Shri Jivraj V.Desai, Ahmedabad V. The ACIT.,Cent.Circle-1(2), Ahmedabad

ITA 1605/AHD/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9338 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 23-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: G C PIPARA
• Keywords: Tangible material

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCO/UNTANT MEMBER ./ I.T.A. NO.1605/AHD/2012 ( / ASSESSMENT YEAR : 2009-10) SHRI JIVRAJ V.DESAI 38, NIRANT PARK SOCIETY OPP. SUN-N-STEP CLUB, THALTEJ AHMEDABAD / VS. THE ACIT CENTRAL CIRCLE-1(2) AHMEDABAD # ./ ./ PAN/GIR NO. : AAWPD 8565 F ( #% / APPELLANT ) .. ( &#% / RESPONDENT ) #%' / APPELLANT BY : MR. G.C. PIPARA, DR &#%(' / RESPONDENT BY : MR.PRASOON KABRA, SR.DR )*(+ / DATE OF HEARING 10/01/2017 ,-./(+ / DATE OF PRONOUNCEMENT 07/02/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-I, AHMEDABAD [C IT(A) IN SHORT] DATED 28/05/2012 FOR THE ASSESSMENT YEAR (AY) 2009- 10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- ITA NO.1605/AHD /2012 SHRI JIVRAJ V.DESAI VS. ACIT ASST.YEAR 2009-10 - 2 - 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS I N PARTLY CONFIRMING THE ADDITION TO THE EXTENT OF RS.3,42,07 8/- OUT OF TOTAL ADDITION OF RS.4,00,646/- MADE BY THE AO OUT OF INTEREST PAID TO PERSONS COVERED U/S.40A92)(B) OF THE ACT TR EATING IT AS UNREASONABLE AND EXCESSIVE. IN VIEW OF THE FACTS O F THE CASE AND SUBMISSIONS FILED AS WELL AS LEGAL POSITION, TH E ENTIRE ADDITION OF RS.4,00,646/- OUGHT TO HAVE BEEN DELETE D. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.1,59,472/- ON ACCOUNT OF DISALLO WANCE OF ELECTRICITY EXPENSES ON THE GROUND THAT THE SAME HA VE BEEN CLAIMED FOR RESIDENCE. IN VIEW OF FACTS AND SUBMIS SIONS FILED, THE IMPUGNED ADDITION OF RS.1,59,472/- REQUIRES TO BE DELETED. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.15,078/- ON ACCOUNT OF LOSS ON S HARES [ACTUAL EXPENDITURE PERTAINS TO GAS CHARGES OF ADANI] ON TH E GROUND THAT THE SAME HAVE BEEN CLAIMED FOR RESIDENCE. IN VIEW OF FACTS AND SUBMISSION FILED, THE IMPUGNED ADDITION OF RS.1 5,078/- REQUIRES TO BE DELETED. 3. BRIEFLY STATED, IN THE COURSE OF ASSESSMENT PROC EEDINGS THE ASSESSING OFFICER (AO) OBSERVED THAT ON PERUSAL OF AUDIT REPORT OF THE ASSESSEE, IT WAS SEEN THAT THE ASSESSEE HAD MADE PA YMENT OF INTEREST TO THE TUNE OF RS.66,77,440/- TOWARDS UNSECURED LOAN TO PERSONS COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THE INTEREST WAS BORNE BY THE ASSESSEE @ 15% P.A. ON SUCH LOANS FROM RELATED PART IES. IT WAS SIMULTANEOUSLY NOTED THAT THE ASSESSEE, ON THE OTHE R HAND, IS RECEIVING INTEREST @ 9% P.A. ONLY FROM HOTEL RAJPATH WHICH IS ALSO INCIDENTALLY COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THE AO ACCORDINGLY WAS OF THE OPINION THAT EXPENDITURE INCURRED TOWARDS INTER EST WAS EXCESSIVE AND ITA NO.1605/AHD /2012 SHRI JIVRAJ V.DESAI VS. ACIT ASST.YEAR 2009-10 - 3 - UNREASONABLE HAVING REGARD TO FAIR RATE OF INTEREST PREVAILING IN THE MARKET. HE ACCORDINGLY RESORTED TO SECTION 40A(2)( B) OF THE ACT AND CONSIDERED FAIR RATE OF INTEREST AT 9% P.A. AS A BE NCH MARK IN KEEPING WITH THE RATE AT WHICH THE LOAN WAS ADVANCED BY THE ASSESSEE. THE AO ACCORDINGLY DISALLOWED INTEREST PAID OVER AND ABOV E 9% P.A. THE DISALLOWANCE WAS QUANTIFIED AT RS.4,00,646/- BEING EXCESSIVE INTEREST OF 6% PAID TO THE PERSONS SPECIFIED UNDER SECTION 40A (2)(B) OF THE ACT. 4. THE CIT(A) GRANTED PARTIAL RELIEF AND SUBSTITUT ED INTEREST @10% P.A. AS AGAINST 15% P.A. CLAIMED BY THE ASSESSEE. THE D ISALLOWANCE WAS THUS RESTRICTED AT RS.3,42,078/- AS AGAINST RS.4,00,646/ - COMPUTED BY THE AO. THE RELEVANT DISCUSSION ON THE ISSUE BY THE CIT(A) IS REPRODUCED HEREUNDER:- 4. DURING THE COURSE OF APPELLATE PROCEEDINGS WRI TTEN SUBMISSION DATED 28/05/2012 WAS RECEIVED FROM THE A PPELLANT WHICH IS PLACED ON RECORD. THE CRUX OF THE ARGUMEN T OF THE LD.AR WAS THAT SIMILAR DISALLOWANCE WAS MADE BY THE A.O. IN AY 2008- 09 BUT THE DISALLOWANCE WAS DELETED BY CIT(A)-I THR OUGH HIS ORDER DATED 5/12/2011. 5. AFTER GOING THROUGH RIVAL SUBMISSIONS IT IS SEE N THAT IN A.Y. 2008-09 THE APPELLANT HAD PAID INTEREST TO THE SAME INDIVIDUALS @10%, WHEREAS THIS YEAR THIS INTEREST HAD BEEN CLAI MED AT 15%, HOWEVER, INTEREST TO SAME FIRMS ETC. WAS PAID @ 15% THIS YEAR AS WAS DONE BY THE APPELLANT LAST YEAR. CIT(A) HAD UP HELD THIS INTEREST PAYMENT IN AY 2008-09. THEREFORE, FOLLOWI NG MY ITA NO.1605/AHD /2012 SHRI JIVRAJ V.DESAI VS. ACIT ASST.YEAR 2009-10 - 4 - PREDECESSORS ORDER AND THE PRACTICE OF THE APPELLA NT HIMSELF THE INTEREST PAYMENT IS RESTRICTED IN THE CASE OF INTER EST PAID TO INDIVIDUALS TO 10% AS AGAINST 15% CLAIMED BY THE AP PELLANT. THE FOLLOWING TABLE CLARIFIES: NAME OF THE PARTY RATE OF INTEREST AMOUNT (RS.) INTEREST @ 10% DIFFERENCE HOTEL RANGOLI 15% 15,31,623/- - INTEREST CHARGED AT THE SAME RATE AS LAST YEAR JIVRAJ V.DESAI (HUF) 15% 39,56,037/- - -DO- RAJ CORPORATION 15% 1,63,547/- - -DO- RAMESHBHAI J.DESAI 15% 83,374/- 55,583/- 27,791/- RAJESHBHAI J.DESAI 15% 4,51,551/- 3,01,034/- 1,50,517/- RAJNIBHAI J.DESAI 15% 4,91,308/- 3,27,538/- 1,63,770/- TOTAL 6,84,155/- 3,42,078/- THUS AS CLEAR FROM THE TABLE ABOVE, THE INTEREST DI SALLOWANCE COMES TO RS.3,42,078 AS AGAINST RS.4,00,646 MADE BY THE A.O. RS.3,42,078 IS DIRECTED TO BE UPHELD AND THE BALANC E TO BE DELETED FROM DISALLOWANCE OF RS.4,00,646/-. ITA NO.1605/AHD /2012 SHRI JIVRAJ V.DESAI VS. ACIT ASST.YEAR 2009-10 - 5 - 5. THE ASSESSEE SEEKS TO ASSAIL THE ORDER OF CIT(A) BEFORE THE TRIBUNAL. 6. WITH REFERENCE TO GROUND NO.1, THE LD.AR FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT SIMILAR ISSUES AROSE IN AY 2 008-09 IN ASSESSEES OWN CASE WHERE THE CIT(A) DELETED THE ENTIRE ADDITI ON HOLDING THAT THE AO IS NOT JUSTIFIED IN ADOPTING INTEREST @ 12% P.A. AS REASONABLE AND APPLYING IT ALL THE PARTIES FOR WORKING OUT EXCESSI VE INTEREST. THE LD.AR SUBMITTED THAT THE OBSERVATION OF THE CIT(A) IN ASS UMING 10% RATE OF INTEREST IS FAIR AND REASONABLE IS CONTRARY TO THE FINDINGS GIVEN IN THE EARLIER APPEAL. THE LD.AR CONTENDED THAT IN AY 200 8-09 THE CIT(A) HAS CATEGORICALLY OBSERVED THAT THE INTEREST RATE O F PERSONAL LOANS ARE AS HIGH AS 24% TO 30% AND THAT THE MARKET RATES FOR BO RROWINGS AS NORMALLY HIGHER THAN THE BANK RATES IS NO SECRET. HE THEREF ORE, CONTENDED THAT THERE IS NO REASON TO DEPART FROM THE EARLIER VIEW AND RE STRICTING THE ALLOWANCE OF INTEREST ARTIFICIALLY AT 10% P.A. AS AGAINST ACT UAL PAYMENT @ 15%. 