M/S. A.P. Chemicals Private Limited, Kanpur V. Deputy Commissioner of Income Tax- 6, Kanpur

ITA 167/LKW/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9670 (ITAT-LUCKNOW)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 06-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Fair market value

Judgement Text

I.T.A. NO.167/LKW/2018 ASSESSMENT YEAR:2014-15 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH SMC, LUCKNOW BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA NO.167/LKW/2018 ASSESSMENT YEAR:2014-15 M/S A. P. CHEMICALS PVT. LTD., 2 ND FLOOR, TEJUMAL HEIGHTS, SWAROOP NAGAR, KANPUR. PAN:AAECA 6231 E VS. DY.C.I.T., RANGE-6, KANPUR. (APPELLANT) (RESPONDENT) O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LEARNED CIT(A)-I, KANPUR DATED 07/12/2017 PERTAINING TO ASS ESSMENT YEAR 2014-15. THE ONLY GROUND TAKEN BY THE ASSESSEE IS THE ACTION OF LEARNED CIT(A) BY WHICH HE HAS CONFIRMED AN ADDITION WHICH THE ASSESS ING OFFICER HAD MADE BY DISALLOWING THE PART OF INTEREST TREATING IT TO BE EXCESSIVE. 2. AT THE OUTSET, LEARNED A. R. SUBMITTED THAT THE ASSESSEE HAD PAID INTEREST @16% TO A RELATED PARTY AND WHICH THE ASSE SSING OFFICER HAD RESTRICTED TO 12% AND HAD MADE A DISALLOWANCE EQUIV ALENT TO 4% OF THE INTEREST. LEARNED A. R. INVITED OUR ATTENTION TO P AGES 2 TO 7 OF THE PAPER BOOK WHERE THE DOCUMENTS RELATING TO LOAN AVAILED B Y THE ASSESSEE COMPANY WERE PLACED. OUR SPECIFIC ATTENTION WAS IN VITED TO PAGE 3 OF THE APPELLANT BY SHRI AKSHAY KUMAR GUPTA, C.A. RESPONDENT BY S HRI C. K. SINGH, D.R. DATE OF HEARING 07/12/2018 DATE OF PRONOUNCEMENT 13/12/2018 I.T.A. NO.167/LKW/2018 ASSESSMENT YEAR:2014-15 2 PAPER BOOK WHERE THE RATE OF INTEREST CHARGED FROM THE ASSESSEE BY BANK OF BARODA WAS 13.25% ON MONTHLY RESTS. LEARNED A. R. S UBMITTED THAT THIS LOAN WAS A SECURED LOAN FOR WHICH A MARGIN OF 20% W AS ALSO PAID AND, THEREFORE, IF THE APPLICATION OF INTEREST WITH QUAR TERLY RATE IS APPLIED THE RATE WILL COME OUT TO BE ABOUT 16% ONLY AND, THEREFORE, THE MARKET RATE FOR BORROWING WAS 16% AND THERE WAS NO EXCESSIVE INTERE ST. REGARDING OBSERVATION OF ASSESSING AUTHORITY THAT TO OTHER PA RTY INTEREST HAS BEEN PAID @12%, LEARNED A. R. SUBMITTED THAT THOSE WERE THE O LD UNSECURED LOAN HOLDERS WHEREAS THIS WAS THE FIRST YEAR OF BORROWIN G FROM THE PARTIES. IT WAS FURTHER SUBMITTED THAT IN THE SUBSEQUENT YEAR T HE SIMILAR DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER AND LEARNED CIT(A ) HAD DELETED THE SAME ON SIMILAR SUBMISSIONS. OUR ATTENTION WAS INV ITED TO PAGES 9 TO 14 OF THE PAPER BOOK WHERE THE ORDER OF LEARNED CIT(A) WA S PLACED. 3. LEARNED D. R., ON THE OTHER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 4. I HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THR OUGH THE MATERIAL PLACED ON RECORD. I FIND THAT THE ASSESSING OFFICER HAD NOT ACCEPTED ARGUMENTS OF THE ASSESSEE THAT THE ASSESSEE WAS PAY ING INTEREST TO BANK @13.25% PER ANNUM WITH MONTHLY REST AS HE HELD THAT THE LETTER OF BANK OF BARODA AND OTHER DOCUMENTS SUBMITTED BY THE ASSESSE E WERE RELATED TO FINANCIAL YEAR 2014-15 WHEREAS THE CASE RELATED TO FINANCIAL YEAR 2013-14. HOWEVER, THIS FINDING OF ASSESSING OFFICER IS OF LI TTLE VALUE AS THE FINANCIAL YEAR OF THE ASSESSEE CLOSED ON 31/03/2014 AND THE L ETTER OF BANK PLACED AT PAGE 2 OF THE PAPER BOOK ONWARDS IS DATED 15/04/201 4. THERE IS NO SIGNIFICANT DIFFERENCE BETWEEN 31/03/2014 AND 15/04 /2014 AND RATE OF INTEREST CHARGED BY BANKS DO NOT VARY VERY SIGNIFIC ANTLY FROM MONTH TO MONTH AND EVEN IF IT IS ASSUMED THAT IN EARLIER YEA R THERE WAS LOWER INTEREST I.T.A. NO.167/LKW/2018 ASSESSMENT YEAR:2014-15 3 RATE CHARGED BY THE BANK, THE DIFFERENCE CANNOT BE MORE THAN 0.25% TO %. I FURTHER FIND THAT DURING SUCCEEDING YEAR, UN DER SIMILAR FACTS AND CIRCUMSTANCES, THE LEARNED CIT(A) HAS HIMSELF GIVEN RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: I HAVE GONE THROUGH THE FACTS AND THE WRITTEN SUBM ISSIONS FILED ALONG WITH THE DETAILS FILED ENCLOSE THEREIN. THERE IS NO DISPUTE THAT THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSES OF BUSINESS. IT IS ALSO AN ADMITTED FACT THAT THE A CCOUNTS HAVE BEEN TAX AUDITED AND THE AUDITORS HAVE NOT GIVEN AN Y ADVERSE CONSENTS. IT IS ALSO CLEAR THAT THE ASSESSEE HAD FI LED THAT THE DETAILS OF THE INTEREST PAID TO VARIOUS PERSONS, AN D THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE DETAILS FILED. THE AO HAS FAILED TO BRING ANY MATERIAL ON RECORD TO DEMON STRATE THAT THE INTEREST PAID IS EXCESSIVE AS COMPARED TO MARKE T VALUE. AO HAS NOT BROUGHT ON RECORD THE FAIR MARKET VALUE (RA TE) OF THE INTEREST ON UNSECURED LOAN PREVAILING IN THE MARKET . AO MADE ADDITION FOR THE REASON THAT THE INTEREST PAID BY A PPELLANT TO NON-SPECIFIED PERSONS IS LESS BUT WHY IT IS EXCESSI VE TO SPECIFIED PERSONS IS NOT PROVED BY AO, HAVING REGARD TO PREVA ILING MARKET RATE. APPELLANT HAS PRODUCED SANCTION ADVICE OF BAN KERS WHO CHARGE INTEREST @ 13.25% ON SECURED LOANS WITH MARG INS, GUARANTEES AND PROCESSING FEES AND CHARGES ETC. THI S AMOUNTS TO MORE THAN 15% PER ANNUM. IT IS A MARKET NORM THA T INTEREST ON UNSECURED LOAN IS ALWAYS HIGHER THAN THE BANK BO RROWINGS. PROVISION OF SEC-40A(2)(A) OF THE INCOME TAX ACT, 1 961 APPLIES TO THE EXPENDITURES WHICH ARE EXCESSIVE OR UNREASON ABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVI CES OR FACILITIES FOR WHICH THE PAYMENT IS MADE TO SPECIFI ED PERSONS. THEREFORE, THE RATE OF INTEREST OF 14% PAID BY APPE LLANT IS NOT AT ALL EXCESSIVE OR MORE THAN MARKET RATE. MERE STA TEMENT THAT PAYMENT OF INTEREST @ 14% TO THE PERSONS COVERED U/ S 40A(2)(B) OF THE ACT IS MORE THAN 12% TO OTHERS FRO M WHOM UNSECURED LOANS WERE ALSO TAKEN, WOULD NOT BE SUFFI CIENT ENOUGH TO CALL FOR ANY ADDITION. THE APPELLANT IS A PRIVATE LIMITED COMPANY AND COMPLETE RECORDS HAVE BEEN MAIN TAINED AS CERTIFIED BY THE AUDITOR. NO DISALLOWANCE CAN BE MADE ON CONJECTURE. I.T.A. NO.167/LKW/2018 ASSESSMENT YEAR:2014-15 4 IN VIEW OF THE ABOVE, WE REVERSE THE ORDER OF LEARN ED CIT(A) AND ALLOW THIS GROUND OF APPEAL. 4.1 SINCE WE HAVE DECIDED GROUND NO. 1 IN FAVOUR OF THE ASSESSEE, WE ARE NOT DECIDING GROUND NO. 2 WHICH HAS BECOME INFRUCTU OUS IN VIEW OF THE DECISION OF GROUND NO. 1. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 13/12/2018) SD/. ( T. S. KAPOOR ) ACCOUNTANT MEMBER DATED:13/12/2018 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW