ITO, Ward - 9(2), Kolkata, Kolkata V. Emami Chisel Art Pvt. Ltd., Kolkata

ITA 1702/KOL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4942 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2013
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 12-12-2011
• Court: TRIBUNAL
• Department Lawyers: P K CHAKRABORTY LD JCIT LD
• Assessee Lawyers: DEV KUMAR KOTHARI CAFCA LD
• Section: 143(3)

Judgement Text

, B , , INCOME TAX APPELLATE TRIBUNAL, BENCH- B KOLK ATA ( ) BEFORE . , SHRI R.C. SHARMA, ACCOUNTANT MEMBER !' /AND #$ '# , SHRI MAHAVIR SINGH, JUDICIAL MEMBER '% / ITA NO. 1702/KOL/2011 A.Y 2008-09 I.T.O WARD 9(2), KOLKATA - !' - - VERSUS -. M/S. EMAMI CHISEL ART PVT. LTD PAN: AABCE7989G ( () / APPELLANT ) ( *+() / RESPONDENT ) () /FOR THE APPELLANT /S/SHRI P.K. CHAKRABORTY, LD. JCIT, LD. SR.DR *+() / FOR THE RESPONDENT: / SHRI DEV KUMAR KOTHARI, CA,FCA, LD.AR -'!. / 0 /DATE OF HEARING : 02-12--2013 12 / 0 /DATE OF PRONOUNCEMENT:02-12-2013 / ORDER . , SHRI R.C. SHARMA, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER PASSED BY THE LD. CIT(A), DATED 18/10/2011 FOR THE ASSESSMENT YEAR 2008-09, IN THE MATTER OF ORDER PASSED U/S. 143(3) OF THE I.T ACT 1961. 2. FOLLOWING FOUR GROUNDS HAVE BEEN TAKEN BY THE RE VENUE:- 1. THAT THE LD.CIT(A) ERRED IN LAW AND IN FACT IN D ELETING THE ADDITION OF RS.1,78,00,000/- MADE ON ACCOUNT OF DIS ALLOWANCE OF LOSS OF THE SAME AMOUNT ON SALE OF PAINTINGS TO M/S EMAMI FRANK ROSS LTD. 2. THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN LAW AND IN FACT IN DELETING THE ADDITION OF RS. L8,93,568/- MADE ON ACCOUNT OF EXCESS INTEREST PAID ON UNSECURED LOAN BY INVOKING THE PROVISIONS O F SECTION 40A(2)(B) OF THE ACT. ITA NO. 1702/KOL/2011-B-AM 2 3. THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN FAILING TO APPRECIATE THE FACTS AND EVIDENCES BROUGHT ON RECORD BY THE AO THA T LOSS OF RS. 1.78 CRORE WAS A MAKE- BELIEVE AND STAGE-MANAGED AR RANGEMENT THROUGH A COLOURABLE DEVICE, PREMEDITATEDLY DESIGNE D BY THE ASSESSEE WITH A DUBIOUS MOTIVE OF ARRANGING A FAKE OR UNREAL LOSS SO THAT THE ASSESSEE GETS AWAY WITH NON-PAYMENT OF TAXES WHICH ARE LEGALLY DUE ON ITS PROFIT EARNED. 4. THAT THE LD.CIT(A) WAS NOT CORRECT IN HOLDING TH AT DISALLOWANCE OF RS.18,93,568/- ON ACCOUNT OF EXCESS INTEREST PAI D IS NOT BASED ON ANY TANGIBLE EVIDENCE, DESPITE THE FACT THAT PROVIS ION OF SECTION 40A(2)(B) OF THE ACT IS CLEARLY APPLICABLE IN THIS CASE. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND PERUSED THE RECORD. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADIN G IN ART WORKS LIKE PAINTINGS, ARCHIVES, SCULPTORS ETC. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD CLAIMED LOSS OF RS.1,78,00,000/- ON ACCOUNT OF ART WORKS SOLD THROU GH AUCTION TO M/S. EMAMI FRANK ROSS LTD. [M/S. FRL] IN THE COURSE OF SCRUTINY ASSE SSMENT, THE AO OBSERVED THAT M/S. EMAMI FRANK ROSS LTD. IS CLOSELY A HOLDING COMPANY OF THE ASSESSEE UNDER THE SAME MANAGEMENT. THE ASSESSEE WAS ABLE TO FABRICATE A DE VICE TO CREATE THE LOSS OF RS.1,78,00,000/- WITH M/S. EMAMI FRANK ROSS LTD W ITH AN INTENTION TO EVADE THE TAX LIABILITY, WHICH ARE LEGALLY DUE ON ITS PROFIT EA RNED FROM SALE OF ART WORKS. THE AO ALSO FOUND THAT THE ASSESSEE HAD TAKEN UNSECURED LO AN FROM FOUR COMPANIES AT AN AVERAGE RATE OF INTEREST @14.5%. BY OBSERVING THAT UNSECURED LOANS WERE TAKEN FROM MAJOR SHARE HOLDERS OF THE ASSESSEE COMPANY HAVING SUBSTANTIAL INTEREST OF THE ASSESSEE, BY INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE ACT, THE AO DISALLOWED THE INTEREST PAID OF RS.18,93,568/- WHICH IN EXCESS OF @12% . 4. VIDE THE IMPUGNED ORDER THE LD.CIT(A) HAS DELETE D THE DISALLOWANCE OF RS.1,78,00,000/- AFTER HAVING THE FOLLOWING OBSERVA TIONS :- THESE GROUNDS OF APPEAL IS DIRECTED AGAINST THE ACT ION OF THE AO IN DISALLOWING THE LOSS OF RS.1,78,00,000/- ON ACCO UNT OF SALE OF SOME OF PAINTINGS TO FRL. IN RELATION TO THESE GROUNDS OF APPEAL, THE APPELLANT HAS FILED A DETAILED WRITTEN SUBMISSION AS ABOVE. APPELLANT HAS ALSO FILED COPY OF SHOW CAUSE NOTICE (SCN) ISSUED BY THE AO AND REPLY THERETO FILED BY THE APPELLANT AND OTHER DOCUMENTS AND EVIDENCES ALL OF ITA NO. 1702/KOL/2011-B-AM 3 WHICH HAVE ALSO BEEN FILED BEFORE THE AO. DURING TH E COURSE OF HEARING TO MAKE FURTHER ENQUIRIES APPELLANT WAS ASKED TO FURNISH SOME MORE DOCUMENTS AND INFORMATION, WHICH HAVE BEEN FILED AN D AS ADVISED, THE APPELLANT HAS ALSO FORWARDED A COPY OF THE SAME TO THE AO. AO WAS GIVEN OPPORTUNITY OF HEARING BY ISSUE OF NOTICE AND ALSO BY SPECIFIC LETTER TO OFFER HIS COMMENTS ON FURTHER DOCUMENTS F ILED BY THE APPELLANT AND TO MAKE HIS REPRESENTATIONS BY 12.10.11 AND TH E CASE WAS FIXED ON 14.10.11 BUT NEITHER ANY WRITTEN SUBMISSION HAS BE EN SENT NOR THE LEARNED AO HAS MADE APPEARANCE TILL THE NEXT AND FI NAL HEARING ON 18.10.11 I HAVE CAREFULLY PERUSED THE SHOW CAUSE NOTICE ISSU ED BY THE AO TO APPELLANT, THE REPLY FILED BY APPELLANT BEFORE T HE AO AND OTHER EXPLANATIONS, EVIDENCES FILED BEFORE THE AO, THE AS SESSMENT ORDER, AND EXPLANATIONS AND EVIDENCES FILED BEFORE