED 05 /0 3 /201 8 FOR THE ASSESSMENT YEAR 20 11 - 12 . 2. GROUND NOS. 1 & 4 ARE GENERAL IN NATURE, NO ADJUDICATION IS REQUIRED, THEREFORE, SAME ARE DISMISSED. GROUND NO.2 RELATES TO ADDITION OF RS. 9,53,400/ - IN RESPECT OF DISALLOWANCE UNDER SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'ACT'). 2 ITA NO. 138/VIZ/2018 ( CHAMARTHY KRISHNA RAO ) 3 . FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE HAS PAID INTEREST ON UNSECURED LOANS TAKEN FROM HIS WIFE AND TWO SONS AT 18% P.A. , WHILE INTEREST ON UNSECURED LOANS TAKEN FROM HIS SISTER AND BROTHER HAD BEEN PAID AT 12% P.A. ACCORDING TO THE ASSESSING OFFICER, THE INTEREST PAID TO HIS WIFE AND 2 SONS AT 18% IS AN EXCESSIVE IN TERMS OF THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE INTEREST PAID IN EXCESS OF 3% AND MADE THE ADDITION OF RS. 9,53,400/ - UNDER SECTION 40A(2)(B) OF THE ACT TO THE TOTAL INCOME OF THE ASSESSEE. IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THE EFFECTIVE RATE OF INTEREST OF THE BANKS COMES NEAR ABOUT 16% AND THEREFORE IT CANNOT BE SAID THAT THE INTEREST PAID BY THE ASSESSEE IS AN EXCESSIVE. IT IS ALSO SUBMITTED THAT THESE LOANS ARE AVAILED BY THE ASSESSEE LONG BACK, THEREFORE, THE INTEREST PAID BY THE ASSESSEE CANNOT BE SAID AN EXCESSIVE . THE ASSESSING OFFICER AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE IS OF THE OPINION THAT INTEREST PAID TO HIS WIFE AND TWO SONS IS AN EXCESSI VE AND ACCORDINGLY HE DISALLOWED AN AMOUNT OF RS. 9,53,400/ - AND ADDED THE SAME TO THE ASSESSEES INCOME, WHICH WAS CONFIRMED BY THE LD. CIT(A) IN APPEAL. 4 . WHEN THIS APPEAL IS TAKEN UP HEARING, LD. CO U NSEL FOR THE ASSESSEE HAS SUBMITTED THAT ASSESSEE IS PAYING THE SAME INTEREST 3 ITA NO. 138/VIZ/2018 ( CHAMARTHY KRISHNA RAO ) FROM SO MANY YEARS AND BY POINT ING OUT FROM THE ASSESSMENT ORDER OF ASSESSMENT YEAR 2010 - 11 SUBMITTED THAT THE ORIGINAL ASSESSMENT UNDER SECTION 143(3) HAS BEEN COMPLETED AND NO ADDITION WAS MADE ON EXCESSIVE INTEREST . S UBSEQUENTLY LD.COMMISSIONER PASSED AN ORDER DATED 30/03/2015 AND DIRECTED THE ASSESSING OFFICER TO VERIFY THE INTEREST PAYMENT TO THE SPECIFIED PERSONS AND DISALLOW THE EXCESS INTEREST CLAIMED ON UNSECURED LOANS FROM THE FAMILY MEMBERS VIS - A - VIS INTEREST PAID ON BANK LOANS AS PER THE PROVISIONS OF SECTION 40A(2)(B) . THE ASSESSING OFFICER AFTER EXAMI NI NG THE ISSUE PASSED THE ORDER ON 23/12/2015 WITHOUT MAKING DISALLOWANCE , AND SUBMITTED THAT DUR ING THE YEAR UNDER CONSIDERATION ALSO INTEREST CANNOT BE DISALLOWED ON THE GROUND OF EXCESS INTEREST RATE . 5. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 6 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 7 . IN THIS CASE, THE ASSESSEE HAS BORROWED AMOUNTS FROM HIS WIFE AND 2 SONS AND INTEREST IS PAID AT 18% P.A. HE ALSO BORROWED THE AMOUNTS FROM HIS BROTHER AND SISTER AND INTEREST IS PAID AT 12% P.A. ACCORDING TO THE ASSESSING OFFICER, WIFE AND 2 SONS ARE RELATED PARTIES AND TH E REFORE EXCESS INTEREST IS PAID. ACCORDINGLY, 4 ITA NO. 138/VIZ/2018 ( CHAMARTHY KRISHNA RAO ) HE DISALLOWED THE AMOUNT OF RS. 9,53,400/ - AND ADDED THE SAME TO THE ASSESSEES TOTAL INCOME . ON APPEAL, LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. WE FIND THAT IN THE CASE OF 05 PART I ES TO WHOM INTEREST IS PAID IS NEAR RELATIVES. THE ONLY DIFFEREN CE HAS BEEN EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE IS THAT THESE LOANS ARE OUTSTANDING FROM SO MANY Y EARS , THAT APART , WE FIND THAT FOR THE ASSESSMENT YEAR 2010 - 11, ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 18/12/2012 , BUT NO DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER. SUBSEQUENTLY, ON VERY SAME ISSUE LD. COMMISSIONER PASSED AN ORDER UNDER SE CTION 263 ON 30/03/2015 AND DIRECTED THE ASSESSING OFFICER TO VERIFY THE INTEREST PAYMENTS TO RELATED PARTIES VIS - A - VIS BANK INTEREST PAID. THE ASSESSING OFFICER VERIFIED AND AGAIN PASSED ASSESSMENT ORDER ON 23/12/2012, NO ADDITION IS MADE. WHEN UNSECURED LOANS ARE AVAILED BY LONG AGO , WHICH HAS BEEN CONTINUOUSLY CONSIDERED BY THE ASSESSING OFFICER AND NO DISALLOWANCE IS MADE , PARTI C UL A RLY IN THE ASSESSMENT YEAR 2010 - 11 AND EVEN AFTER PASSING OF 263 ORDER ALSO , ASSESSING OFFICER HAS NOT DISALLOWED . BY CON SIDERING THE ENTIRE DETAILS DURING THE YEAR UNDER CONSIDERATION CANNOT BE SAID THAT INTEREST PAID IS EXCESSIVE. THEREFORE, WE FIND THAT THE ORDER PASSED BY THE LD. CIT(A) HAS TO BE REVERSED. ACCORDINGLY, WE REVERSE THE ORDER PASSED BY THE 5 ITA NO. 138/VIZ/2018 ( CHAMARTHY KRISHNA RAO ) LD.CIT(A). THU S, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 8 . GROUND NO.3 RAISED BY THE ASSESSEE RELATES TO ADDITION OF RS. 84,779/ - IN RESPECT OF NOTIONAL INTEREST. 9. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS ADVANCED AN AMOUNT OF RS. 7,06,492/ - TO M/S. SURYA ENTERPRISES, WHICH IS ASSESSEES OWN CONCERN AND F URTHER FOUND THAT THE ASSESSEE HAS NOT CHARGED ANY INTEREST ON THE SAID ADVANCE WHILE HE I S PAYING INTEREST OF OUTSTANDING LOANS TAKEN FROM HIS FAMILY MEMBERS. THEREFORE, THE ASSESSING OFFICER HAS CALCULATED NOTIONAL INTEREST AT 12% ON THE SAID ADVANCE AND ADDED THE AMOUNT OF RS. 84,779/ - TO THE INCOME OF THE ASSESSEE, THE SAME IS CONFIRMED BY T HE LD. CIT(A). 10 . ON APPEAL BEFORE US , IT IS SUBMITTED THAT HE HAS NOT ADVANCED ANY AMOUNT TO M/S. SURYA ENTERPRISES. M/S. SURYA ENTERPRISES WAS OWNED AND RUN BY HIS FATHER. SUBSEQUENTLY, THE ASSESSEE HAS TAKEN OVER THIS FROM HIS FATHER. THEREFORE, NO NOTIONAL INTEREST CAN BE CHARGED , T HE SAME SUBMISSIONS WHICH HE WAS MADE BEFORE THE ASSESSING OFFICER AS WELL AS LD. CIT(A) . 11 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAIL A BLE ON RECORD. WE HAVE GONE THROUGH THE ASSESSMENT ORDER . THE ASSESSING OFFICER NOT ESTABLISHED THE FACT THAT THE ASSESSEE 6 ITA NO. 138/VIZ/2018 ( CHAMARTHY KRISHNA RAO ) ADVANCED AN AMOUNT OF RS. 7,06,492/ - TO M/S. SURYA ENTERPRISES. THAT APART, THE ASSESSING OFFICER GAVE A CATEGORICAL FINDING THAT THE ASSESSEE HAS DIVERTED THE INTEREST FREE ADVANCES TOWARDS PER SONAL ADVANCES. WE FIND THAT WHEN THE ASSESSEE HAS NOT AT ALL ADVANCED AMOUNT OF RS. 7,06,492/ - TO THE FIRM - M/S. SURYA ENTERPRISES RUN BY HIS FATHER , THE QUESTION OF DIVERSIFICATION OF INTEREST FREE FUNDS DOES NOT ARISE. WE FIND THAT THE ASSESSING OFFICER AS WELL AS LD. CIT(A) NOT CORRECTLY ASCERTAIN THE FACTS IN DECIDING THE ISSUE. IN OUR OPINION, NO NOTIONAL INTEREST CAN BE CHARGED W ITHOUT ANY BASIS . T HEREFORE IN OUR OPINION, THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) IS NOT CORRECT AND IT DESERVES TO BE REVERSED . ACCORDINGLY, WE REVER S E THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 12. IN T HE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON TH IS 06 TH DAY OF FEB . , 201 9 . SD/ - SD/ - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 06 TH FEB . , 201 9 . VR/ - 7 ITA NO. 138/VIZ/2018 ( CHAMARTHY KRISHNA RAO ) COPY TO: 1. THE ASSESSEE CHAMARTHY KRISHNA RAO, PROP. SURYA ENTERPRISES, D.NO. 13 - 3 - 91, BESIDE ELURU RAILWAY STATION, A.S.R. STADIUM ROAD, ELURU. 2. THE REVENUE JCIT, ELURU RANGE, ELURU. 3. THE PR. CIT - RAJAMAHENDRAVARAM. 4. THE CIT(A) - 12, HYDERABAD. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.