M/s Yashodha Motors Pvt. Ltd., Patiala V. ACIT, Circle, Patiala

ITA 1601/CHANDI/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4469 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 23-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RISHI KUMAR
• Keywords: Principle of natural justice; Rule of consistency; Fair market value; Assessment record
• Section: 68

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B , CHANDIGARH (VIRTUAL COURT) , ! ' # , BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.1601/CHD/2019 / ASSESSMENT YEAR : 2016-17 M/S YASHODHA MOTORS PVT. LTD. C/O SH. TEJMOHAN SINGH, ADVOCATE, # 526, SECTOR-10D CHANDIGARH THE ACIT CIRCLE, PATIALA ./PAN NO: AAACY4097J /APPELLANT /RESPONDENT /ASSESSEE BY: SHRI TEJMOHAN SINGH, ADVOCATE ! / REVENUE BY: SHRI RISHI KUMAR, JCIT ' # /DATE OF HEARING : 13/10/2020 $%&' /DATE OF PRONOUNCEMENT:. 22/10/2020 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER : THE ABOVE APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), PATIALA [(IN SHO RT REFERRED TO AS CIT(A)] DATED 28.10.2019, RELATING TO ASSESSMENT YEAR 2016-17, PASS ED U/S 250(6) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT). 2. THE SOLITARY ISSUE IN THE PRESENT APPEAL PERTAINS TO DISALLOWANCE OF INTEREST PAID ON UNSECURED LOANS TAKEN FROM SPECIFIED PERSONS HOLDING TH E SAME TO BE IN EXCESS OF THE FAIR MARKET RATE ,AS PER SECTION 40A(2)(B) OF THE ACT, RESTRICTING THE SAME TO 12% AS AGAINST 18% CLAIMED BY THE ASSESSEE. 3. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AS WELL AS ON FACTS IN UPHOLDING THE ADDITION OF RS. 21,86,197/- APPLYING THE PROVISIONS OF SECTION 40A(2) FOR ALLEGED EXCESS INTEREST PAID ON UNSECURED LOANS WHI CH IS ARBITRARY AND UNJUSTIFIED. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS FAILED TO CONSIDER THE EXPLANATIONS RENDERED AND THE PAST HISTORY IN THE C ORRECT PERSPECTIVE AND AS SUCH THE ADDITION UPHELD IS ARBITRARY AND UNJUSTIFIED. 2 3. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL BEFORE THE APPEAL IS FINALLY HEARD OR DISPOSED OFF. 4. THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS ERRONEOUS, ARBITRARY, OPPOSED TO LAW AND FACTS OF THE CASE AND IS, THUS, UNTENABLE. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CONTENDE D THAT IT HAD REPEATEDLY DEMONSTRATED BOTH TO THE ASSESSING OFFICER (AO) AND THE LD. CIT(A) THAT THE INTEREST RATE PAID BY IT TO THE SPECIFIED PERSONS @18% ON UNS ECURED LOANS WAS AS PER THE MARKET RATE PREVAILING AND THERE WAS THEREFORE NO CAUSE FOR MAKING ANY DISALLOWANCE UNDER SECTION 40A(2)(B) OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT IT HAD BEEN PLEADED THAT THERE WAS NO LEVEL PLAYING FIELD BE TWEEN UNSECURED LOANS TAKEN FROM PRIVATE PERSONS AND BETWEEN BANK/NBFC BORROWI NGS SINCE BANKS CHARGED INTEREST ON MONTHLY BASIS RESULTING IN COMPOUNDING OF INTERE ST THUS INCREASING THE EFFECTIVE RATE OF INTEREST AND MOREOVER BANK LOANS INV OLVE GUARANTEES AND SECURITIES AND ANNUAL RENEWAL CHARGES, INSURANCE CHARGES AND LOAN PR OCESSING CHARGES ,ALL OF WHICH ARE NOT INVOLVED IN CASE OF UNSECURED LOANS. THE L D. COUNSEL FOR THE ASSESSEE CONTENDED THAT IT HAD BEEN POINTED OUT THAT GENERALLY UNS ECURED LOANS AND UN GUARANTEED LOANS INVOLVED RATE OF INTEREST BPLR+2 TO 4 % AND THE BPLR OF SBI DURING THE IMPUGNED YEAR WAS 14.60%, THEREFORE THE RATE OF INTERE ST CHARGED BY THE ASSESSEE @18% WAS THE MARKET RATE CHARGED ON UNSECURED LOANS. IT WAS FURTHER POINTED OUT THAT THE ASSESSEE HAD BEEN AVAILING UNSECURED LOANS / TRADE ADVANCE FACILITY FROM HINDUJA LEYLAND FINANCE LTD. (NBFC OF HINDUJA GROUP) BEARING 14 .5% RATE OF INTEREST. OUR ATTENTION WAS DRAWN TO THE SUBMISSIONS MADE BY THE ASSES SEE IN THIS REGARD BEFORE THE LD. CIT AT PARA 2.4 AND 2.5 OF THE ORDER AS UNDER: 2.4 THE LOAN TAKEN BY THE ASSESSEE IS UNSECURED AND THERE IS NO LEVEL PLAYING FIELD BETWEEN BANK/NBFC BORROWINGS AND UNSECURED LOANS FR OM PRIVATE PARTIES. THE BANK CHARGES INTEREST ON MONTHLY BASIS RESULTING IN COMP OUNDING OF INTEREST WHICH ULTIMATELY INCREASES THE EFFECTIVE RATE OF INTEREST. ON THE OT HER HAND, IN CASE OF LOANS FROM ANY PRIVATE PERSON, NO SUCH FORMALITIES OF GUARANTIES / SECURITIES ARE NEEDED AND MOREOVER THE ANNUAL RENEWAL CHARGES, INSURANCE CHARGES AND LOAN CASE PROCESSING CHARGES ARE NOT BORNE BY THE BORROWER. THE INTEREST IS PAYABLE ON A NNUAL BASIS AND NOT MONTHLY BASIS. THE APPELLANT ASSESSEE CAN AVAIL THE FACILITY OF LOAN F ROM A PRIVATE PERSON WITHOUT UNDERGOING ANY PROCEDURAL FORMALITIES AND CAN OBTAIN THE LOAN AND REPAY THE SAME AS PER ITS OWN CONVENIENCE AND NECESSITIES. THE COMPANY RECEIVED SUBJECT UNSECURED LOANS IN THE PRECEDING YEARS AND PAYMENT OF INTEREST @18% IN THE SUBJECT YEAR IS CONSISTENT WIT H THE PRECEDING YEARS. KINDLY APPRECIATE THAT BUSINESS EXPEDIENCY FACTOR IS TO BE DECIDED FR OM THE BUSINESSMEN'S POINT OF VIEW AND NOT BY THE AO. THE INCOME-TAX AUTHORITIES MUST NOT PUT THEMSELVES IN THE SHOES OF THE 3 ASSESSEE AND SEE AT WHAT RATE A PRUDENT BUSINESS MA N SHOULD BORROW MONEY FROM THE DEPOSITORS FOR HIS BUSINESS NECESSITY. 2.5 WE MAY BE PERMITTED TO FURTHER SUBMIT THAT IN C ASE OF UNSECURED AND UNGUARANTEED LOANS THE RATE OF INTEREST IS USUALLY BPLR + 2 TO 4% AND. SUCH LOANS ARE GRANTED BY BANKS FOR VERY SMALL AMOUNT AS PERSONAL LOANS AGAINST SECURITY OF POST DATED CHEQUES AND REPAYABLE IN EMI. IN THE F.Y.2015-16 TH E AVERAGE BENCHMARK PRIME LENDING RATE (BPLR) OF STATE BANK OF INDIA IN APRIL,2015 WA S 14.60%. THUS, RATE OF INTEREST FOR UNSECURED AND UNGUARANTEED LOANS FROM BANK WAS IN RANGE OF 17-19% PAYABLE MONTHLY IN EMI. A CHART OF BPLR IS PLACED AT PAGE NO. 19-19 OF THE PAPER BOOK . YOUR KIND ATTENTION IS INVITED TO THE FACT THAT THE COMPANY WAS AVAILING UNSECURED LOAN - TRADE ADVANCE FACILITY FROM HINDUJA LEYLAND FINANCE LTD. (NBFC OF HINDUJA GROUP) BEARING 14.5% RATE OF INTEREST WITH EACH TRADE ADVANCE WITH GENERAL REPAYMENT PERIOD OF 30 DAYS FROM THE DATE OF ADVANCE WITH INTEREST. COPY OF TRA DE ADVANCE ACCOUNT RECEIVED FROM LENDER COMPANY IS PLACED AT PAGE NO. 16-18 OF THE PAPER BOOK. AT THE COST OF REPETITION, IT IS STATED THAT THE MONTHLY CHARGING OF INTEREST RESULTS IN COMPOUNDING OF INTEREST WHICH ULTIMATELY INCREASES THE EFFECTIVE RATE OF INTEREST . MOREOVER FUNDS ARE AVAILABLE FOR SHORT PERIOD. 4.1 THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED IN THE PRECEDING YEAR ALSO IT HAD PAID INTEREST ON UNSECURED LOANS TO SPECIFIED PERSON S @18% AND THE SAID ISSUE HAD BEEN EXAMINED DURING THE ASSESSMENT PROCEEDING AND ACCEP TED BY THE AO. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THIS FACT HAD AL SO BROUGHT TO THE NOTICE OF THE AUTHORITIES BELOW PLACING BEFORE THEM THE SHOW CAUSE NO TICE ISSUED DURING ASSESSMENT PROCEEDING FOR THE PRECEDING YEAR PROPOSING TO RESTR ICT THE RATE OF INTEREST ON UNSECURED LOANS FROM SPECIFIED PERSONS TO 12% AS AGAINS T 18% PAID BY THE ASSESSEE COMPANY. THE REPLY FILED BY THE ASSESSEE TO THE SAME HAD ALSO BEEN FILED BEFORE THE LOWER AUTHORITIES ALONG WITH THE COPY OF THE ASSESSMENT ORDER SHOWING NO ADDITION BEING MADE ON ACCOUNT OF THE SAME. OUR ATTENTION WAS DRAW N TO THE SUBMISSIONS MADE BY THE ASSESSEE IN THIS REGARD BEFORE THE LD CIT(A ) REPRODUCED AT 4 OF HIS ORDER IS AS UNDER: 4. IN RESPONSE TO SHOW CAUSE NOTICE DT. 14.12.2018, APPELLANT COMPANY THROUGH ITS A.R. FILED REPLY VIDE LETTER DT. 15.12.2018 STATING THAT INTEREST ON UNSECURED LOANS OF SPECIFIED PERSONS WAS ALLOWED @18% BY HIS PREDECESSOR IN OFFI CE AFTER DELIBERATION WHILE COMPLETING ASSESSMENT FOR THE PRECEDING A.Y.2015-16.LD. A.O. W AS REQUESTED TO FOLLOW THE PRINCIPLE OF CONSISTENCY IN THE YEAR UNDER CONSIDERATION ALSO. L D. A.O. WAS ALSO REQUESTED TO VERIFY THE FACTS FROM THE ASSESSMENT RECORD FOR THE A.Y.2015-1 6 BEFORE TAKING ANY DECISION. COPY REPLY DT. 15.12.2018 IS PLACED AT PAGE NO. 13-15 OF THE PAPER BOOK. THE SEQUENCE OF EVENTS ON THE ISSUE OF INTEREST TO SPECIFIED PERSONS ALLOWED IN THE ASSESSMENT PROCEEDINGS FOR THE PRECEDING A.Y.2015-1 6 IS AS UNDER: A) THE PREDECESSOR IN OFFICE OF THE ID. A.O. HAD AL SO PROPOSED TO RESTRICT RATE OF INTEREST ON UNSECURED LOANS AT 12% AGAINST 18% PAID BY ASSESSEE COMPANY TO SPECIFIED PERSONS VI DE HER SHOW CAUSE NOTICE DT. 17.08.2017(PARA 4.2.5.2). THE RELEVANT EXTRACTS OF PARA 4.2.5.2 ARE REPRODUCED FO R YOUR READY REFERENCE. 4 'AS PER DETAILS AVAILABLE, OUT OF THE TOTAL FINANCE COST OF RS.2,66,54,790/-, THE INTEREST EXPENSE ON UNSECURED LOANS AMOUNTING TO RS.65,39,03 2/- HAS BEEN DEBITED TO THE P&L ACCOUNT. ADMITTEDLY, THE INTEREST ON UNSECURED LOANS HAS BEE N PAID @18%, WHICH IS HIGHER TO THAT OF PREVALENT MARKET RATE OF 12%. THE INTERE ST HAS APPARENTLY BEEN PAID EITHER TO THE FAMILY MEMBER OR TO THE KNOWN PERSONS, WHO HAVE ADV ANCED THE AMOUNT OF LOAN OUT OF THEIR SURPLUS FUNDS AVAILABLE, WHICH OTHERWISE WOUL D HAVE FETCH MUCH LOWER INTEREST IN CASE THE SAME HAVE BEEN DEPOSITED WITH THE BANKS. THOUGH THE INTEREST RATE ALLOWABLE BY THE BANKS, EVEN ON FDR'S, WAS MUCH LOWER TO THAT OF 12% BUT IN THE INTEREST OF NATURAL JUSTICE, IT WOULD BE APPROPRIATE TO ALLOW THE PREVALENT MARKET RATE OF 12% AS IS NORMALLY ADMISSIBLE. THE CASE LAWS RELIED UPON BY THE ASSESSEE COMPANY A RE NOT RELEVANT TO THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, UNDER REFERENCE. IT IS, THEREFORE, PROPOSED TO ALLOW THE AMOUNT OF INTEREST EXPENSES AT THE PREVALENT MARKET RATE OF 12% AS AGAINST THE RATE OF INTEREST OF 18%, AS CLAIMED. THE INTEREST A 12% PAYABLE ON UNSECURED LOANS COMES TO RS.43,59,355/-. THEREFORE, THE AMOUNT OF EXCESS INT EREST OF RS. 21,76,677/- DEBITED TO P&L ACCOUNT IS PROPOSED TO BE DISALLOWED. HOWEVER, BEFORE MAKING SUCH DISALLOWANCES, THE ASSESSEE COMPANY IS GIVEN AN OPPORTUNITY TO FURNISH ITS EXPLANATION WITH JURISDICTION THEREOF, SUPPORTED WITH DOCUMENTARY EVIDENCE.' COPY OF SHOW CAUSE DT. 17.08.2017 IS PLACED AT PAGE NO. 42-57 OF THE PAPER BOOK . PARA 4.2.5.2 APPEARS ON PAGE 52. B) IN RESPONSE, THE ASSESSEE COMPANY THROUGH ITS CO UNSEL FILED ITS ARGUMENTS BACKED BY RELEVANT JUDICIAL DECISIONS CLAIMING THAT THERE IS NO CASE FOR DISALLOWANCE OF INTEREST BY REDUCING RATE OF INTERE ST TO 12% P.A. THE ASSESSEE'S CONTENTION WAS ACCEPTED AND ASSESSMENT WAS COMPLETE D WITHOUT MAKING ANY DISALLOWANCE OF INTEREST. COPY OF REPLY FILED AND A SSESSMENT ORDER FOR THE A.Y.2015-16 PLACED AT PAGE NO .58-66B OF THE PAPER BOOK. 4.2 THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT PRINC IPLE OF CONSISTENCY DEMANDED THEREFORE THAT NO DISALLOWANCE BE MADE IN THE IM PUGNED YEAR ALSO. 4.3 THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDE D THAT IN ANY CASE THE ENTIRE EXERCISE WAS REVENUE NEUTRAL SINCE THE MAJOR DEPOSIT ORS TO WHOM INTEREST HAD BEEN PAID BY THE ASSESSEE COMPANY FELL IN THE HIGHEST TAX B RACKET OF 30% FOR THE IMPUGNED YEAR, THEREFORE IT COULD NOT BE SAID THAT THE ASSESSEE HAD BENEFITED BY MAKING INTEREST PAYMENT AT RATE HIGHER THAN THE MARKET RATE TO THE AFORESA ID PERSONS. 4.4 THE LD. COUNSEL FOR THE ASSESSEE THEREAFTER CONTENDE D THAT THE LD. CIT(A) HAD UPHELD THE DISALLOWANCE BY MERELY REITERATING THE FIND INGS OF THE AO WITHOUT CONSIDERING THE CONTENTIONS RAISED BY THE ASSESSEE AS ABO VE. HE DREW OUR ATTENTION TO THE FINDINGS OF THE LD. CIT(A) AT PAGE 14 AND 15 OF THE O RDER AS UNDER: THE FACTS OF THE CASE, BASIS OF DISALLOWANCE/ADDITI ON MADE BY THE AO AND ARGUMENTS OF THE AR DURING THE COURSE OF APPELLATE PROCEEDINGS H AVE BEEN CONSIDERED. THE AR HAS ARGUED THAT IN THE PRESENT CASE, THE ASSESSEE HAS A VAILED LOAN FROM THE PERSONS COVERED U/S 40A(2)(B) AND PAID INTEREST AT THE RATE OF 18%. AS PER THE AR, LOAN TAKEN BY THE ASSESSEE IS UNSECURED LOAN AND THERE IS NO LEVEL PL AYING FIELD BETWEEN BANKS/NBFC BORROWINGS AND UNSECURED LOANS FROM PRIVATE PARTIES . AS PER THE AR, THE PROVISION OF SECTION 40A(2) WERE INVOKED ON CONJECTURES & SURMIS ES WITHOUT ESTABLISHING THAT THE RATE OF INTEREST PAID WAS EXCESSIVE OR UNREASONABLE. THE AR HAS MENTIONED THAT THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO SUGGEST THAT THERE WE RE WILLING MONEY LENDER WHO COULD LAND CAPITAL @12% TO THE APPELLANT. THE AR RELIED U PON CERTAIN CASE LAWS IN SUPPORT OF HIS CONTENTIONS. ANOTHER ARGUMENT OF THE AR WAS THAT RE VENUE NEUTRALITY WAS NOT CONSIDERED 5 BY THE AO. IT IS ALSO STATED THAT THE ISSUE WAS EXA MINED BY THE PREDECESSOR IN THE ASSESSMENT YEAR 2015-16 AND AFTER CONSIDERING THE R EPLY OF THE ASSESSEE NO ADVERSE VIEW WAS TAKEN. AS PER THE AR, THE PRINCIPLE OF CONSISTE NCY HAS THUS NOT BEEN FOLLOWED BY THE AO. IT IS SEEN THAT ALL THESE GROUNDS WERE TAKEN BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS ALSO AND THE AO HAS DULY DEALT WITH VAR IOUS CONTENTIONS RAISED BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS INCLUDI NG THE CASE LAWS RELIED UPON BY THE ASSESSEE. THE ARGUMENT ABOUT THE CLAIM THAT THE ISS UE WAS COVERED IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2015-16 HAS BEEN DULY DISCUSSED BY THE AO IN THE ASSESSMENT ORDER AND THE CONCLUSIONS OF THE AO ARE NOT REBUTTED BY THE AR DURING THE APPELLATE PROCEEDINGS: THE AO HAS ALSO DISCUSSED TH E DOCTRINE OF RES-JUDICATA WHICH IS NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS UNDER THE INCOME TAX ACT, AS HELD BY THE HON'BLE SUPREME COURT. IT IS SEEN THAT THE AO HAS D ULY DISCUSSED THE LEGAL & FACTUAL POSITION REGARDING THE DISALLOWANCE OF INTEREST AND APPLICABILITY OF SECTION 40A(2) TO THE FACTS OF THE CASE IN HAND. THE CONCLUSIONS DRAWN BY THE AO ARE FOUND AS PER LAW AND HENCE LIABLE TO BE UPHELD. THE AO HAS GIVEN THE BAS IS FOR ADOPTING THE FAIR MARKET VALUE OF THE INTEREST (5)12% ON UNSECURED LOANS BASED UPO N THE PREVAILING MARKET CONDITIONS DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR 2016- 17. THIS IS A FACT THAT THE INTEREST RATES HAVE COME DOWN OVER A PERIOD OF TIME AND THE INTERE ST RATE OF 12% ADOPTED BY THE AO IS QUITE REASONABLE FOR THE YEAR UNDER CONSIDERATION. THERE WAS A TIME WHEN THE INTEREST RATE WERE HIGHER THAN THIS AMOUNT BUT THAT WAS LONG TIME AGO AND THE ASSESSEE WAS REQUIRED TO FOLLOW THE MARKET TREND. EVEN THE ASSESSEE HAS N OT BEEN ABLE TO SHOW THAT IT WAS PAYING A HIGHER RATE OF INTEREST TO THE OTHER PARTIES WHO ARE NOT SPECIFIED PERSONS AS REFERRED IN SECTION 40A(2)(B). THE ARGUMENT ABOUT THE SLAB RATE OF 30% APPLICABLE TO THE DEPOSITOR HAS ALSO BEEN DULY DISCUSSED BY THE AO AND IT HAS R IGHTLY BEEN OBSERVED THAT THE INCOME ACCRUING NEEDS TO BE TAXED IN THE HANDS OF THAT PER SON ONLY. THEREFORE, THE ASSESSEE CANNOT BE ALLOWED TO SHIFT THE PROFIT WHICH IS TAXA BLE IN ITS HAND AND PASS ON THE SAME IN THE HANDS OF THE DIRECTORS AND OTHER RELATED PERSON S. THE TAX ON INCOME ACCRUING TO THE ASSESSEE HAS TO BE PAID BY THE ASSESSEE ITSELF. IF THIS ARGUMENT OF THE AR IS ACCEPTED THEN IT WILL RENDER THE PROVISION OF SECTION 40A(2)(A) AS I NFRUCTUOUS. THEREFORE, THIS CONTENTION OF THE AR IS LIABLE TO. BE REJECTED BEING AGAINST THE SPIR IT OF PROVISION OF SECTION 40A(2). THE PRINCIPLE OF CONSISTENCY WILL NOT BE APPLICABLE IN THIS CASE BECAUSE THE INTEREST RATE WHICH WERE PREVAILING EARLIER SOME TIME AGO CANNOT BE SAI D TO BE THE FAIR MARKET VALUE AS REFERRED IN SECTION 40A(2)(A) OF THE INCOME TAX ACT , 1961 AND THE ASSESSEE WAS REQUIRED TO MAKE CHANGES EVEN IF A HIGHER RATE OF INTEREST WAS CHARGED IN THE PAST WHE N THE FAIR MARKET VALUE WAS HIGHER. WITH THE DECLINE IN THE IN TEREST RATE IN THE MARKET, THE ASSESSEE WAS ALSO REQUIRED TO REDUCE THE RATE OF INTEREST BEING PAID ON UNSECURED LOANS. IN VIEW OF THE DETAILED DISCUSSION BY THE AO IN THE ASSESSMENT ORDER AND UN DER THE FACTS & CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE OF RS. 21,86,197/- MADE BY THE AO BY INVOKING THE PROVISION OF SECTION 40A(2) IS FOUND S USTAINABLE AS PER LAW AND HENCE CONFIRMED. ACCORDINGLY, THESE GROUNDS OF APPEAL ARE DISMISSED. 4.5 REFERRING TO THE SAME HE POINTED OUT THAT THE LD. CIT (A), ON THE ISSUE OF THE IMPUGNED DISALLOWANCE HAVING BEEN CONSIDERED AND ACCEP TED IN THE PRECEDING YEAR, HAD MERELY ACCEPTED THE FINDING OF THE AO STATING THAT THE AO HAD DISCUSSED THE LEGAL AND FACTUAL POSITION REGARDING THE IMPUGNED DISALL OWANCE AND THAT HIS CONCLUSIONS WERE AS PER LAW AND HENCE LIABLE TO BE UP HELD. AT THIS JUNCTURE THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT FROM THE ASSESSMENT ORDER THAT THE AO HAD REJECTED THIS CONTENTION OF THE ASSESSEE BY STATING THA T IN THE PRECEDING YEAR THE ISSUE OF DISALLOWANCE OF INTEREST UNDER SECTION 40A(2)(B) HAD NOT BEEN EXAMINED AND ONLY THE ISSUE OF IDENTITY AND CREDIT WORTHINESS OF THE UNSE CURED LOANS HAD BEEN EXAMINED. HE DREW OUR ATTENTION TO PARA 5 OF THE ASSESSMENT ORD ER AS UNDER: 6 MOREOVER, THE CONTENTION OF ASSESSEE THAT THE ISSU E WAS COVERED BY THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2015-16 IS ERRONEOUS BECAUSE IN ASS ESSMENT YEAR 2015-16 THE ISSUE OF UNSECURED LOANS WAS CONSIDERED BUT ONLY TO ENQUIRE INTO THE IDENTIT Y AND CREDITWORTHINESS OF LENDERS OF UNSECURED LOANS AND GENUINENESS OF SUCH LOAN TRANSACTIONS. SU CH ENQUIRY WAS CONDUCTED TO EXAMINE THE APPLICABILITY OR OTHERWISE OF SECTION 68 OF INCOME TAX ACT. AT NO POINT OF TIME DURING THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2015-16 WAS SECTION 40A(2) INVOKED. 4.6 THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT IT H AD BEEN CLEARLY DEMONSTRATED ,THROUGH THE RECORDS OF THE ASSESSMENT PROC EEDINGS FOR THE PRECEDING YEAR, THAT THE AO HAD RAISED THE ISSUE OF THE DISALLOWANC E OF INTEREST UNDER SECTION 40A(2)(B) IN HIS SHOW CAUSE NOTICE TO THE ASSESSEE TO WHI CH DUE REPLY HAD BEEN FILED BY THE ASSESSEE AFTER CONSIDERING WHICH NO DISALLOWANCE HAD BEEN MADE. HE THEREFORE CONTENDED THAT THIS FINDING OF THE LD. CIT(A) THAT THE PRIN CIPLE OF CONSISTENCY DID NOT APPLY WAS NOT BASED ON PROPER APPRECIATION OF FACTS BE FORE HIM AND ON DUE APPLICATION OF MIND. HE THEREAFTER POINTED OUT THAT THE LD. CIT(A) HAD EVEN ACCEPTED THE FINDINGS OF THE AO THAT THE 12% RATE OF INTEREST WAS THE FAIR MARKET VALUE OF INTEREST WITHOUT CONTROVERTING THE SUBMISSIONS MADE BY THE ASSESS EE AS REPRODUCED ABOVE BEFORE HIM. HE THEREFORE CONTENDED THAT THE LD. CIT(A) S FINDING ON THE ISSUE NEEDED TO BE DISMISSED SINCE HE HAD MERELY UPHELD THE FINDINGS OF T HE AO WITHOUT DUE APPLICATION OF MIND AND WITHOUT PROPERLY CONSIDERING THE SUBMISSIONS (FACTUAL) BEFORE HIM. HE THEREFORE PLEADED THAT THE RATE OF INTEREST PAI D ON UNSECURED LOANS TAKEN FROM SPECIFIED PERSON @18% BE ACCEPTED AS FAIR MARKET R ATE AND THE DISALLOWANCE MADE BY RESTRICTING THE SAID RATE TO 12% AMOUNTING TO RS. 21,86,197/- BE DELETED. 5. LD. DR ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE LD. CIT(A) 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 7. WE FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE THAT ITS CLAIM OF 18% RATE OF INTEREST, PAID ON UNSECURED LOANS TAKEN FROM SPECIFIED PERSONS, AS THE MARKET RATE OF INTEREST WAS JUSTIFIED AND HENCE ALLOWA BLE AS PER SECTION 40A(2)(B) OF THE ACT. NONE OF THE FACTUAL CONTENTIONS OF THE ASSESSEE T O JUSTIFY ITS CLAIM ,WE FIND, HAVE BEEN REBUTTED BY THE REVENUE. THE ASSESSEE ,WE FIND, HAD JUSTIFIED ITS CLAIM CONTENDING THAT UNSECURED LOANS STOOD ON A TOTALLY DIFFER ENT FOOTING AS COMPARED TO SECURED LOAN TAKEN FROM BANKS, BY WAY OF THE BANKS CHARG ING INTEREST PERIODICALLY RESULTING IN COMPOUNDING OF INTEREST AND HENCE HIGHER EFFEC TIVE RATE OF INTEREST ,OF BANKS TAKING GUARANTEE FOR THE LOANS GIVEN, AND CHARGING INSURANCE AND PROCESSING 7 CHARGES FOR THE SAME, ALL OF WHICH ARE NOT FOUND IN THE C ASE OF UNSECURED LOANS TAKEN FROM PRIVATE PARTIES, THUS JUSTIFYING A HIGHER RATE OF INTEREST AS COMPARED TO BANKS/NBFC; THAT GENERALLY THE RATE OF INTEREST ON UNSECURED LOANS I S BPLR +2 TO 4% AND THAT IN THE IMPUGNED YEAR THE SBI BPLR WAS 14.5% AND FURTHER T HAT THE ASSESSEE ITSELF HAD PAID INTEREST @ 14.5% ON A LOAN TAKEN FROM AN NBFC. IT WAS AL SO DULY DEMONSTRATED THAT IN THE PRECEDING YEAR THE AO HAD ACCEPTED 18% AS THE MARKE T RATE OF INTEREST ON UNSECURED LOANS AFTER DULY EXAMINING THE ISSUE DURING AS SESSMENT PROCEEDINGS.NONE OF THE AFORESAID FACTS HAVE BEEN CONTROVERTED EITHER BY TH E LD.CIT(A) OR BY THE LD.DR BEFORE US. THEREFORE CONSIDERING THE AFORESTATED UNCONTROVERTED FAC TS, THE RATE OF INTEREST OF 18% PAID ON UNSECURED LOAN BY THE ASSESSEE, WE HOLD, STANDS JUSTIFIED AS THE MARKET RATE OF INTEREST. THE LD.CIT(A),WE FIND, HAS UPHELD THE DISALLOWANCE WITHOU T APPLYING HIS MIND TO THE FACTUAL CONTENTIONS OF THE ASSESSEE AND SIMPLY REIT ERATING THE FINDINGS OF THE AO. THE LD.CIT(A) DISMISSED ASSESSEES CONTENTION REGARDING THE APPLICABILITY OF THE PRINCIPLE OF CONSISTENCY ON THE ISSUE AS IN THE PRECEDI NG YEAR THE AO HAD FOUND THE INTEREST RATE OF 18% JUSTIFIED ,REITERATING THE AO S FINDING THAT THE ISSUE DEALT IN THE PRECEDING YEAR WAS DIFFERENT ,WHEN THE FACT IS THAT THE A SSESSEE HAD PLACED BEFORE HIM ALL EVIDENCE BY WAY OF SHOW CAUSE NOTICE ISSUED BY THE AO ASKING WHY 12% INTEREST RATE BE NOT APPLIED AGAINST 18% PAID BY THE ASSESSEE, THE REPLY FILED BY THE ASSESSEE TO IT AND THE ORDER OF THE AO MAKING NO ADDITION /DISALLOW ANCE ON THE ISSUE. FURTHER ,DESPITE THE ASSESSEE JUSTIFYING THE INTEREST RATE OF 18% BY DEMONSTRATING THE FACT THAT UNSECURED LOANS AND LOANS TAKEN FROM BANKS COULD NOT BE COMPARED AND THAT UNSECURED LOANS GENERALLY ATTRACTED RATE OF INTEREST BP LR + 2 TO 4 % AND THE ASSESSEE WAS PAYING 14.5% INTEREST ON LOAN TAKEN FROM NBFC,THE LD. CIT(A) HAS HELD THE SAID RATE UNJUSTIFIED WITHOUT DEALING WITH THE FACTUAL CONTENTIONS AS AFORESTATED AND MERELY MAKING GENERAL OBSERVATIONS THAT TOO WITHOUT ANY BASIS , THAT INTEREST RATES HAVE COME DOWN AND 12% RATE IS REASONABLE AND THAT THE AO HAS GIVEN REASONABLE BASIS FOR ADOPTING 12% RATE AS FAIR RATE OF INTEREST. WE THEREFO RE DISMISS ALL THE ARGUMENTS OF THE REVENUE. 8 THE DISALLOWANCE OF INTEREST THEREFORE MADE BY RESTR ICTING THE RATE OF INTEREST TO 12% UNDER SECTION 40A(2)(B) OF THE ACT, AMOUNTING TO RS . 21,86,197/- IS THEREFORE DIRECTED TO BE DELETED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 22/10/2020 . SD/- SD/- ! ' # (DIVA SINGH) (ANNAPURNA GUPTA) /JUDICIAL MEMBER $ % /ACCOUNTANT MEMBER /DATED: 22/10/2020 AG % ( ) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' * / CIT 4. ' * ( )/ THE CIT(A) 5. +, , , -./,0 / DR, ITAT, CHANDIGARH 6. ,/ 1# / GUARD FILE