ME. ON PER USAL OF THE SAME, I NOTICE THAT THE AO HAS IGNORED VARIOUS VITAL ASPECT S OF BUSINESS OF APPELLANT. AS RIGHTLY POINTED OUT IN GROUNDS OF AP PEAL. AO HAS NOT AT ALL ADDRESSED TO VARIOUS VITAL FACTS AND CONTENTIO NS MADE BY APPELLANT BEFORE HIM. I ALSO FIND THAT THE AO HAS ACTED UPON SOME APPREHENSIONS AND NOT ON FACTS. FROM VARIOUS STATEMENTS MADE IN T HE ASSESSMENT ORDER IT IS SEEN THAT IT IS NOT BASED ON ACTUAL F ACTS OF THE CASE BUT IS BASED ON SEVERAL INFERENCES WHICH CAN POSSIBLY BE D RAWN. IT IS NOTICED THAT THE AO HAS IGNORED VARIOUS BUSIN ESS ASPECTS OF APPELLANT THAT THIS WAS FIRST YEAR OF BUSINESS, THE BUSINESS WAS NEW FOR APPELLANT, THE BUSINESS OF PAINTINGS AND OTHER ART FACT ETC. IS A HIGH RISK BUSINESS, THIS IS REASON THAT BANKS AND NBFC A RE NOT ALLOWED TO FINANCE AGAINST STOCK OF PAINTINGS ETC., THE APPELL ANT HAS ACCUMULATED LARGE STOCK-IN-TRADE AND IN VIEW OF HIGH BORROWINGS , APPRECIATION IN SOME OF STOCKS AND ALSO FALLING VALUE OF SOME OTHER STOCKS IT DECIDED TO SELL SOME OF STOCK-IN-TRADE TO REALIZE PROFIT AND T O CUT FURTHER LOSSES IN CASE OF PAINTINGS WHICH WERE FALLING IN DEMAND AND VALUE ETC. ALL SALES WERE THROUGH PUBLIC AUCTION WHICH WAS WELL ADVERTI SED AND WELL ATTENDED AND THE AUCTION WAS OPEN TO WORLD AT LARGE AS IT WAS OPEN FOR ONLINE BIDDING THROUGH PHONES AND WEBSITE. FURTHERM ORE, IN THE SAME AUCTION CONDUCTED BY APPELLANT NOT ONLY ITS OWN STO CK BUT ALSO PAINTINGS OF OTHER PARTIES RECEIVED ON CONSIGNMENT BASIS WERE AUCTIONED. DETAILS AS TAKEN FROM WEBSITE ABOUT RESERVED PRICE AND HIG HEST PRICE AT WHICH PAINTINGS WERE SOLD WERE ALSO FURNISHED. REGARDING RELAXATION ALLOWED IN THE MATTER OF PAYME NT BY MANY PURCHASERS OF PAINTINGS, IT IS BROUGHT TO THE NOTIC E THAT THE AUCTION CONDUCTED WAS THE FIRST AND ONLY AUCTION IN THE PRE VIOUS YEAR AND THAT IN CASE OF HIGH VALUE SALE SOME RELAXATION IS NECES SARY TO BE ALLOWED AND IT WAS ALLOWED TO VARIOUS PARTIES INCLUDING M/S . EMAMI FRANK ROSS ITA NO. 1702/KOL/2011-B-AM 4 P. LTD. (FRL). FURTHERMORE, APPARENTLY TIME ALLOWED TO APPELLANT COMPANY FOR EXPLAINING THE MATTERS COVERED IN SCN W AS VERY SHORT. AS REGARDS DISALLOWANCE OF LOSS OF RS. 178 LAKH, (A GITATED VIDE ORIGINAL GROUNDS NO. 2 ARID 3 AND CONCISE GROUND NO . 2) WHICH APPELLANT SUFFERED IN SOME OF PAINTINGS SOLD TO FRL . IT IS APPARENTLY OBSERVED THAT THE AO HAS DISALLOWED THE LOSS WITHOU T PROPER UNDERSTANDING OF BUSINESS ASPECTS AND WITH A BIASED MIND BY SHEER SURMISE AND CONJECTURE AS RIGHTLY POINTED OUT BY TH E APPELLANT IN GROUNDS OF APPEAL AND WRITTEN SUBMISSION. THE AO H AS NOT BROUGHT ANY EVIDENCE THAT THE MARKET PRICE OF THOSE PAINTINGS W AS HIGHER THAN THE PRICE AT WHICH THOSE PAINTINGS WERE SOLD TO THE HIG HEST BIDDER (FRL) OR THAT THE APPELLANT EARNED ANY CONSIDERATION OVER AN D ABOVE DISCLOSED IN ITS ACCOUNTS. THE A/R HAS SHOWN THAT THE RESERVED PRICE OF ALL IT EMS ON BLOCK FOR SALE INCLUDING OWN STOCK AND PAINTINGS OF OTHER P ARTIES (CONSIGNMENT SALE) MANY ITEMS IN WHICH CASE RESERVE PRICE WAS LO WER THAN COST, WAS DISPLAYED IN PHYSICAL AND ELECTRONIC CATALOGUES WHI CH WERE WELL CIRCULATED WELL IN ADVANCE FROM THE DATE OF AUCTION . THE AUCTION WAS WELL ADVERTISED AND ALSO ATTENDED BY INTERESTED PAR TIES. SINCE THERE WERE NO OTHER BIDDERS EVEN AT SUCH LOW PRICE, IS CL EAR ENOUGH TO SHOW THAT THE PRICE OF THOSE PAINTINGS WAS INDEED LOWER DUE TO FALLING POPULARITY OR OTHER REASONS. THEREFORE, TO BOOK A L OSS IT WAS NOT AT ALL NECESSARY TO SELL THEM AT LOSS AND APPELLANT COULD HAVE BOOKED EVEN HIGHER LOSS SIMPLY BY VALUING STOCK-IN-TRADE OF SUC H ITEMS AT MARKET VALUE WHICH WAS LOWER THAN COST. IN VIEW OF THESE F ACTS, IN MY OPINION ANY DOUBT CANNOT BE RAISED THAT APPELLANT KEPT THE RESERVED PRICE INTENTIONALLY LOW TO BOOK LOSS AS ALLEGED BY THE AO . THE INFERENCE DRAWN BY THE AO IS CONTRARY TO FACTS AND CIRCUMSTAN CES OF THE CASE. I FIND THAT THE AO HIMSELF HAS NOTED AT PAGE 2 OF A SSESSMENT ORDER THAT THERE IS SUBSTANTIAL PROFIT EARNED IN OT HER PAINTINGS SOLD TO THE SAME PURCHASE PARTY FRL AND THE AO HAS ASSESSED THE PROFIT OF RS.2.21 CR EARNED IN SALE TO THE VERY SAME PARTY. T HE A/R HAS RIGHTLY POINTED OUT THAT HAD THERE BEEN INTENTION NOT TO PA Y TAX, APPELLANT COULD HAVE DEFERRED THE SALE ON PAINTINGS IN WHICH PROFIT OF RS.2 .21 CRORE WAS EARNED BY SELLING TO SAME PARTY (FRL). THE APPE LLANT COULD HAVE CANCELLED THOSE SALES ALSO IF IT WAS POSSIBLE, AS A PPREHENDED BY THE AO. THE MAIN GROUND AND REASON OF LEARNED AO IN ACTION OF DISALLOWING LOSS OF RS. 1.78 CRORE IS THAT IN HIS VIEW THE APPE LLANT ADOPTED A DEVICE TO AVOID TAX AND THEREFORE HE APPLIED MCDOWELLS CAS E REPORTED AT 154 ITR 148(SC) AND DISALLOWED THE LOSS OF RS.1.78 CROR E. IT IS ALSO SEEN THAT THE SALE OF PAINTINGS HAVE ACT UALLY TAKEN PLACE, PROPERTY IN PAINTINGS SOLD AT PROFIT OR AT LOSS HAS BEEN TRANSFERRED IN FAVOUR OF BUYERS, PAYMENTS HAVE ALSO BEEN REALIZED BY A/C PAYEE ITA NO. 1702/KOL/2011-B-AM 5 CHEQUES. THOUGH SOME PAYMENTS WERE WITH SOME DELAY BUT ALL PAYMENTS HAVE BEEN REALIZED. THE SALE WAS TO HIGHEST BIDDER, THE RESERVED PRICES (LESS OR MORE THAN COST AS THE CASE MAY BE) WERE WE LL ADVERTISED AND CIRCULATED, AND AUCTION WAS OPEN TO PUBLIC AT LARGE THROUGH ATTENDANCE AND ALSO THROUGH WEBSITE. IT IS CLEAR THAT THE PURP OSE OF SELLING SOME OF OWN STOCK WAS TO REDUCE HUGE INVENTORY, REDUCE INTE REST BURDEN, BOOK PROFIT IN CASE OF APPRECIATED ITEMS AND TO CUT LOSS IN CASE OF ITEMS FALLING IN VALUATION BECAUSE PRICE MAY FALL FURTHER IN SUCH ITEMS. IT IS ALSO CLEAR THAT FOR BOOKING A LOSS IT WAS NOT NECESSARY FOR APPELLANT TO SELL THE PAINTINGS AT LOSS. ONCE IT IS FOUND THAT RESERVED PRICE WAS LESS THAN COST, AND AT THAT LOW PRICE ALS O THERE WERE NOT MANY INTERESTED PARTIES, CLEARLY SHOWS THAT THE PRICE OF THOSE PAINTINGS WAS LOWER, THEREFORE, APPELLANT COULD HAVE BOOKED LOSS BY VALUING STOCK AT MARKET VALUE WHICHEVER WAS LOWER THAN COST. BESIDES APPELLANT COULD HAVE DEFERRED SALE OF PAINTINGS TO HIGHEST BIDDER ( FRL) IN WHICH IT EARNED PROFIT OF RS.2.21 CRORE IN SOME CASES PRICE REALIZED WAS MUCH MORE THAN RESERVED PRICE BECAUSE OF INTEREST OF BUY ERS IN THOSE PAINTINGS. THEREFORE, APPARENTLY IT IS NOT A CASE OF TAX PLANN ING OR TAX AVOIDANCE BY SELLING SOME PAINTINGS AT LOSS AS ALLE GED BY THE AO. IT HAS ALSO BEEN BROUGHT ON RECORD THAT THE PURCHASER FRL IS NOT A PERSON COVERED BY SECTION 40A (2) (B). EVEN IF IT IS AN AS SOCIATE CONCERN HAVING SOME COMMON SHAREHOLDERS OR DIRECTORS OR BY HAVING A COMMON PART OF ITS NAME EMAMI, GENUINE TRANSACTIONS BETWEE N ASSOCIATES OR RELATED PARTIES AT MARKET PRICE DETERMINED IN OPEN AUCTION, CANNOT BE DISREGARDED MERELY BECAUSE IN SOME TRANSACTIONS THE RE IS LOSS. PIECEMEAL APPROACH ADOPTED BY THE AO IN ACCEPTING A ND ASSESSING PROFIT TRANSACTIONS AND DISREGARDING LOSS TRANSACTI ONS CANNOT BE ADOPTED TO ASSESS TOTAL INCOME. AS NOTICED EARLIER AND AS ARGUED BY THE APPELLANT, THERE IS NO CASE OF TAX PLANNING AS ALLEGED BY THE AO, HOWEVER, EVEN IF THERE BE SOME ELEMENT OF TAX PLANNING IT IS ACCEPTABLE AS TH E TRANSACTIONS ARE GENUINE. THE A/R HAS FILED COPY OF JUDGMENTS IN CAS ES (A) EVEREADY INDUSTRIES INDIA LTD. VERSUS CIT [2011] 334 ITR 413 (CAL.) AND (B) CIT V. M/S PIVET FINANCE LTD. 2010 -TMI 77068-(P&H) I N WHICH IT HAS BEEN HELD THAT LOSS SUFFERED IN GENUINE TRANSACTION S CANNOT BE DISALLOWED EVEN IF IT RESULTS IN REDUCTION OF TAX LIABILITY. IN VIEW OF THE ABOVE AND KEEPING IN VIEW THE TOTALI TY OF FACTS AND CIRCUMSTANCES THE LOSS OF RS.1,78,00,000/- IS HELD TO BE ALLOWABLE AND THE ADDITION MADE BY THE AO IS DELETED. ITA NO. 1702/KOL/2011-B-AM 6 5. THE LD.CIT(A) HAS ALSO DELETED THE DISALLOWANC E OF INTEREST OF RS.18,93,568/- BY INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE I. T ACT 1961 AFTER HAVING FOLLOWING OBSERVATIONS:- AO HAS APPLIED S. 40A(2)(B) AND DISALLOWED INTERES T PAID IN EXCESS OF RATE ABOVE 12% P.A. AO HAS STATED THAT MA RKET RATE OF INTEREST WAS 9-12% BUT HE HAS NOT GIVEN ANY BASIS F OR THE SAME. AO HAS NOT BROUGHT ANY MATERIAL TO SHOW THAT THE APPEL LANT COULD HAVE OBTAINED LOANS AT INTEREST RATE OF 12% P.A. IN THE GIVEN CIRCUMSTANCES. ON THE OTHER HAND A/R SUBMITTED THAT ANY PARTY IS N OT A PERSON SPECIFIED IN S. 40A (2) (B) AS APPEARS FROM DETAILS OF SHAREHOLDERS OF COMPANY. ALL LOANS WERE UNSECURED AND UN GUARANTEED LOANS, THE RATE OF INTEREST OF 14- 15% WAS REASONABLE RATE IN VIEW OF HIGH RISK BUSINESS OF ASSESSEE AND THE FACT THAT BANKS AND NB FC CANNOT LEND MONEY AGAINST PAINTINGS ETC. AS THEY ARE NOT APPROV ED SECURITIES. THE A/R HAS ALSO FILED CERTAIN LOAN DOCUMENTS IN CASE O F OTHER OLD ESTABLISHED CONCERNS AS FOLLOWS: 1. HSBC TO FRANK ROSS LIMITED- 15.50% ON OVERDRAFT PAYABLE MONTHLY (DT.03. 11.07) 2. YES BANK TO EMAMI RETAIL P. LTD PLR 15.50% - 2.2 5% RATE OF INTEREST CHARGED 13.25% ON MONTHLY REST.( DT. 04.07 .08). 3. ILFS TO SURAJ VINIYOG P. LTD 14.50% PAYABLE MONT HLY. (DT. 26.07.07) 4. ILFS TO SURAJ VINIYOG P. LTD ROLLOVER SHORT TERM LOAN 14.5% (DT.06.11.07) 5. ILFS TO PAN EMAMI COSMED LTD 14.5% (DT.06.11.07) 6. BIRLA GLOBAL FINANCE LTD TO PAN EMAMI COSMED LTD 15.85% (PERIOD 11-31 MARCH 08) 7. A CHART RECEIVED FROM YES BANK SHOWING MOVEMENT OF PRIME LENDING RATE ALSO SHOW THAT DURING 2007-08 PLR WAS 14.75-15.50%. ALL THESE SHOWS THAT PREVAILING MARKET RATE OF IN TEREST ON SECURED AND GUARANTEED LOANS TAKEN BY SOME WELL ES TABLISHED OLD COMPANIES OF VERY LARGE SIZE WAS IN RANGE OF 13.25% TO 15.50%. PRIME LENDING RATE (PLR) OF BANKS WAS ALSO IN RANGE OF 14 .75-15.50% DURING THE PREVIOUS YEAR. THE DOCUMENTS IN RESPECT OF THE ABOVE LOAN TRANSACTIONS OF OTHER PARTIES WERE ALSO SUBMITTED T O THE AO AND HE WAS GIVEN AN OPPORTUNITY. HOWEVER, AO HAS NOT SENT ANY COMMENTS OR OBJECTIONS. DURING HEARING THE LEARNED A/R ALSO STATED THAT I N CASE OF UNSECURED AND UNGUARANTEED LOANS THE RATE OF INTER EST IS USUALLY PLR + 2 TO 4% AND SUCH LOANS ARE GRANTED BY BANKS FOR V ERY SMALL AMOUNT ITA NO. 1702/KOL/2011-B-AM 7 AS PERSONAL LOANS AGAINST SECURITY OF POST DATED CH EQUES AND REPAYABLE IN EMI. THUS, RATE OF INTEREST FOR UNSECURED AND UN GUARANTEED LOANS FROM BANK WAS IN RANGE OF 17-19% PAYABLE MONTHLY IN EMI. IN VIEW OF THE TOTALITY OF FACTS AND PARTICULARLY CONSIDERING THAT LOANS WERE UNSECURED AND UNGUARANTEED LOANS, I AM OF THE VIEW THAT THE AO WAS NOT JUSTIFIED TO ASSUME REASONABLE RATE OF INTEREST @12% AND IN DISALLOWING INTEREST PAID ABOVE 12%. TH E AO HAS NOT BROUGHT ANYTHING ON RECORD TO SUGGEST THAT THERE WE RE WILLING MONEY LENDERS WHO COULD LEND CAPITAL @ 12% TO THE APPEL LANT OR THAT APPELLANT COULD HAVE BORROWED CAPITAL @12%. THERE FORE, DISALLOWANCE OF RS.18,93,568/- IS NOT BASED ON ANY TANGIBLE EVIDENCE AND IS DIRECTED TO BE DELETED. 6 AGAINST THE ABOVE ORDER OF THE LD.CIT(A), THE REV ENUE IS IN FURTHER APPEAL BEFORE US 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, GONE T HROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT AS SESSEE WAS ENGAGED IN THE BUSINESS OF SALE OF ART WORKS/PAINTINGS. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AO FOUND THAT IN RESPECT OF SOME TRANSACTIONS THE ASSESSEE HAS BOOKED A LOSS OF RS.1,78,00,000/- ON ACCOUNT OF ART WORKS SOLD TO M/S. EMAMI FRANT R OSS P. LTD THROUGH AUCTION SALE ON 23-02-2010. THE AO FURTHER OBSERVED THAT THE ASSES SEE HAS FILED DETAILS OF TRANSACTION WITH M/S. EMAMI FRANT ROSS LTD. BY OBSERVING THAT SOME OF THE SHAREHOLDERS OF M/S. EMAMI FRANT ROSS LTD ARE COMMON TO THE SHAREHOLDE RS OF THE ASSESSEE COMPANY, THE AO DISBELIEVED THE LOSS INCURRED IN RESPECT OF SAL E OF SOME OF THE PAINTINGS TO M/S. EMAMI FRANT ROSS LTD. THE LD. CIT(A) HAS DELETED T HE SAME AFTER OBSERVING THAT THE ASSESSEE HAS EARNED PROFIT IN RESPECT OF PAINTINGS SOLD TO VERY SAME PURCHASERS AMOUNTING TO RS.2.21 CRORES. THUS, THERE WAS NO JU STIFICATION FOR DISREGARDING THE LOSS INCURRED IN RESPECT OF PAINTINGS SOLD TO THE VERY SAME PARTY, WHEREIN ASSESSEE HAS SUFFERED A LOSS OF RS. 1.78 CRORE. THE LD. CIT(A) AFTER RECORDING THE DETAILED FINDING AT PARA 5.2 AS REPRODUCED ABOVE, OBSERVED THAT ASSESS EE HAS ENTERED INTO GENUINE TRANSACTION FOR WHICH THERE WAS OPEN AUCTION, IN RE SPECT OF SOME OF THE TRANSACTIONS THE ASSESSEE HAS SUFFERED A LOSS, WHEREAS IN SOME OTHE R TRANSACTIONS WITH THE VERY SAME PARTY THE ASSESSEE HAS EARNED HIGHER PROFIT THAN W HAT WAS SUFFERED. FROM THE RECORD, ITA NO. 1702/KOL/2011-B-AM 8 WE FIND THAT PAINTING SO SOLD WAS CONSTITUTING AS SESSEES STOCK-IN-TRADE, HAD THE ASSESSEE ANY INTENTION TO EVADE ANY TAX, THE ASSES SEE COULD HAVE VALUED STOCK AT COST PRICE OR MARKET PRICE, WHICHEVER IS LOWER. THUS, THE ALLEGATION OF THE AO THAT ASSESSEE ARTIFICIALLY BOOKED THE LOSS HAS NO BASIS. AT THE VERY SAME TIME, WE FIND THAT THE ASSESSEE HAS SOLD SOME OF THE PAINTINGS TO THE VERY SAME PARTY AT PROFIT OF RS. 2.21 CRORES, WHICH WAS MORE THAN THE LOSS SUFFERED BY TH E ASSESSEE IN RESPECT OF SALE OF OTHER PAINTINGS TO THE VERY SAME PARTY, WHICH WAS DISBELI EVED BY THE AO. HAD THE ASSESSEE ANY INTENTION TO REDUCE ITS PROFIT OR TO EVADE ANY TAX, HE COULD HAVE EASILY MANAGED TO SHOW MARGINAL PROFIT IN RESPECT OF TRANSACTION WITH THE VERY SAME PARTY AND COULD HAVE EASILY COME OUT FROM THE DOUBTS RAISED BY THE AO BY SHOWING NET PROFIT OF RS. 43.19 LAKH (RS..2.21 CRORES PROFIT RS.1.78 CRORE LOSS), WHICH IT ACTUALLY EARNED FROM SALE OF PAINTINGS TO THE VERY SAME PARTY I.E. M/S. EMAMI F RANT ROSS LTD. THE DETAILED FINDINGS RECORDED BY THE LD.CIT(A) AS REPRODUCED ABOVE HAV E NOT BEEN CONTROVERTED BY THE LD.DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD, ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) IN DELETING THE LOSS. ACCORDINGLY, WE UPHOLD THE LOSS. 8. WITH RESPECT TO DISALLOWANCE OF INTEREST PAID IN EXCESS OF @ 12% U/S. 40A(2)(B) OF THE I.T ACT 1961, WE FIND THAT PREVAILING MARKET RATE OF INTEREST EVEN IN RESPECT OF SECURED LOAN WAS @12% AND IN RESPECT OF UNSECURED AND UNGUARATEEED LOAN THE RATE OF INTEREST WAS RANGING FROM 15-18%. SINCE THE LOAN TAKEN BY THE ASSESSEE WAS UNSECURED, THE RATE OF INTEREST PAID BY THE ASSESSE E WAS VERY MUCH REASONABLE. THE DETAILED FINDING HAS BEEN RECORDED BY THE LD.CIT(A) AT PARA 5.3 FOR COMING TO THE CONCLUSION THAT THE RATE OF INTEREST PAID BY THE AS SESSEE WAS REASONABLE AND NO DISALLOWANCE IS WARRANTED U/S. 40A(2)(B) OF THE ACT . THE FINDINGS SO RECORDED BY THE LD.CIT(A) AS REPRODUCED ABOVE, HAVE NOT BEEN CONTRO VERTED BY THE LD.DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY, WE D O NOT SEE ANY REASON TO INTERFERE WITH THE FINDING OF THE LD.CIT(A), WHICH IS AS PER MATERIAL ON RECORD. ITA NO. 1702/KOL/2011-B-AM 9 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT 02-12 -2013 SD/- SD/- ** PRADIP SPS / *3 4325 / COPY OF THE ORDER FORWARDED TO: 1. . () / THE APPELLANT : I.T.O WARD 9(2) KOL, AAYKAR BHA VAN, 5 TH FL., KOL- 69 2 *+() / THE RESPONDENT- M/S. EMAMI CHISEL ART (P) LTD, EMAMI TOWER, 687 E.M BYE PASS, ANANDAPUR, KOLKATA-700107. 3 4. . ' / THE CIT, ' ( )/ THE CIT(A) 5 . !67 *' / DR, KOLKATA BENCH 6 . GUARD FILE . +3 */ TRUE COPY, '-/ BY ORDER, # '8 /ASSTT REGISTRAR ( #$ '# , ) ( MAHAVIR SINGH, JUDICIAL MEMBER) ( . , ) ( R.C. SHARMA, ACCOUNTANT MEMBER ( (( ( 0 0 0 0 ) )) ) DATE 02-12-2013