M/s. Laxmi Sagar Trade Link Pvt, Ltd., Bhavnagar V. DCIT, Circle-1, Bhavnagar

ITA 1476/AHD/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0162 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 05-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S.S. SHUKLA
• Assessee Lawyers: PARIMAL
• Keywords: Principle of natural justice; Assessment record
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI WASEEM AHMED, ACCOUNTANT MEMBER) [THROUGH VIRTUAL COURT] ITA. NO: 1476/AHD/2018 (ASSESSMENT YEARS: 2015-16) M/S. LAXMI SAGAR TRADE LINK PVT. LTD. 215, CITY CENTER COMPLEX, KALANAL ROAD, KALANALA BHAVNAGAR PAN NO. AABCL 0532A DCIT, CIRCLE-1, BHAVNAGAR (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TUSHAR HEMANI & SHRI PARIMAL SINGH PARMAR, A.R. RESPONDENT BY : SHRI S. S. SHUKLA, SR. D.R. ( )/ ORDER DATE OF HEARING : 06 -01-2021 DATE OF PRONOUNCEMENT : 15 -03-2021 PER MAHAVIR PRASAD, J.M. 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (HEREINAFTER CALLED CIT(A)) ORDER NO. CIT(A)-6/188/17-18 ORDER DATED ITA NO. 1476/AHD/2018 . A.Y. 2015-16 2 25/04/2018 ARISING OUT OF PENALTY ORDER DATED 04/12/2017. ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO OF MAKING A DISALLOWANCE U/S.40A(2) OF THE ACT OF INTEREST OF RS.34,79,788/- AS BEING EXCESSIVE AND UNREASONABLE. 2. ALTERNATIVELY AND WITHOUT PREJUDICE, THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING ADDITION U/S.40A(2) OF THE ACT MADE BY THE AO WITHOUT DETERMINING THE FAIR MARKET RATE OF INTEREST. 3. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORDERS WITHOUT PROPERLY APPRECIATING THE FACTS AND THEY FURTHER ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IMPUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN CLEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ACTION OF THE ID. AO IN LEVYING INTEREST U/S.234A/B/C OF THE ACT. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ACTION OF THE LD. A.O. IN INITIATING PENALTY U/S. 271(1)(C) OF THE ACT. 2. LD. A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT THE APPELLANT HAD SHOWN UNSECURED LOANS WORTH RS.19,70,16,912/- AND A TOTAL INTEREST PAYMENTS OF RS.3,55,35,414/- THE LEARNED AO ASKED THE APPELLANT TO FURNISH THE PROOFS WITH REGARDS TO IDENTITY, GENUINENESS AND CREDITWORTHINESS OF SUCH ENDERS. THE APPELLANT FURNISHED THE SAME AND THE MATTER WAS RESOLVED. . THEREAFTER, LEARNED AO ASKED THE APPELLANT TO PLACE WORKING, KEEPING 15% AS THE BASE RATE OF INTEREST AND DIFFERENTIAL INTEREST PAYMENTS PAID TO ALL SUCH LENDERS. IN RESPONSE, THE APPELLANT PLACED SUCH WORKING WHICH HAS BEEN PRODUCED AT PARA 3.3, PAGE NO. 3 OF THE ASSESSMENT ORDER. THE LEARNED AO THEREAFTER ASKED THE APPELLANT TO JUSTIFY THE DIFFERENT RATE OF INTEREST PAID TO THE LENDERS. IN RESPONSE, THE APPELLANT VIDE LETTER DATED 25/10/2017 SUBMITTED THAT THE APPELLANT HAS BORROWED MONEY ON PREVAILING MARKET RATE OF INTEREST. HOWEVER WITHOUT SHOW CAUSING THE APPELLANT CONTEST AGAINST ADDITION U/S 40A(2)(B) OF THE ACT, LEARNED AO WENT ON SUCH DIFFERENTIAL INTEREST AMOUNTING TO RS.34,79,788/- TO THE TOTAL INCOME THE APPELLANT. ITA NO. 1476/AHD/2018 . A.Y. 2015-16 3 3. AGAINST THE ORDER OF THE ASSESSING OFFICER, ASSESSE FILED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER ON THE GROUND THAT ASSESSE HAS BEEN FAILED TO JUSTIFICATION PAYING OF HIGHER INTEREST RATE AS COMPARED TO OTHER PARTIES. 4. NOW ASSESSE HAS COME BEFORE US AND FILED BY WAY OF SECOND STATUTORY APPEAL. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE RELEVANT RECORD AND IMPUGNED ORDER. IN THIS CASE, LD. A.O MENTIONED THAT LD. A.R. ON BEHALF OF THE ASSESSE AGREED AT RS. 34,79,788/- . THEREAFTER ASSESSE CONTESTED BEFORE THE LD. CIT(A) BY SUBMITTING THAT IT HAS NOT ACCEPTED THE ADDITION. 