7. AS REGARDS GROUND NOS.2 & 3, THE LD.AR FAIRLY SU BMITTED THAT SAME ARE NOT PRESSED. THE LD.DR, ON THE OTHER HAN D, RELIED UPON THE ORDER OF THE CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE I SSUE INVOLVED AS PER GROUND NO.1 OF THE APPEAL IS APPLICABILITY OF S ECTION 40A(2)(B) OF THE ITA NO.1605/AHD /2012 SHRI JIVRAJ V.DESAI VS. ACIT ASST.YEAR 2009-10 - 6 - ACT TOWARDS PAYMENT OF INTEREST TO RELATED PARTIES IN THE FACTS OF THE CASE. WE NOTE THAT THE AO HAS CONSIDERED INTEREST PAID @ 15% P.A. TO RELATED PARTIES AS EXCESSIVE IN VIEW OF INTEREST RECEIVED @ 9% P.A. ON LOAN GIVEN BY THE ASSESSEE TO RELATED PARTIES. THE CIT(A) IN FIRST APPEAL, MODIFIED THE ORDER OF THE AO AND CONSIDERED 10% RATE OF INTE REST AS REASONABLE HAVING REGARD TO THE FACT THAT THE INTEREST @ 10% W AS PAID IN THE PRECEDING YEAR TO THESE PARTIES. WE FIND THAT THE ACTION OF THE CIT(A) IN ASSUMING THE RATE DIFFERENT FROM WHAT HAS BEEN ACTU ALLY PAID BY THE ASSESSEE AS CONTRARY TO ITS OWN OBSERVATION IN THE PRECEDING YEAR THAT INTEREST RATES ON PERSONAL LOANS CAN BE AS HIGH AS 24% TO 30%. IT IS COMMON KNOWLEDGE THAT MARKET RATES FOR BORROWINGS A RE HIGHER COMPARED TO THE BANK RATES OWING TO EASE OF ACCESSI NG THE SAME WITH AND WITHOUT SECURITY. IN THE INSTANT CASE, ADMITTEDLY, THE LOANS HAVE BEEN TAKEN FROM THE SPECIFIED PERSONS CONNECTED, WITHOUT ANY SECURITY. THE RATE OF INTEREST @ 15% P.A. IS QUITE AT PAR WITH T HE ORDINARILY PREVAILING MARKET RATE FOR SUCH LOANS. THE REVENUE HAS NOT BROUGHT ON RECORD TO DISPROVE INTEREST RATE OF 15% QUA FAIR MARKET RATE OF INTEREST. WE ARE ALIVE TO THE FACT THAT ASSESSEE HAS OBTAINED INTERE ST AT LESSER RATE FROM THESE PARTIES IN THE PAST. HOWEVER, IN OUR VIEW, N OTHING TURNS ON THIS. IT IS QUITE POSSIBLE THAT THE BORROWALS HAVE BEEN RECE IVED IN THE EARLIER YEARS AT A FAVOURABLE RATE IN COMPARISON TO THE MARKET R ATE. WHAT THE RELEVANT IS THE FAIR MARKET RATE FOR DETERMINATION OF EXCESS INTEREST PAID, IF ANY. IN THE ABSENCE OF ANY TANGIBLE MATERIAL TO DISPLACE TH E ACTUAL INTEREST PAID BY ITA NO.1605/AHD /2012 SHRI JIVRAJ V.DESAI VS. ACIT ASST.YEAR 2009-10 - 7 - THE ASSESSEE TO THE CONNECTED PERSONS/PARTIES, WE DO NOT CONSIDER DISALLOWANCE SUSTAINED BY THE CIT(A) AS FAIR AND PR OPER. THE ORDER OF THE CIT(A) SUSTAINING PART OF DISALLOWANCE MADE BY THE AO ON THE SCORE, THEREFORE REQUIRES TO BE REVERSED. AS A RESULT, G ROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 9. GROUND NOS.2 & 3 OF ASSESSEES APPEAL ARE ALSO DISMISSED AS NOT PRESSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 07/ 02/2017 SD/- SD/- () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 07/ 02 /2017 3..),.)../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &#% / THE RESPONDENT. 3. 456+ 7+ / CONCERNED CIT 4. 7+ ( ) / THE CIT(A)-I, AHMEDABAD 5. 89:+)56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<* / GUARD FILE. / BY ORDER, &8++ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD