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

ITA 14/COCH/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3930 (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: 2012-2013
• Appeal Filed On: 16-01-2017
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Assessee Lawyers: P RAGHUNATHAN
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER I.T.A. NO. 1 4 /COCH/20 1 7 ASSESSMENT YEAR : 20 12 - 13 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 - RESPONDEN T) ASSESSEE BY SHRI P. RAGHUNATHAN, ADV. REVENUE BY SHRI A. DHANARAJ, SR. DR DATE OF HEARING 20 / 0 4 / 201 7 DATE OF PRONOUNCEMENT 21 ST - 04 - 2017 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 RELEVANT AS SESSMENT YEAR IS 2012-13. 2. THE SOLITARY ISSUE FOR MY CONSIDERATION IS WHE THER THE DISALLOWANCE OF INTEREST PAID TO RELATED CONCERN AMOUNTING TO RS.8, 99,190/- BY INVOKING THE PROVISIONS OF SEC. 40A(2) IS JUSTIFIED OR NOT. I.T.A. NO.14/COCH/2017 2 3. THE BRIEF FACTS IN RELATION TO THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED I N THE WHOLESALE DISTRIBUTION OF ITC PRODUCTS. FOR THE ASSESSMENT YEAR 2012-13, THE RETURN OF INCOME WAS FILED ON 10-08-2012 DECLARING, TOTAL INCOME OF RS. 10,56 ,080/-. THE ASSESSMENT WAS COMPLETED VIDE ORDER DATED 28/01/2015 U/S. 143(3) O F THE I.T. ACT. IN THE ASSESSMENT COMPLETED, THE ASSESSING OFFICER HAD DIS ALLOWED A SUM OF RS.8,99,190/- BEING EXCESSIVE INTEREST PAID TO RELA TED PARTYS CONCERN. THE RELEVANT FINDING OF THE ASSESSING OFFICER READS AS FOLLOWS: 4. I HAVE CONSIDERED THE CONTENTION OF THE LEARNE D AR. THE SIMILAR CASE WAS DISCUSSED IN THE CASE OF THE ASSESSEE FOR THE AY 20 09-10 AND ASSESSMENT WAS COMPLETED AFTER DISALLOWING THE INTEREST PAID OVER AND ABOVE 12% TO M/S. MP & SONS AS EXCESSIVE. THE APPEAL FILED BY THE AS AGAIN ST THE ORDER IS PENDING FOR DISPOSAL. I HAVE NO OTHER REASON TO DEVIATE THE DE CISION TAKEN BY MY PREDECESSOR. I HAVE GONE THROUGH THE DETAILS FURNIS HED BY THE ASSESSEE AND AFTER TAKING INTO CONSIDERATION ALL OF THE ABOVE THE ASSE SSMENT IS COMPLETED AS UNDER: 5. EXCESSIVE INTEREST PAID: ON GOING THROUGH THE P &L ACCOUNTS IT IS SEEN THAT YOU HAVE CLAIMED AN AMOUNT OF RS.60,12,358.98 AS FI NANCIAL COSTS. OUT OF THIS AN AMOUNT OF RS.31,88,025/- IS SEEN PAID AS INTERES T @19.5% TO MP & SONS HUF AND ITS MEMBERS WHICH IS OVER AND ABOVE THE NORMAL RATES PREVAILING AND IS EXCESSIVE, UNREASONABLE AND NOR FOR THE LEGITIMATE NEEDS OF THE BUSINESS. THEREFORE, THE INTEREST PAYMENT IN EXCESS OF 14% OF THE INTEREST PAID IS TO BE DISALLOWED BY INVOKING PROVISIONS OF SECTION 40A OF THE IT ACT, 1961. ACCORDINGLY, AN ADDITION OF RS.8,99,193/- IS MADE T O THE TOTAL INCOME. 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. I.T.A. NO.14/COCH/2017 3 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 14% ON THE CREDIT 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 GIVEN A CATEGORICAL FINDING THAT THE MONEY KEPT IN THE CURRENT ACCOUNT OF THE PARTNERS W HICH WERE ENTITLED TO INTEREST OF ONLY 14%, WERE WITHDRAWN AND REINVESTED IN THE A SSESSEE-FIRM THROUGH THE RELATED CONCERN AT AN INTEREST RATE OF 19.5%. HAD THE PARTNERS CAPITAL ACCOUNT NOT BEEN WITHDRAWN, THE ASSESSEE WOULD HAVE BEEN LI ABLE ONLY FOR INTEREST AT A RATE OF 14%. BY WITHDRAWING FROM THE PARTNERS CAP ITAL ACCOUNT AND PLACING THESE FUNDS WITH THE RELATED PARTY HUF AND THEREAF TER ADVANCING TO THE ASSESSEE AS LOAN FOR HIGHER RATE OF INTEREST AT 19.5% IS ONL Y A DEVISE/RUSE TO DIVERT THE ASSESSEES INCOME TO RELATED PARTY NAMELY, HUF. THE REFORE, INVOKING THE PROVISIONS OF SECTION 40A(2) AND DISALLOWING INTERE ST PAYMENT IN THE RELEVANT I.T.A. NO.14/COCH/2017 4 ASSESSMENT YEAR IS JUSTIFIED. HENCE, ORDERS OF THE I.T. AUTHORITIES ARE CONFIRMED. IT IS ORDERED ACCORDINGLY. 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 (ASSISTANT REGISTR AR) I.T.A.T ., COCHIN