6. ON THE OTHER HAND, ASSESSE MERELY FILED A WORKING OF THE INTEREST PAID TO THE SPECIFIED PERSON. THEREAFTER BENCH ASKED ASSESSE TO FILE THE AFFIDAVIT AND SUMMONED THE ASSESSMENT RECORD. IN COMPLIANCE TO OUR DIRECTION, ASSESSE REITERATED THAT HE NEVER ACCEPTED ADDITION MADE BY THE A.O. AND AFTER INSPECTING THE ASSESSMENT RECORD. WE FOUND THAT NOWHERE ASSESSE AGREED FOR THE ADDITION RATHER HE SUBMITTED A PIECE OF PAPER GIVING DETAIL OF THE INTEREST PAID TO THE DIFFERENT PARTIES. 7. NOW WE COME TO MERIT OF THE CASE. LD. A.O. FOUND THAT ASSESSE HAS PAID INTEREST TO CERTAIN RELATED PARTIES AND TREATED INTEREST RATE @ 15% REASONABLE AND DISALLOWED EXCESS RATE PAID TO RELATED PARTIES U/S. 40A(2) WHICH WORKED OUT TO RS. 34,79,788/-. 8. LD. A.R. CONTENTION IS THAT ASSESSE HAS PAID INTEREST @ 18% TO UNRELATED PARTIES AS WELL AND IT HAS PAID INTEREST @ 16.75% TO THE RELATED PARTIES. AND IN VIEW OF THE JUDGMENT OF ACIT VS. PRIYA BLUE INDUSTRIES PVT. LTD. IN ITA NO. 756/AHD/2015 WHEREIN IT IS HELD THAT IF ASSESSE HAS PAID INTEREST RATE @ 18% SAME CANNOT BE SEEN AS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FACT THAT THE ASSESSE HAS INCURRED INTEREST COSTS AT THE SIMILAR RATE ON BORROWED FUNDS FROM UNCONTROLLED PARTIES. THIS ITA NO. 1476/AHD/2018 . A.Y. 2015-16 4 FACT ITSELF PROVES THE CASE OF THE ASSESSE IN AFFIRMATIVE. AND REVENUE HAS NOT BEEN ABLE TO COUNTER THIS ASPECT OF JUSTIFICATION FOR MAKING PAYMENT OF INTEREST ALLEGED AT HIGHER RATE QUA OTHER LENDERS. THEREFORE, RELIEF WAS GRANTED TO THE ASSESSE AND APPEAL OF THE REVENUE WAS DISMISSED. 9. WE DRAW SUPPORT FROM A GUJARAT HIGH COURT JUDGMENT IN THE MATTER OF CIT VS. SARJAN REALITIES LTD. WHEREIN IT IS HELD: I. SECTION 40A(2), OF THE INCOME-TAX ACT, 1961 - BUSINESS DISALLOWANCE - EXCESSIVE OR UNREASONABLE PAYMENTS (INTEREST PAYMENT) - ASSESSMENT YEAR 2009-10 - ASSESSING OFFICER OPINED THAT INTEREST PAID TO THREE- RELATED COMPANIES AT RATE OF 12 PER CENT WAS EXCESSIVE AND UNREASONABLE - HOWEVER, LOOKING AT PREVALENT MARKET RATE, AFORESAID INTEREST PAID COULD NOT BE SAID TO BE EXCESSIVE AND UNREASONABLE - WHETHER SOLELY BECAUSE ASSESSEE HAD PAID INTEREST AT DIFFERENT RATES TO DIFFERENT PARTIES, THAT ITSELF COULD NOT BE A GROUND TO COME TO CONCLUSION THAT PAYMENT OF INTEREST TO RELATED COMPANIES AT RATE OTHER THAN THAT PAID TO OTHER PARTY WAS EXCESSIVE AND UNREASONABLE - HELD, YES -[PARA 40] [IN FAVOUR OF ASSESSEE] 10. WHEN A PERSON TAKES A LOAN FROM ANYONE IT DEPENDS UPON TIME AND CIRCUMSTANCES ON WHICH INTEREST RATE CAN BE DETERMINED. IN CASE IF ANYONE TO SWIPE CREDIT CARD FROM AN ATM AND WITHDRAW MONEY OUT OF ATM HE HAS TO PAY INTEREST RATE BETWEEN 30% TO 36% AND AT A SAME TIME, IF HE APPROACHES CREDIT CARD ISSUING BANK/NBFC THOUGH IT TAKES 2 TO 3 DAYS TIME IN THAT CASE CREDIT CARD HOLDER IS LIABLE TO PAY INTEREST RATE @ 15% TO 24% HOWEVER DIFFERENT BANKS/NBFCS ARE HAVING DIFFERENT INTEREST RATES FOR BUSINESS LOAN IF ANY ONE REQUIRE LOAN IN EMERGENCY FROM LOCAL MONEY LENDERS THEN IN THAT CASE ONE HAS TO PAY INTEREST RATE BETWEEN 48% TO 60%. SO IN OUR CONSIDERED OPINION IN THIS CASE DIFFERENCE OF INTEREST WHICH WAS RECEIVED BY THE ASSESSE OR PAID BY IT IS JUST 1.25% PER ANNUM SO SAME CANNOT BE TERMED AS UNREASONABLE. THUS, IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE JURISDICTIONAL HIGH COURT JUDGMENT, WE ALLOW APPEAL OF THE ASSESSE. ITA NO. 1476/AHD/2018 . A.Y. 2015-16 5 11. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 15 - 03- 2021 (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 15/03/2021 RAJESH COPY OF THE ORDER FORWARDED TO:- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD